The Stock Market Is Already Pricing In A Democratic Sweep

yeah wow i've actually i've got five friends from london who are visiting for the weekend so i've got to go take them out have a good time oh wow what are you gonna do with them we're gonna go we're gonna have dinner and then we're gonna go to our to one of my friends whose uh party is having a big halloween party it's gonna go all night um so we'll do that and then i think they want to do like a pub crawl on saturday which i'm probably not going to join them for because it sounds terrible um and and then i'm heading off to london to join the mooch and caddy k for midterm elections for the for their live stream for the rest is politics so i leave on saturday night which is a shame i'm still stuck on the notion that you have five friends um i kind of had this sneaky suspicion that you're the vivek ramaswani of whatever high school you went to like super smart and everyone hates you. Is that not right? Is that not accurate? Wow. Is that not accurate?

I don't think so. Is that unfair? Maybe we'll take a poll, see what they think. That's going to be great. You're going to show them a great time. I hope so. I think we're going to have a good time. More importantly, what are you going as? It's always an important question. Oh God. I had real trouble with the costume last night. I got a great costume, Larry David. It looked impeccable. It was hilarious. Do you have like the hair? Are you doing something with the hair or no? Yeah, I had the wig. I had the glasses. I had the khakis. I looked exactly like Derrick David. It was genius. And I'm like, I just can't do this. It makes me even more unfuckable than I am anyways. I just can't do this.

And I'm just too vain. And so then I put on Darth Vader, and it was like this blousey thing, and I looked like Delta Burke from Designing Women. I just looked ridiculous. And then, oh, I was really excited. I bought this amazing Spider-Man outfit, and I've been working out, and I want to show off my body. And that thing was too tight. I guess I've been gaining weight. And not only that, I'm like, anyway, so zippers were flying and buttons were flying. Sounds quite stressful. I'm glad you recognize that. So I did what I always did, that I've done the last, that I did last Halloween. I put on my Deadpool outfit.

Huge crowd pleaser, except young people keep saying, oh my God, I love Iron Man and I want to choke them. I'm like, I am not Iron Man. God. Anyways. So you're going to go with Deadpool then, that's the plan? I did last night. I might try the Larry David again tonight if I'm a little bit more secure and in touch with my, like, just decide. It's like- That's going to be a hit. And then you can take it off at some point in the night, but you start out, crowd pleaser, you're the funniest guy in the room, everyone loves it. And then you can sort of take it off and be like, okay, I'm normal now. The key, I think, if I'm wearing the Larry David outfit is to do what I did last weekend at UVA when somehow I ended up renting a white minivan.

And that is, as you're driving, you just got to go, I like me. I like me. I feel good about me. By the way, minivan, they're incredible. I totally see why they sell so well. They're incredible. They're so easy to get in and out of, and they got that automatic door thing and a ton of luggage. I don't know. I'm thinking about a minivan. I'm going to be Tony Montana. Really? I like it. Is your girlfriend going as Michelle Pfeiffer? Correct. Wow. That's a good one. That'll be good. That'll be good. I have a wig. I need to get myself like a cigar or something. I tried to order like a toy gun. No, no.

No toy guns. I guess it's illegal. Amazon is not happy with that. so we won't do that um but yeah we'll see i'll send you a photo right should we bust into the show let's do it and by the way if you like the show please be sure to hit follow wherever you're listening or subscribe to us on youtube and hit the bell icon to get all of our latest episodes thank you very much September's personal consumption expenditures report showed inflation continuing to climb both headline and core PCE hit their highest annual rates since with headline inflation rising 3.6% year over year. That data came in just a day after the Fed decided to hold rates steady.

Nonetheless, two officials dissented in favor of a quarter point hike. Chair Walsh also noted that financial and credit conditions have tightened for some businesses and households. So inflation remains a persistent problem and the Trump administration has faced plenty of blame for the state of the economy. But at the midterms tomorrow, we will get a better sense of how Americans really feel about this administration and how they have handled things. So, Scott, inflation keeps going up. Not really any surprises. PCE rose to 3.6%. Gas prices continue to go up. Diesel prices are up 77% year over year. Real wages fell 0.7% in September. That was the sixth straight month of declining earnings. Not great. And on Tuesday, I think it's going to be a referendum on those numbers, how upset people really are.

What are your expectations going into Tuesday? Well, that's the correct question. But what's weird is it feels like the mother of all bad things and all the moons are lining up against Republicans and four are Democrats. And that is, according to the Washington Post, six in 10 families can't afford the basic costs of living in the battleground districts. So the place that the president is or the current policies seem to be having the most damage are in swing states that are in play. The share of households that could not cover the basics rose by 2.1 percentage points in Republican-held districts and 1.7 in Democratic-held ones.

In the past three years, rents and Republican-held battlegrounds have risen 9% compared to 4% in Democratic-held ones. So it just feels as if inflation is not only peaking at the exact wrong moment, or not inflation is peaking, but the people feeling of the impact or the negative sentiment on inflation, but it's especially bad in close races or in toss-up districts. Cal sheet puts the odds of a blue wave as defined by Democrats win at least 218 House seats and at least 49 Senate seats in the November midterms at 82%. What was even interesting is there's now a technical term for tsunami, and that is Democrats get both the House and the Senate.

And that's at about somewhere between – I saw a cal sheet between. now 65 and 67%. So there's a two and three chance now that there's a quote unquote tsunami for Democrats. And then they have a new category called super tsunami, where they get 54 seats in the Senate and a massive pickup in the House. I had on Prop G, Nate Silver, and he pointed that when Democrats last got a bunch of seats mid-cycle 2018, it was D plus seven. Now D is polling plus nine. Typically, as you get closer, whoever is down closes. In other words, it tightens. What's unusual, it's so far, and the polls might be off. So far, it looks like it's not tightening. It's actually the Democrats are expanding their lead. And let's talk about voters in rural parts of America. Six in 10 rural voters disapprove of how Trump is handling the economy. The average Republican constituent drives 26% more miles than a Democratic constituent. So they're feeling the pain of higher gas prices. So this is just, it's just, it's like the sum of all fears for the Republican party. I don't see any, I don't see any sort of bright spots right now. Do you have any thoughts on this? I'm in total agreement. I mean, you look back to the beginning of the year, if you were to say that the Democrats were going to take the House and

the Senate at the midterms, people would say you were nuts. And you can look at the Calci data on that, where it was, I think it's doubled over the course of the year. So there has been a massive sea change. And it's obvious what the problem is. It's inflation. And people know how tariffs affected inflation. We saw that immediately. And then he doubled down on higher prices with the war in Iran. And so when you look at Trump's approval rating, you know, yes, it is hitting all-time lows, but the topics on which he is most underwater are the economy and also inflation. And I just think that this is such a unique situation, such a unique moment because usually when when when an economy is struggling or when you're seeing inflation you're seeing higher prices usually it's a little bit of a blame game on like who's responsible and and it's very difficult to pin down who is actually at fault because economics is It's complicated, and it's nuanced, and there are multiple factors, and you can never really pin anything down.

But that's not the case this time around at all. Like, we know exactly who's responsible. We know exactly what caused this. It's Trump. It's his tariffs and his war in Iran. And everyone knows this. Usually, there's debate. But literally, everyone on both sides understands what the problem is. And I think your point is an important one, which is the people who are getting most screwed by his decisions are his base. It's the people who have historically supported him. It's the farmers who have to deal with diesel prices being up nearly 80 percent over the past year, which, of course, is a necessary input for fertilizer and therefore for growing crops, which is why farmers are struggling right now.

It's, as you say, the rural voters who are the frequent drivers. You point out how much more those voters drive compared to Democratic districts. And gas prices are up 40%. And then I think the other one is the real crucial demographic, which was so important in 2024, which is young men who have seen their wealth fall over the past four or so years by about 23%. And of course, the boomers have seen their wealth rise by about 37%. And this is going to be a big problem because 55% of young men voted for Trump in 2024. And now the polls are saying that actually this time around, it's going to be 26%.

So all of the key demos have gotten screwed. And usually, like, I say this all the time because I think that Trump really, really has screwed over the middle class and screwed over poor people, unlike any other president, at least in recent memory. But a lot of people say, well, they don't understand that. Like, the American people, try getting the American people to, like, understand the facts. But this time, I think they do. because the facts are so obvious. It's so clear what went wrong here. So I'm with you. I think it's a sweep. I think the Democrats take the House. I mean, certainly take the House. Question is, will they take the Senate? I think they will. And we can go into some of the state level data here because that's what's going to matter here. It's going to basically rest on a few swing states It's like main, like, Texas, Michigan, those are going to be the important states.

But I think the Democrats crush it in all of those states because, again, as you say, they're getting hit the hardest. Yeah, when you see Trump campaigning in Kansas or in South Carolina, that's not the map is tilting. The map is imploding. And they're pulling money out of what usually are battleground states because they've just given up on them. What's interesting, and you touched on this, it's really fascinating to see which cohorts pivot from one party to the other in between elections or in consequential elections or sequential elections. And one of the biggest pivots from blue to red in 2024 was young people.

And now people ages 18 to 29, get this, in 2024, 46% identified as Democrats, 47% Republicans, Which shocks me. 18 to 29, the majority in 2024 or more identified as Republican. Today, it's Democrats, or 54% of 18 to 29-year-olds, people your age, identify with Democrats and 38% Republican. I love this. It feels like the majority of the pollsters are saying it's a toss-up between a tsunami and a super tsunami. And Fox News even just flipped South Carolina from likely Republican to toss-up. And it's like nothing indicates insecurity like a company or an organization that has a vested interest in things going the other way, covering its ass by saying, oh, this might go blue.

So this is, I mean, I'm still holding my breath, waiting for what he's going to try and do next, whether it's, I don't know, offer people a million dollars if the Republicans hold on to the Senate. I'll be curious what he tries to come up with. But this feels. And again, what's interesting is a lot of the voting. I wonder what it is. I think it's about a third. The voting has already been decided. People like I've already. Have you already voted? I've already voted. I'm going to do it after this. Vivek. That's my new nickname for you, Vivek. Oh, my God, we're going to get comments for you. All right.

Philip, folks, what is the likelihood? Is there a non-zero probability that Ed was the Vivek Ramaswamy of his junior class in high school? What? I think there's a non-zero probability here. I just, I'm putting it out there. Anyways. No. No. Blue tsunami. Blue tsunami. We're gone. Let's get this done. I mean, just looking at some of these states and how their economies have been specifically affected, I think Maine is probably the most interesting because you would have expected, and the prediction markets did expect, that it would be red. But you've got Troy Jackson, the Senate candidate, who's Democrat, at 61% right now on Kelshi.

And you just look at the way Maine's economy works and what its strengths are and what its weaknesses are, and it all makes sense. Like, for one, they rely on heating oil to heat up their homes more than any other state. It's like 50% of their homes is fuel oil, heating oil. And the cost of that has gone up 83% in the past year. So you're immediately, that's half of the state is watching their energy prices just explode as a result, a direct result of Trump's policies. Then you have the Canada tariffs as well, which is also an issue, because Maine sends 40% of its exports to Canada. And so as soon as the Canada trade war breaks out, suddenly you're putting a huge dampener on Maine's economy.

Plus, they also have this giant logging industry, which is a huge part of their economy. And then Trump puts 50% tariffs on all of the logging equipment and all of the wood products, which just decimates the foresting industry in Maine. Like, it's a perfect encapsulation of this is a state that wants to love Trump, that wants to like him, that identifies with the ethos and the culture of the Republican Party. but he alone has been so economically devastating to to to thousands of people across the state to the point where i i don't know i mean i don't know if they're going to swing blue but they're probably not going to show up they're probably not going to show up to the polls i mean if they if they're going to say anything about how gigantic of a disaster the past two years have been in their own lives, this is their moment to say it.

So I do think that that is going to be likely. I think we see very similar dynamics in Wisconsin, Texas, Iowa, where, as you say, You know, one in five Iowans is employed by the agriculture industry, which has also gotten hit really, really hard by the increasing oil prices. So it just doesn't look good for the Republicans in any of these key swing states. I think the next question is like, what are the market implications of various outcomes? Like if the Democrats sweep, what happens? I think the first two things that we have been seeing already in the markets is that healthcare stocks could rise because you might see that a lot of these Medicaid cuts will be reversed. But again, that's already seemingly getting priced in right now because the healthcare sector is up more than 9% over the past three months. Defense stocks as well could fall. Again, that also happened over the summer. Maybe you see a rise in clean energy stocks. Maybe there is a slowdown in the AI boom. Maybe it could be the Democrats are going to get a bit more stringent on data centers. That could be one of the directions they go. So I think those are some of the things that we might see.

But again, the fact that we're already beginning to see it in the stock market is indication further that investors really believe that come Tuesday, Democrats are going to win this thing. What do you think? I think it's already been priced in. And I think if you look at the markets, so first off, the polls, in Maine, the polls don't seem to matter. So we don't know what's going to happen to Maine. But in places like South Carolina, that I think the last Republican or the last Democrat, they sent to Washington, resigned in 2002. But Darlene Graham is now at 78%. And what is her name? Her name is, oh, Annie Andrews is now at 28%. She was at 10% just a couple months ago, and she's gaining right now.

Wow. So it's a sweep is the base case, right? So the most exposed to getting hurt are probably pharma with undisclosed pricing deals with the White House. The company has assigned administration pricing agreements and House Democrats have floated the idea if they have the power of if they now run these committees of subpoenaing drug makers for the terms of those deals. I think it's going to hurt the oil majors. Democrats are tying high energy prices to broader cost pressures and plan oversight of corporate pricing and market concentration. I think oil is going to come down, which is going to hurt them more. And there's already investigation.

over energy exploration in Venezuela, which matters most for a company like Chevron. I think defense contractors get hurt. Maybe the AI tech and data center build out. There'll probably be more pauses, if you will. Private equity and single family rent, rental owners. The private equity is probably gonna face more scrutiny and companies close to the administration. Ongoing democratic investigations and some of his cronies that he's been carving up tick tock and giving giving to drug pricing deals tariff refunds um you know a senate majority adds a second chamber issuing subpoenas some of the beneficiaries um the tariff exposed retailers if we roll back the tariffs and there's more certainty around the tariffs going away are being reduced um folks like walmart target nike best buy i think actually benefit of the democrats That's sweep. And then ACA marketplace insurers like Centene, Oscar, Molina, making health subsidies permanent would just be good for those guys. So some winners and some losers. I just the question is, has it already been priced in?

I think sports betting companies are also very worried about this. And the number that I have to back that up is the fact that they spent $72 million on this midterm election cycle. DraftKings spent $34 million. FanDuel spent $27 million. You have to just think that these guys are desperate for the Democrats not to get in there and start regulating this gambling stuff. But the key word there is spend. What's so staggering about this race, obviously the outcome is going to be the most interesting thing. But post-election, I think what we're really going to – there's going to be a couple of big stories. But one of them is going to be that we have now spent more on this Senate race, this off-cycle midterm Senate race, than we've spent on the presidential election in terms of money spent.

So this isn't even a tail wagging the dog. This is a tail is wagging the dog so furiously it's got its own weather system. I mean, and when you think about just how insane it is, I think about $800 million is going to go into the Senate race in Texas. $800 million and 330 of it or 370 of it is coming from one man. And I think, you know, generally speaking, I think November 4th marks a lot of things. It marks a lame duck president, but I also think it kicks off a new era in America. where we've spent the last 40 years talking about how do you get wealthy, and we're going to spend the next 10 years with a lot more discussion around what are the obligations of wealth.

And when one man, you know numbers, but you can't really grasp the numbers. So Elon Musk has put, call it $400 million into the Texas race. 366. 366. Is the number. I would even think at some point the Supreme Court is going to go, Jesus, this is out of control. We have to do something about this. By the way, when you're with Caddy Kay and the Mooch, my guess is that'll be topics one, two, and three is campaign finance reform. That is, I was with Senator Mark Kelly in Arizona and I asked him what is the first thing he would do if elected president. And a lot of them are saying that the number one issue is campaign finance reform.

It's ridiculous. $366 million. He has now spent, Elon, has now spent more on this cycle than George Soros has spent his entire life. so it's gotten completely out of control um and and you mentioned like the next i mean we talked a lot about how to build wealth and and and the next sort of era of politics and and policy is going to be about how how to keep it uh if you're already a billionaire i mean one of the big things to watch out for in this election will be prop 40 in california and talk about spending a lot of money on politics, Sergey Brin has spent $102 million to fight Prop 40, which is the wealth tax.

So, I mean, these midterms are weirdly important on so many different levels. And you can see it in the amounts that people are spending, especially the amounts that billionaires are spending. They are very, very worried about how this election might turn out. we'll be right back after the break and if you're enjoying the show send it to a friend and please follow us on youtube spotify or wherever you get your podcasts support for the show comes from upwork you've built every part of your business yourself from the ground up that also means your operation might still be running on various spreadsheets that were definitely thrown together by an amateur.

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That's framer.com slash markets. Rules and restrictions may apply. We're back with Prof G Markets. Last week's earnings reports from Microsoft and Google gave investors a look at how two of the biggest... players in big tech are performing, and the market's reaction could not have been more different. Microsoft shares jumped as much as 5% after the company beat expectations with revenue up 19% year over year. It also disclosed Azure revenue in its earnings statement for the first time, revealing that its cloud business grew 48% from a year earlier. Google shares meanwhile dropped more than 13%, wiping out $500 billion for its worst market cap loss ever. That pain came despite reporting 25% revenue growth in the third quarter.

Investors were disappointed by weaker-than-expected search and advertising revenue and negative free cash flow. Scott, really interesting week for the hyperscalers because we have the Anthropic S1, which came out, which has polarized a lot of people as to whether that was great or whether that was bad or something in the middle. But then also we have these big tech earnings coming out. Microsoft was great. Investors were very happy about it. Google's, on the surface, like, not terrible, I thought, at least from a revenue perspective. But investors were very, very freaked out about this idea that search revenue growth is beginning to decline.

And all of the fears that we were hearing about, I would say, two years ago, basically when ChatGPT was starting to gain steam, suddenly those fears have come back, where investors are saying, oh my gosh, AI is going to kill Google search. That plus the fact that free cash flow is negative and they're plowing more and more money into the AI data centers, something we're also seeing from Meta, something we're also seeing from Amazon. What do you make of this week in big tech land? I thought it was pretty shocking. And it's sort of a tale of two cities. It's the same AI arms race, but entirely opposite verdicts. Microsoft was up 5% on cash flow discipline and Alphabet down double digits on cash burn. And the way I would describe it is both companies had amazing year-on-year revenue growth and really outstanding businesses. But I think it's two things that punished. Microsoft was able to thread the needle here. And that is, they said, we're going to surprise to the upside on the top line and the bottom line. And what I think really excited people is their capex looked fairly disciplined now granted it's still unbelievable it's still out of control but it looks fairly disciplined Compared to the alternatives.

Yeah, and compared to Alphabet. And when Alphabet's executive admits on the earnings call that AI mode generates fewer ads, it's like the company confessing its flagship product cannibalizes its core business. So AI is a profit center that needs to be managed well for Microsoft in terms of CapEx. AI needs to be a profit center for Alphabet that needs to be managed well. It doesn't look like the CapEx was managed in its disciplined fashion. In addition, AI is an existential threat to Alphabet because the world's most profitable, largest toll booth in history, Search, it appears like is kind of under attack.

I don't know about you, but I think there's probably a lot of analysts listening and hearing the numbers. They see the capex of a company growing its AI business. But what they don't see or what they also see is that AI is an existential threat to their ability to generate the cash flow they need for capex for the arms race. And the anecdotal evidence, I don't know if you find this, I am now doing basic search on Claude. And at some point, that's just going to show up in the numbers. But what Microsoft did was unbelievable. Microsoft renovated with cash on hand, and Alphabet appears to be taking out second mortgages for the same renovation, which is going to result in kind of a different call from the bank, if you will.

So really two divergent results here and the largest market cap erosion, single day market cap erosion in the history of the company. That's a big deal. I'm less worried about the search revenue because I see the fact that it's growing and it grew less than investors had expected. And I think that the reason there was such an allergic reaction on that front is that this is the boogeyman for the markets. This is the thing that they're obsessed with. will chat gpt kill google and we saw them have a premature reaction several years ago which is when we went in and said this thing's gotten over punished and and so they've been they've just their antennae are up on this big question and so as soon as they see even an inkling of a sign that maybe something bad is happening suddenly they freak out and they panic about the whole situation for me i'd want to see i would want to see more concrete evidence that that's actually happening.

Like, I'd want to see that their search revenue flatline or even decline. That's something. that would make me more confident in this idea that ChatGPT is going to eat Google's lunch. But then again, at the same time, Google also has Gemini. And so I think they've actually kept up on this AI race quite well. But I do think that the real problem, in my view,

I think of a historical analogy here around the AI arms race is impacting everyone. And I think of, so basically we were in an arms race, an actual arms race with the Soviet Union. And we had the economy and the growth and the capital to win. And we basically, the Soviet Union imploded on itself because it couldn't keep up with this type of military or defense mending and poor leadership and an autocracy, et cetera. And it collapsed on itself. And that resulted in kind of a 40-year run as the world of hegemony where basically the U.S. was the only game in town.

Everyone is in an arms race right now. and the companies are starting to say, all right, who's going to survive? Who has the underlying capital to survive? Now, to your earlier point about Alphabet, every time in Alphabet's history, you've had this sort of check back, it's been a buying opportunity. And kind of pregnant with your comments is a really interesting question. And that is, is this a buying opportunity? Because if you look at Alphabet's PE right now, it's 14.6 versus the S&P at 19.5. Take your average S&P company, Caterpillar or P&G. great companies, whatever it is, they're not Alphabet. YouTube is on fire. Google search, every time we keep rumors of its death, it's always been greatly exaggerated. I don't know what it was up. It's always up double digits. They have a booming cloud business. If there's an agentic layer that emerges, they have relationships with millions of businesses and billions of consumers to start bridging the gap and start eating OpenAI or Anthropics lunch.

And it's trading at a lower PE multiple than your average S&P company. And obviously, when you look at how robust this business is, how diversified it is, how well-run it is, the concentration of IQ there, I don't know. This, to me, feels like a buying opportunity. Your thoughts? One thing that I would just point out about the PE is that now that now that alphabet has invested all this money in anthropic those mock-ups on its on its private stakes are being reflected in their income so you have to take those pe's with a grain of salt but still it has it i mean i after the adjustment my expectation is that it would be maybe like in line with with the s&p which still isn't expensive so i think that i'm not fully sold. I'd want to look more into Google as a buying opportunity at these prices. But I don't think it's a sell. I don't think that the way that the market is treating it, especially when it comes to the search revenue, is necessarily warranted. But you make an important point about big tech stocks and the hyperscalers right now, which is these stocks, despite being systemic to the economy have been unbelievably volatile this year. And as I've told you before, as we've talked about on the show, I bought Meta this year and I bought Microsoft this year. And both of those

investments have done extremely well. But if you were to look at those stocks over the past year, they look kind of lackluster. And it's because they've been going up and down so erratically throughout the course of the year, because the reality is that there is so much uncertainty when it comes to tech right now because of the amount that they're spending on the AI data centers that, like, investors are completely polarized as to what the actual reality is. And that wasn't the case for a very long time. very long time. It used to be that you could have a pretty strong understanding of what these businesses would look like this year and the next year and even five years out. And that's what Wall Street loved about it, is it was so reliable, it was so dependable, you knew exactly what the businesses are. But those days are over. And what that means now is that the most valuable companies in the world are incredibly volatile, which means that if you are invested heavily in these companies, which you are, because everyone is, because they're systemic to the S&P, you're riding out quite a lot of volatility, specifically in those names. But it also means that if you want to be a bit of a trader and get out there and get active and start doing some stock picking,

there are some serious opportunities. You can go in and buy these dips and you can get paid really handsomely for doing so, which is exactly what happened for me with those two names, Meta and Microsoft. Could be, I mean, Meta's down this week. Investors are very worried about that equity sale, which I think is completely reasonable. The fact that they need to keep on raising more money is concerning. You would think that because they're one of the most profitable businesses ever, they don't have to do that, but they do now. But these are really, these are jumpy names. investors do not feel confident there is very very low levels of conviction and when that happens that usually means that there is both great opportunity to lose a lot of money but also to make a lot of money too so i think it's a good time to be a stock picker of tech names is what i

sucker for discipline, risk management. But I still think they've got this one wrong. You think staying out of this race was a bad idea for Apple? I do. And as I've said about Apple, then what? What are you pursuing instead? That's what I want to see from that company. Because to be clear, they've been very handsomely rewarded for their decision not to go into this. And I like that investors are rewarding them for that. I like that investors are saying, let's not all become too swept up in the hype and too deluded about this AI future. Let's be reasonable. And investors are rewarding them for that. But the thing that I want to see from Apple is like, OK, you're not taking that money to do the AI thing. What are you doing instead?

And when it was the headset, I'm like, that's a dud, which it was. And the next thing appears to be the iPhone Duo. And I don't know if you've seen some of these reports, but those Duos are breaking left and right. And not just because people are doing these breaking tests, but like a lot of customers are reporting trying to open up that iPhone Duo, and the screen just immediately cracks, and they go to the Apple Store and they say, hey, can you replace this? And Apple says, sorry, no, because our inventory currently is zero. so I'd want to see Apple saying here's what we're going to do instead but to me I don't see that vision from them maybe John Turner will turn it around and he'll come up with an amazing product and to be clear he hasn't had nearly enough time to come up with a new strategy but that is what I want to see from Apple because I also I mean there's risks in everything there's risks in deciding to do something and also deciding not to do something and I do think that there is some significant downside risk in not participating in AI if AI turns out to be a huge revolution that creates huge amounts of profits for these companies. So, you know, the futures are so uncertain

for all of these companies. The thing that they have on their side is the fact that each of them have unbelievably good existing businesses. They all, I mean, Meta's got the ad business. Google's got Search. Apple's got the iPhone. I mean, all of these companies are in a really, really strong position. And I think if we're trying to pick out like winners versus losers, I could see a correction coming. I mean, I just don't see how the boom and bust cycle doesn't play out as it always does in this case. But none of those companies are going to go bankrupt. They're not going to go bust. they're going to have their multiples reduced probably i don't think it'll be dramatic but i

chart, and we'll put it up here. The average annual infrastructure spending is a percentage of GDP for some other kind of transformative technologies. Canals were a transformative technology, and 0.7% of GDP was allocated to that innovation over a five-year period, on average. Railroads is the one we always talk about, 1870 to 1890, 20-year period, on average every year, 2.2% of GDP. Electrification, 20-year period, 1905 to 1925, a half a percent of GDP. Highways from 56 to 73, 1.13%. Telecom and fiber, Latin for the internet,

from 1996 to 2003, 1.1%. AI so far, the AI era, so to speak, 3.6% of GDP. So this just feels like- It's big. I mean, the railroads did transform the world. They really did. But along the way, There was a ton of bankruptcies. Now, the good news is, or asking yourself what could go right, are we in for a crash or what I'd call a measured decline that gives everyone? In other words, the V looks like a slope, not a severe down. I mean, are we starting? Is some error in a healthy way starting to come out of the bubble a little bit as opposed to a pop? If you were to look at just the, you know, extremely levied AI names, like if you were looking at the neoclouds, like the bubbles popped, those names are crashing. Like that's what a crash looks like. But the difference is that with this AI build out, it's not just these new names that are participating in this whole thing. It's the big names, which might sound like, oh my God, that's really dangerous.

but at the same time, it's like, actually, it's less dangerous because those big names already have extremely strong pre-existing businesses. So, you know, we're not seeing this gigantic crash that you might see as people start to get very worried about the bubble, because you have this sort of support mechanism where you've got a giant search business and you've got a giant uh giant ad business i mean it's it's an interesting it's an the dynamics are very interesting because it's almost as if there is more downside protection on this boom bust cycle than in previous ones which is less dramatic I can explain.

and sensational, but ultimately better because it means less pain if things go wrong. I know I'm going to get a lot of shit for that, for saying that, but it is what I believe. There are two

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Born to be a cowboy. Today Explained drops every weekday. We're back with Prof G Markets. Meta is making a move into long-form video... Instagram announced new features that will let creators upload videos up to 90 minutes long and bring reels to Apple TV. This puts Instagram in more direct competition with YouTube, but there is one key difference. Unlike YouTube, Instagram won't share its ad revenue with creators. So, Scott, this is just fascinating, especially for us, considering we are a podcast that posts our show to YouTube. It's a big part of our business. Met is essentially saying, do it on our platform.

do it on instagram 90 minute videos podcasts vlogs interviews all of that all of that kind of media um i don't see a reason why we will not do that this is not a zero-sum game uh our business is built on uh ads selling ads selling impressions the more impressions we can make the more influence, the more money we make. That's the way it works for most media businesses today. This to me seems like a good move by Meta that will genuinely cause problems for YouTube and for every other media company. What do you think? I think this is big. And this is how one small company is thinking about this. So the rub on this is they're not sharing any revenue, right?

Right. YouTube pays out, I think, about 50 percent of its revenue to creators. It's worked really well for them. Thus far, I think Instagram and their features has not said they're going to share any of the revenue. But at the same time, if you're prompting media, what we're going to do, we're going to go hard at this because we can embed ads in our content. Right. We can do host readovers as part of the show. And that will, I believe, be in there. And if we can get another 100, 200, 300,000 views on Instagram features, then we can sell that into our advertisers, right? Because so Instagram isn't going to run ads and then do a revenue split.

But I don't see any reason why we wouldn't be able to embed some sort of, you know, some sort of host readovers. The Mark Zuckerberg is the best thief of IP in history. And he's clearly coming for YouTube. And just to give you a sense of the ecosystem, when you're talking about television, 49% of it or half of it is streaming. Cable's 19% broadcast is 18%, other is 14%. And then let's break down the streaming ecosystem. It used to be YouTube, low double digits, Netflix, high single digits. has broadened dramatically. YouTube now sits at 16. Netflix is at eight. Disney's at five. Prime Video at four. Roku, interesting, 3%, which I believe News Corp just purchased. Paramount at 2.3. Tubi at 1.9. Peacock Plus, 1.6. Warner Brothers Discovery, this was shocking to me because this includes HBO, is at 1.4%. It truly is artisanal at this point. And I think Meta is absolutely coming for that 16% that YouTube commands right now. And the reason why we'll do it and go hard at it, at least initially, is that you got to think that meta with 3 billion users is going to game the algorithm and significantly over reward early adopters of features, right? Yes. So true. They're going to, all of a sudden you're going to have Ed

elson droning on for 70 minutes in your in your and you will see it whether you like it or not right and you're thinking like where are the great dane puppies and where's the where's the woman talking about social justice who also happens to be really hot that's in my feed all of a sudden i'm gonna have ed move over i'm like elson's here i can survive ed for 30 seconds but wait this won't end but my point is we'll go hard at this early to experiment but also So you just got to think they're going to juice the first decent content, the first 10,000 creators that put up a reasonable 60 minutes of content or repurpose good content.

Matt is going to Matt is going to like they're going to they're the drug dealer passing out free crack to third graders. Right. They're going to say, OK, would you like a little taste of hundreds of thousands of views for the early adopters? So as just one business, one small media business, we're going to go hard at this.

You said something which I think is really interesting. which is like Netflix has always wanted to be seen as a tech company. And I think they have been successful in presenting themselves that way up until lately, where it's become clear that actually, no, you're basically like very similar to NBC Universal, very similar to Warner Brothers Discovery, Disney, you're not really a tech company. And I think what this comes down to, they are at this very important fork in the road, which is like, what actually are you? like what like are you are you a media company or are you a tech company and i think they're struggling because i don't think they know what they are i don't think they've figured that out i think that they're sort of dabbling with this idea of let's get into short form let's get into having clips and being more of a sort of an aggregator of existing generated content something similar to a youtube but then also they're saying no we're going to also spend $20 billion on production. And we're going to have high quality premium content. We're going to become the sort of the luxury product of streaming. But then also this, they're doing the ads as well, which was a new introduction a couple of years ago. So it's almost like they

haven't figured out what it is that they actually are. And it makes me think of Aspeth Demodron, who's like, you know, you're dealing with a bit of an identity crisis as a company right now. And I think, for me, what do they have to do? They have to decide what they are. Because currently, Wall Street is not buying this. This idea that, oh, we're both at the same time, we're kind of interested in TVs, but also we're interested in the phones, we're interested in everything altogether. That's not working from both a cosmetic perspective in terms of the perception, but also from a business perspective.

perspective so in my view it's like you need to decide i'm honestly don't think that the tech company angle is going to work i think it's going to kind of look like old guy wants to be young like oh we're into the streaming we're like youtube i think i i think that that ship has sailed and it was a mistake they should have kept up like youtube they should have invested heavily but i think they should have done that two or three years ago which is what we were suggesting two or three years ago but i think if they try to enter that game now it's going to be way too expensive way too much competition and it's going to be the the kind of going to look like the meme like how do you do fellow kids um and it's and it's not going to really work. So I'm starting to think maybe they just need to go all out media company, brand themselves as luxury premium. Maybe that boosts the multiple. Maybe they can charge higher prices. We have the greatest content in the world. It's a shittier business for sure, but it's something that I think they could pull off. But again, there is an identity crisis for Netflix and they have to decide who actually are we. Do you agree? They can never be a niche premium provider like HBO. They have

to be mass. But yeah, I was looking at Netflix as a buy. I'm now thinking there's more pain there because I think it's going to be difficult to do any of this as quickly as the market wants. They need to figure out the story. If they figure out their story, everyone's going to be ready to buy, but they're in purgatory right now. Yep. Agreed. Let's take a look at the week ahead. We'll see earnings from Apple, palantir amd pfizer novo nordisk uber arm and qualcomm will also get the employment report for october at the end of the week but of course the main event will be the midterms scott any predictions yeah my prediction is that uh palantir beats and the stock falls um palantir is trading at roughly 50 times sales 50 times forward sales in may uh palantir and NVIDIA lost 120 billion in market cap the day after beating estimates and at that multiple a beat is the minimum anything short of a blowout is a sell on this thing at this at this price i mean essentially palantir is the student who even if they get an a the expectation is that they're supposed to get an a plus uh i just don't think i don't think they can i don't think that the market has become used to such incredible beats for a company trading at a PE of 16,

much less a company trading at a forward price sales of 50X. In sum, I think some air is going to come out of Palantir. So the prediction is Palantir beats and the stock takes a fall. Okay. My prediction is going to bore you, but it's that the Democrats take the House and the Senate, sweep, blowout, predicted it earlier in the year, but doubling down today. Your lips to God's ears, my brother. Bring on the blue. Oh, my gosh. And to think that we don't believe in the gun show just is inaccurate. Hello, ladies. Daddy's going as Deadpool tonight. I've decided. I've decided. Looking bad. Looking big. I'll give you that.

It's all the testosterone I'm taking. There we go. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Chalon, Kristen O'Donoghue, and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets