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- [00:01]
Scott Galloway
Support for the show comes from bcx, the public ticker for private tech The US Stock market started history's greatest wave of wealth creation. From factory workers in Detroit to farmers in Omaha, anyone can own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means everyday Americans are missing out. Until now. Introducing vcx, a public ticker for private tech now available wherever you buy stocks. Visit getvcx.com for more info. That's getvcx.com carefully consider the investment material before investing, including objectives, risks, charges and expenses. This and other information can be found in the fund's prospectus@getvcx.com this is a paid sponsorship Exchanges on the economic impact of AI Exchanges on gold, energy and the commodity markets for the sharpest analysis on finance, business and the economy Countdown Exchanges the Goldman Sachs Podcast Listen now Recommendations can be amazing. I mean, maybe someone recommended that TV show you've been obsessed with lately. But when it comes to home projects, it's different. If you don't like a show, you might lose a few minutes. If you hire a friend of a friend of a friend to fix a leaky ceiling, you could end up with a flooded kitchen.
- [01:20]
Ed
Maybe I know a guy.
- [01:22]
Scott Galloway
Just isn't enough for your home. That's why thumbtack works so well. They'll match you with a top rated local pro, and you can see photos of past work credentials and reviews all right in the app. For your next home project, try Thumbtack.
- [01:36]
Ed
Hire the right pro today
- [01:41]
Scott Galloway
Today's number three. That's the number of hours Japan's prime minister says she gets per night. Ed I don't know if you've heard about the new corduroy pillows. They're making headlines. How much sleep do you get every night? Ed?
- [02:05]
Ed
Seven and a half to eight is my baseline. How much sleep do you get?
- [02:09]
Scott Galloway
It's weird. You think so Sleep is one of those things that just leaves you. When I was your age, I used to just, I was a great sleeper. And my the amazing thing is my boys are at that age where they can sleep 12 hours now. And I'm like, let them sleep because they're growing. But I get, I would say I get six to seven hours now. I used to get eight. I don't think you need as much sleep when you're my age.
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Ed
I'm jealous. I kind of lament the fact that I need so much sleep. I'll get eight hours and I'm still exhausted when I wake up in the morning. Drives me nuts.
- [02:40]
Scott Galloway
It's weird or. Either that or you're just grumpy and tired all the time because you can't sleep. But yeah, I go to bed. I usually go to bed around two and I wake up usually around nine and an hour of that crazy.
- [02:56]
Ed
I guess you gotta kind of work on us hours a little bit. But the 2 2am sleep time is nuts to me. Yeah.
- [03:04]
Scott Galloway
But from 11pm to 2am is when I get real work done, like when I start actually writing. Well, and I don't know, there's something about that. Nighttime morning people are more productive, supposedly. Evening people are more creative. I'm neither. But from 11pm to 2am it's just me and the dogs and everyone's safe. And I feel we're asleep and I feel kind of at rest. And that's when I find I can really, like, do, I don't know, real work. That'll stand out if you will.
- [03:34]
Ed
You know who else is like that? Margaret Thatcher. She would stay up till like four in the morning.
- [03:39]
Scott Galloway
Yeah, me and Margaret Thatcher.
- [03:40]
Ed
And then you know who else is barely sleeps is President Trump. He supposedly gets around four or five hours a night. That's just astounding to me.
- [03:49]
Scott Galloway
He's a fucking fat slob that sleeps in and watches Fox.
- [03:52]
Ed
No, I believe that, actually, I believe he. I believe he watches Fox. And I. He's got all of his other health issues.
- [03:58]
Scott Galloway
You really believe he sleeps four to five hours? That's what they said about Clinton. I think that's a myth. I don't think.
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Ed
I think that's real. So many people have reported it. And it's not like. It's not like. I don't think they're necessarily bragging. I mean, maybe it is a brag. I don't know. I think it's real. I think it makes sense.
- [04:13]
Scott Galloway
Jeffrey Katzenberg said he does. He only sleeps four to five hours a night. I sat next to him and I think. I think that's got to be. I think that's got to take a real toll on you over time.
- [04:22]
Ed
I think there are certain people who are just genetically predisposed to being fine with low amounts of sleep. And I think Trump is one of those people, and I'm very jealous. It basically just means that he gets like 20% more. More time in his life.
- [04:38]
Scott Galloway
You die sooner. I think it. I think that catches up to you on the back end. Although he seems to not. Not dying anytime soon. Do you know how many hours a day dogs sleep?
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Ed
No. Interesting.
- [04:48]
Scott Galloway
16 to 17 hours. Wow. Yeah, they're always sleeping. Thank God they'd just be constantly looking at you like it's snack time, isn't it?
- [04:58]
Ed
But anyways, Scott, you also have some exciting news. Would you like to share it?
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Scott Galloway
I have no idea what you're talking about, Ed. I don't, I don't. And I'm befuddled by your query.
- [05:09]
Ed
I think it has something to do with a guy named Newsom.
- [05:13]
Scott Galloway
Well, thanks for asking, Ed. It's not like off mic. I had to prompt you to talk about it. Yeah, I've been appointed to the board of the Regents of the University of California.
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Ed
Very exciting.
- [05:27]
Scott Galloway
Yeah, it is exciting. You seem very excited.
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Ed
More exciting for you.
- [05:33]
Scott Galloway
I really appreciate how you're investing in our relationship. This is.
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Ed
Why don't you talk about what it is and what it means to you?
- [05:40]
Scott Galloway
So what it is is the governing body that decides the curriculum, the resources and employment practices and where we invest and don't invest. It's a board that oversees what is, I would argue, the greatest innovation machine in history. 74 Nobel laureates, 4 out of 5 out of the last year were faculty at the University of California. Has produced more startups than and created more economic value than I would argue any state and arguably any nation, with the exception of the US in China. And just on a personal level, change the trajectory of my life. When you get to my age, you have an obligation to reverse engineer your blessings to the things that weren't your fault. And all those roads lead back to the University of California that let me in with a 3.1 high school GPA and 1130 on the SAT, 74% admissions rate, and then let me into graduate school at Berkeley, the Haas School of business with a 2.27 undergraduate GPA. And then I got my shit together and I kind of locked in and have had registered some success because of the generosity of California taxpayers and the, you know, the vision of the regents of uc. And when I got a text message from Governor Newsom, who I people the Post called me his pal, I've met him once. I shook his hand at Davos. That's. I don't even know how he got my phone number anyways. And I spoke to, you know, I said this makes no sense for me. I live in London. It's six times a year, two days. I'm super busy trying to build a business. Of course I'll do this. This for me is a full circle moment. I'm really excited. And my mission and aim is. Can distill down to one word accessibility. If it hadn't been accessible for me, I wouldn't be here with you. And that's my mission. I want to figure out a way to grow freshman class size faster than population growth. But yeah, I'm boasting now. But this is a wonderful moment. I'm really, I'm super appreciative and reflective of the governor. And anyways, I'm just, I'm super excited to get to work.
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Ed
Yeah, yeah, very exciting, Very happy for you. All right, let's get into our show.
- [07:49]
Scott Galloway
Now is the time to buy. I hope you have plenty of the wherewithal.
- [07:56]
Ed
An investigation from Nikkei Asia revealed something concerning about some of the world's biggest companies. Alphabet, Microsoft, Amazon, Meta and Oracle are carrying more debt off their balance sheets than on them. The Companies have roughly $1.65 trillion in off balance sheet obligations, compared with the roughly $1.35 trillion in debt that they officially report. The situation with Meta is particularly concerning with an off balance sheet debt load of $420 billion, roughly three times debt. So, Scott, this was a really interesting investigation from Nikkei and I want to just add some detail and some color to it. So, you know, there's one point we've been asking this question about the AI bubble for a long time. It's like it's going to be bad if we see huge amounts of leverage. And this is what Andrew Ross Sorkin has talked about in his book 1929. That's how Bubbles are really built, not with equity, but with debt. And we have long been saying, you know, so far the debt has been relatively contained. Oracle is an outlier and we've seen that reflected in the stock price, which has been obliterated in the past year. But the companies that we really care about, like Meta, Google, Microsoft, etc. Those companies have been, generally speaking, they've been managing their debt in a responsible way. So we can look at the amount of debt that we know exists that's on their balance sheets, around $1.4 trillion. Nikkei says we've gone and found that there's a lot of debt off the balance sheets that is worth $1.7 trillion. Bloomberg estimates it might be even higher. They think it's going to. It's around 1.8 trillion. And essentially what is happening here is the big tech companies, instead of issuing their own debt, they are creating what are known as data center SPVs, special purpose vehicles. And these special purpose vehicles are basically these shell companies where the data center financing isn't provided through the Bond sales of the tech company, but it's provided through someone else, in most cases private credit funds. So instead of Google going out and making a bond sale, which would have major implications for its own borrowing costs and its own financial health, see above Oracle, they slice and dice that debt, they offload it into the SPV and the the private credit fund. They provide the financing and Google rents the compute from the data center. That's how it works. Now we should get into whether that's bad and if we should be worried. I have some thoughts, but I'll throw it over to you and see what you make of all this.
- [10:47]
Scott Galloway
There is a sweet spot of leverage in the economy, both in the banking system and corporate debt, and even personally a certain amount of leverage. But Big Tech's 1.7 trillion in off balance sheet debt versus 1.4 trillion reported, that gap is sort of the story because when you're hiding a bigger number than what you're reporting, that's not accounting, it's concealment. And Meta's off balance debt is $420 billion, which is 3x what they report. That's not a rounding error, that's a second company hiding liabilities inside of the first company. And the mechanism is that shell companies will fund the data centers, private credit funds, the shell companies and pension funds and insurance annuities fund the private credit. If you reach far enough into the barrel, where you reverse engineer far enough, what you find is that a teacher's retirement account is underwriting Zuckerberg's GPU. Bill and Bernanke always said this. We're obsessed. 90% of the airtime on this show or on CNBC is about equities because they're more interesting and they have a daily scorecard and the movements are more dramatic. Stocks are just more fun, they have more personality, they're more interesting to track. But whether it's, whether it's the depression, whether it's a great financial recession, whether it's a dot com implosion, nothing rings the bell of a beginning of a crisis like leverage.
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Ed
I just want to clarify for our listeners, like where the risk actually is here. Because, you know, the way we're Talking about it, $1.7 trillion of maybe $1.8 trillion of hidden debt. It makes it sound like, you know, Big tech still is taking on that risk. It's just that they've buried it somewhere else, but they're still accountable for it. That's not really the case. What they've done with that $1.8 trillion is they have offloaded the risk onto someone else, specifically the private credit fund. So they create the SPV with the private credit fund. The private credit fund borrows the money to the SPV to build the data center, Google as an example, then rents the compute from the, from the spv. And the income that is generated by that rental agreement is paid back to the private credit fund. So when you think about who's taking on the risk here, it's actually Google, meta, Amazon. They're offloading the risk. They're saying we don't want to, we don't want to take on this risk. And you can say that that's a good thing, or you could say it's a bad thing because you could say, why don't you want to take on this risk? I thought these data centers were a sure thing. But the whole business, the whole calculation rests on the assumption that the data center will pay back way more money than the cost of building it. That is the assumption. And the, the people, the entity that is responsible for accurately modeling out that assumption and pricing in all of the risks and thinking about the depreciation costs of the GPUs and thinking about the demand, all of that stuff. The guy responsible for that isn't Big Tech, it isn't Nvidia, it's the private credit funds. It's all of the guys who are lending the money to the SPVs. And that's what this entire data center AI buildout is essentially predicated on at this point. Because as we've seen, the financing that's happening off the balance sheets of the tech companies is larger than the financing that's happening on the balance sheet. So the question you have to ask yourself if you want to believe that we are not in a bubble is the following. Do you trust the private credit funds? Do you think that they are accurately projecting the risks associated with building these data centers? And do you believe that they are motivated not by this AI data center gold rush or where everyone seems to think that if you build a data center it prints money, that they are actually accurately and responsibly issuing this lending and this debt financing? That is the question my view, probably not, because we've seen a lot of weirdness in the private credit industry. Probably the most obvious and scary example was the collapse of First Brands. This was back in September 2025. I don't know if you remember, but First Brands, this company, they filed for Chapter 11 bankruptcy. And it turns out they were in this very, very murky and bad financial situation. And they had been financed primarily by the private credit funds. And then it exploded and the private credit funds got burned. And that was when Jamie Dimon issued his famous warning about private credit. He said, when you see one cockroach, there are probably more. This is where he called the private credit industry cockroaches. And that was its own thing. And now we're seeing it's extended to the data center industry. Those same guys are the same guys who are underwriting these data centers. And the question you have to ask yourself is, do you think they're doing it properly? Do you think that they are underwriting these data centers in a responsible way? I think it's definitely up for debate. I think it's very, very precarious. And the fact that it's so opaque and the fact that this industry has little to no regulation, again, a blunder of the admin that makes me think that we are headed for potentially a very ugly situation.
- [16:27]
Scott Galloway
I'm torn on this because I think there's a lot of nuance here when we talk about when we're reductive and just use the term debt. So I think our national debt and a bipartisan agreement to just consistently spend more than we take in in terms of tax receipts, I think that is irresponsible and leads to a bad place. I think a surge in credit card debt among households who can't afford to pay their bills. I think that leads nowhere good. And it's a signal of irresponsible behavior or a poor economic environment. I think that working with a lot of private credit funds, keep in mind, when these companies take out debt, the people looking, assessing the risk are very smart people, and they look at the security against that debt. And in the case of someone like Meta, I would imagine that if that debt's going to get paid, I believe if they default on it, is it secured by the data center itself? Is it secured? I mean, the question is, what is the credit here? And if they're trying to offload the. If they're trying to hide it, fine, as long as they're on the hook for it. If they're not, then buyer beware. And these credit funds are subjecting their LPs to risk. And that risk has paid off for the most part for the last 17 years. Those funds, they haven't delivered above market returns, but they've delivered, you know, the returns of the market minus their fees, which has been exceptional returns for the last 17 years. The that I do think that leverage and debt, I'll use Banks, as an example, banks loan out $120 or $130 on $100 in assets. That's a form of leverage. Elizabeth Warren wants to move it to where for every hundred dollars you take in, you, you, you lend out to people you have to take out. And one for one, $100 in deposits responsible. Makes sense. But here's the thing. Leverage also equates to growth. When you have 20 different depositors giving you that hundred dollars and you loan it out to 30 different people and you loan out four bucks or whatever it is to get $120 in loans on $100 in equity, you grow the economy faster. And as long as you're lending to different people, that leverage results in greater economic growth. And so a certain number of bank failures, a certain amount of debt failure reflects that the economy is taking a certain amount of risk that results in growth that is better for the country. So it's easy to say all leverage is bad. And these private credit companies are way out over their skis. I get it. And there's some truth to the notion that we're due for a recession and a likely start in the credit markets. Having said that, one of the amazing things about America and why our GDP is up 40% more than the GDP of Europe, which was approximately the same per capita, 95 and now we're 40% above them, is because those same private credit analysts, those same VCs, are more comfortable with risk than the private credit analysts in Europe.
- [19:54]
Ed
I think that's true, but I think the problem comes when you start taking on risks without all of the facts properly lined up in your head, without transparency. Sure, yeah. And that's where you run into problems where people start levering up, taking on risk, and they're making these decisions based on data that is telling them one story, but in reality it's actually another story. And that's how I feel about the circular financing stuff, where you have companies investing in each other's companies and then reporting all of this buying each other's stuff, which is creating incredible revenues. The same thing we're seeing, I mean, the Google earnings cloud revenue up 82%. Bang. What a quarter. They crushed it. And then you dig a little deeper and you start to realize, hold on. Roughly half of that, we think, because we have to make estimates, because there's a lot of opacity to this is coming from two companies, OpenAI and Anthropic. It's like the whole thing is being built off of this one little leg in the stool and all of that money is coming from the venture investors. And so if that implodes for whatever reason and the likelihood is pretty high, then you've got a real problem. And the question is when people underwrite these deals, because remember, a lot of people seem very certain about the economic prospects of these data centers, the returns that they're going to get. The question is, when people underwrite those deals, are they operating with all of the facts straight? Do they recognize the fragility of the revenues that are being registered right now? Do they recognize the circular nature of those revenues? Because one thing I can tell you is a lot of these companies are doing a lot of work to not let you understand that, to obfuscate and complexify the numbers to make you think that it is healthy, diversified revenue growth, when in reality is unbelievably concentrated into a handful, less than a handful, two companies who are in very, very poor financial standing when it comes to their financial health, when it comes to how much they spend versus how much they make. And so my concern is that you have a lot of people who have probably a healthy appetite for risk, who are like, yeah, let's do it. It's a gold rush. Data centers, AI, everything's happening. Look at the numbers. It went up 80%, it's doubling, it's huge. And then they forget to do the deeper digging here of recognizing that actually this is a lot more vulnerable than it really is. And this is how bubbles grow. It's through that complexity. I mean, this is what the CDOs were all about. It was the slicing and the dicing and taking all of these financial instruments and then putting them into another financial instrument so that the whole thing was too complicated to even pass out. And I do worry that that is the road that we are headed down where we're just making things more complicated than they need to be forming these SPVs, offloading the risk over to the private credit guy over here and this one over here and this one. Why don't you just do it? The debt yourself. Why don't you just do it? Meta, you think it's too risky? Well, then why are we comfortable if one person provides the financing, but not comfortable if the other does?
- [23:04]
Scott Galloway
Well, they're being, to be fair, if they can find cheap capital and for people to absorb the. They have a fiduciary obligation to let other people absorb irrational risk. And what you're suggesting, I think, is that there needs to be better mandatory disclosure rules such that people on the other side of the trade at least have transparency into the risk. And keep in mind it's easy to say people, do your homework, do your diligence. Investors aren't going to dig into the debt structure of Meta and what's disclosed and what isn't. And that's exactly. Meta has so much. Meta is such a cash volcano that I'm not as worried about the debt at Meta. If shit real there, they could probably figure it out. It's these other organizations that don't have sit on top of a cash volcano and quite frankly are cash flow negative, such as almost every AI adjacent company right now that keep in mind, I think the only way you protect against this again is my favorite word, diversification. Because. Because if you're looking for the big investment banks to to disclose to you what's going on here in a thoughtful way, keep in mind that, you know, JP Morgan and Morgan Stanley have 205 and $300 price targets on SpaceX. And also keep in mind that it's
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Ed
just down to 112.
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Scott Galloway
Yeah, what a couple, three weeks after the IPO. But worse than that, okay, how. How yours truly got sort of famous. When I read the S1, I think JP Morgan, I forget and Goldman were taking WeWork public. They approved. They decided to take a company public and were selling it to their investors based on a disclosure document. You want to talk about the SEC not being your friend that had something called Community Adjusted ebitda. They were allowed to come up with a term called Community Adjusted ebitda. And what did that mean? They got to exclude their real estate costs from their costs. I called it EBITDA before everything else. So we're in a podcast company if we're trying to raise money or, or, or we build a data room for someone to potentially acquire us. Imagine me saying that our profitability is profits revenue before I pay you guys. That's podcast adjusted ebitda. And this was a financial disclosure document approved by the sec. And the investment banks who have the smartest analysts in the world, they let them come out with an S1 that claimed they had EBITDA that was quote unquote community adjusted that didn't include the cost of the real estate for a company subleasing one floor in a building, but they don't have to include that cost when calculating some derivative of profit. So again, I would not trust investment banks. There are some smart analysts. I do think that some of these blog posts, the creator economy I actually think is doing a pretty good job here holding these people's feet to the fire. But the institutions we used to trust to do this shit, you cannot trust. And I think the only way, unless you're a financial analyst yourself, is to diversify. Because folks, everybody thought Cisco was impenetrable. Everyone thought the people putting together these subprime mortgages and packaging them into the CDOs. Everyone assumes you could trust them. They're going to do whatever gets them an additional nickel in investment banking or or money management fees. They will craft their narrative. I would love to see the 300 the analyst who wrote the $300 price target. I think at Morgan Stanley that person should be writing fiction. That person should be writing romantic comedies where people bump into each other at the grocery store and in aisle eight decide they're in love.
- [27:00]
Ed
Well, don't forget Brian Sigwal is at Raymond James price target of 800. He thinks the company is worth $10.4 trillion. He should really be writing the fiction. By the way, just on your community adjusted EBITDA point Semianalysis put together some research on anthropic and they talked about, not ironically, by the way, the new community adjusted ebitda, which is called ebtit, which is earnings before training, interest and taxes. This is, quote, the new default metric for library investment and the best source of truth of where cash economics sit for the inference business. So it's happening. That wasn't in an SEC report. And to be clear, I don't want to throw shade at them because I actually like a lot of those guys and I enjoy having them on the podcast to hear about what they think about things. But EBT it Reinventing accounting metrics to make inference and training makes sense. Come on, enough of this shit. I mean, we've seen this before. No one's buying it. We'll be right back after the break, and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts.
- [28:26]
Scott Galloway
Support for the show comes from vcx, the public ticker for private tech. For generations, American companies have moved the world forward through their ingenuity and determination. And for generations, everyday Americans could be a part of that journey through perhaps the greatest innovation of all, the US Stock market. It didn't matter whether you were a factory worker in Detroit or a farmer in Omaha, anyone can own a piece of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind, while a select few reap all the benefits until now. Introducing vcx, the public ticker for private tech now available wherever you buy stocks. VCX by fundrise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space exploration, defense tech and more. Visit getvcx.com for more info. That's getvcx.com carefully consider the investment material before investing, including objectives, risk, charges and expenses. This and other information can be found in the Fund's prospectus@getvcx.com this is a paid sponsorship. Support for the show comes from SoFi whether you're buying your first home or just looking for ways to make your current mortgage work better for you, the process can feel overwhelming. The good news? You have more options than you might think and the right home loan can really make a difference, helping you reach your financial goals. That's where SoFi can help. Whether you're buying, refinancing or planning your next move, SoFi offers a tech Forward Human backed mortgage experience designed to make the process simpler. You can apply online in minutes while still having access to a dedicated mortgage loan officer to answer your questions and guide you through every step of the way. So no matter where you are in your homeownership journey, SoFi has solutions designed to help you move forward. Forward with confidence. Head to sofi.com profgloan to explore your options today. That's sofi.com profgloan mortgages originated by SoFi Bank NA member FDIC NMLS 696891 terms and conditions Apply Equal Housing Lender Verified Pre Approval Letter Terms apply. See Conditional Pre Approval Letter for details. Not a final loan approval and not a commitment to lend. Support for the show comes from Framer. If your team wants a website that looks and feels handcrafted but is still fast to ship, Framer is built for that you design on a visual canvas with responsive layouts, hosting and a CMS built in so the work is production ready. From day one, agents work alongside you to draft pages and polish sections. Then you review and publish what goes live. Framer is the pro site builder for creators, teams and businesses that want to build professional site and care enough to get every detail right. Agents solve the gap between AI generated ideas and production ready website work and the agent works in the same place where the real site is designed, managed, reviewed and published. That means it lands on the canvas, stays editable and can be published when the team is ready. Learn how you can get more out of your site from a Framer specialist or get started building for free today@framer.com markets for 30% off a Framer Pro annual plan. That's framer.com markets for 30 percent off framer.com markets rules and restrictions may apply.
- [31:50]
Ed
We're back with property markets. Two of the biggest contributors to inflation appear to be getting worse, tariffs and oil prices. Last week, President Trump announced a new slate of tariffs, reigniting concerns about a broader trade war. First, he imposed a new 25% tariff on exports from Brazil that went into effect on Wednesday. And then he also announced a 50% tariff on Canadian goods, which will go into effect on August 19. At the same time, the Iran war is not showing any signs of slowing down. Last week, oil prices hit $100 a barrel as the Houthis attacked two Saudi Arabian tankers in the Red Sea. Meanwhile, traffic in the Strait of Hormuz remains extremely low and the US has continued its strikes on the country. So, Scott, we have here tariffs ramping back up, which we can get into. And obviously that's going to be a problem when we're thinking about inflation, because we've already seen the inflationary impacts, because of course, US consumers are are paying close to 90% of the costs of those tariffs. It isn't these foreign countries that Trump seems to think that he's punishing every time that he slaps these tariffs on them. But I think probably the more significant news when it comes to the economy and its impact on inflation would have to be the price of oil. Brent crude surged up to beyond $100 a barrel last week. It's up 30% since the beginning of July. Goldman Sachs says if these disruptions in the Strait of Hormuz don't ease up, then oil could surpass $120 a barrel by next quarter, at which point we have to start thinking about the implications that we'd see in the CPI and in overall inflation. I mean, last month we had 4.2% when oil prices were where they're at. Basically right now, it came down to 3.5%, which is still bad, by the way, but seems like it'll just go up again. Your reactions to what seems to be the continuous shooting of our feet when it comes to economic policy, I think
- [34:01]
Scott Galloway
you can make an argument that the investment in the war on Iran will be the best investment of the last 50 years. Unfortunately, the entity registering the return on the investment is China, and that is we're trying to manage our own inflation while China quietly banks the geopolitical dividend Here. And Fareed Zakaria nailed this. China's gained more from this crisis than any in three decades. You have a Middle east hedging away from us, a world more dependent on Chinese tech. And then every nation in the world is thinking we not only can't afford to be dependent on fossil fuels economically, geopolitically, it presents a defense risk to be so dependent on other countries that can, for whatever reason have the artery of flow into our nation of this fossil fuels, have a bootstrapped on it. So what do we do? We move to renewables and clean energy. And oh, who dominates clean energy? Who has 91% of solar manufacturing, 89% of lithium ion battery capacity, 70% of clean energy tech production, 70% production of EVs globally, you guessed it, China. So we're hemorrhaging credibility and our treasury on tariffs and strikes and China's spending nothing and picking up the reputation for being the adult in the room. The. I mean, this, this stat is so upsetting. Pew reports that more people globally think that China is a force of good in the world than the United States. In sum, we're spending money to buttress China's reputation.
- [35:49]
Ed
Yeah. Just to expand on that data, China is now viewed more favorably than the U.S. this is, according to Pew Research, more favorably than the US across the globe, across 20 different countries between 2023 and today, the favorability of America has fallen from 58% to 35% and China's favorability has risen from 32% to 46%. So we've seen a flat out flippening when it comes to the favorability of both China and the US and then also just Donald Trump and Xi Jinping. And I think it's hard to say that that doesn't have to do with what we've seen on the tariff front. I mean, these new tariffs, it seems like this is his way of just trying to bully other countries. That's basically what it is. I mean, this Canada tariff, 50% tariffs on Canada. Supposedly Canada is discriminating against the US that is the argument. So he's putting these tariffs on Canada. Obviously he's not accounting for the fact that it actually is self defeating because it ultimately makes prices higher in America. And we had Peter Harrell on the podcast earlier in the week, and he made the point that he thinks that maybe the Trump actually just doesn't really realize that or doesn't know that, or at least his advisors are just kind of intentionally ignoring that fact in order to just do whatever he wants and to just play the sycophancy game, which sounds absurd, but I think that it actually is a genuinely possible scenario that is playing out right now. And, yeah, you have to ask what that, what that does to an economy long term. You have to ask yourself if we can maintain any semblance of a relationship with any of these other nations and trading partners. And increasingly, it seems like, I don't know, that's not possible anymore.
- [37:47]
Scott Galloway
So you want to know my theory on Trump? Yeah, he's a fucking idiot and surrounds himself, opts for fealty over competence, gets very poorly advised and makes just a series of poor decisions that the CCP and the GRU couldn't have dreamt of in the wildest. I mean, they just. Whether it's taking oil up such that Russia can further escalate or continue this fight, whether it's hemorrhaging credibility to the IRGC from the us Whether it's giving the CCP just an unbelievable layup across the world, whether it's dividing, taking 66% of GDP that used to be sitting on the operating system that is American law, economy, our Navy, our military, our bases, our trade agreements, wanting us to win, generally feeling good about us and dividing it in half by giving comfort to our enemies and then alienating our allies such that they begin working with some of our adversaries or with each other, creating a, you know, a tripolar world where we're now in the minority. The real cost of the Trump administration aren't going to be felt for 20 or 30 years. I think when you are, you know, when you are have kids, when you're thinking about your kids in college, you're going to have just ridiculously high interest rates and inflation trying to pay off the extraordinary debt that an irresponsible boomer generation of which I'm part of, technically, I'm Gen X, but anyways, everyone calls me Boomer online, so I'll just lean into it. You're going to continue to pay the debts off or for the mistakes of my generation in this administration, and you're going to see an inability to form great alliances, defense threats, more terrorism, more insecurity, more nuclear proliferation, a reduction in our growth rates because other nations don't want to trade with us or don't trust us, a lack of human capital flowing into the US because people no longer feel the goodwill towards us. We're gonna be paying the price. We're gonna be paying off the extraordinary debt that this administration is registering, both literally, economically, but also reputationally. We're gonna be paying off that debt for decades.
- [40:09]
Ed
Well, a lot of people would hear what you said. A lot of people would agree with you. And then a lot of people would disagree with you and say that you have Trump derangement syndrome and that your hatred of Trump is clouding your understanding of what's to the economy. I know that people will say that, but I can also tell those same people there is a very important group of people who agree with your comments right now, and that is the bond markets. So we can look at the 10 year yield. Right now it's above 4.7%. These are higher than the yields we saw after the Liberation day crisis. The 30 year yield, and that's the time frame you're talking about, is above 5%. It's been stuck above 5% for 27 days this year. It's been stuck above 5%for days in a row. That is the longest consecutive run of more than 5% yield on the 30 year treasury since 2007. Which is of course right as we were gearing up for the great financial crisis. But Even compared to 2007, bond investors right now are pricing in more long term risk as it relates to America and its financial standing than they did at the beginning of the financial crisis. This is, according to the bond markets, one of the riskiest positions that the United States of America has ever been in. And you ask yourself, okay, why is that? Is it the AI concerns? Maybe? Is it Iran, Is it inflation? Yeah, it's kind of all of these things together. But to your point, I think the biggest concern is the fact that we have almost $40 trillion of debt. We've got a nearly $2 trillion annual deficit that seems to be growing every year. We've got annual interest costs of more than a trillion dollars, also seems to be growing every year. And all of these decisions that contribute to those deficits and that overall debt load, they're all being commandeered by an administration that appears to have actually lost its mind. Not just the President, but all of the people who are enabling his decisions, who are enabling the decisions on tariffs which are contrib to higher inflation, enabling the decisions on Iran. And Hillary Clinton in our conversation brought up a great point. She questioned whether they had even considered the possibility that the Strait of Hormuz might even be blockaded. That was their big what if that they had talked about and strategized about for decades. They just go ahead and bomb the thing. They don't make any contingency plan. They come up with this Memorandum of understanding, which we said was BS from the get go. And back then, that was, that was a month ago and we saw oil prices go down to 70 as everyone, for whatever reason believed that there was actually a deal to be had here. And then when we said that wasn't a deal, people again said, TDS, TDS, TDS. We're back to no deal and we're back to 100 on the price of oil, which means that inflation's going back up above four. And that's a runaway train at that point.
- [43:13]
Scott Galloway
I thought what you said was really an interesting means of communicating the issue. When you reverse engineered and made a solid cogent argument for, okay, 4% inflation, about 1% of that can be attributed to the war in Iran and the spike in energy prices. And about 1% can be reverse engineered to inflation or, excuse me, to tariffs. Now, people don't realize societies fall because of inflation. If the Fed is the key entity in terms of a society's economic health, they're there to manage two things. Job growth and keep inflation in check. And by the way, that is in reverse order of importance. If you said to the Fed, okay, the Board of Governors, you can either have weak job growth, right, or you can have inflation with strong job growth. They would pick weak job growth and low inflation. Societies crumble not when people are unemployed, but when people have two jobs and can't afford their rent. And let's just talk a little bit about inflation. And the numbers are misleading because when you hear 3 or 4%, you're like, oh, there's no difference. No, there's a big difference. Let's talk about the G7, the inflation rates. Japan, 1.5%. France, 1.8%. Italy, 2.4%. Canada, also 2.4. Germany, also 2.4. The United Kingdom 2.6%. And the highest inflation rate among the G7, which is supposed to have the most robust economy and the most competitive economy, which should keep prices low. We come in at the highest inflation rate of any G7 nation at 3.5%. And that's down from 4% because of the temporary decline in the price of oil. Now, what does that mean? Let's keep it. Let's be optimistic and say it doesn't go back to four. It sticks at three and a half. That means, say, wages go up 3% a year. Optimistic. But let's say it. Across the entire G7 because of demographic growth and productivity gains. That means in 10 years, Japan's going to register prosperity increases of wages above inflation of about 20, 25%. That means in 10 years you're not going to be able to take your kid to Disneyland, Tokyo Disneyland, once every four years, but once every two years. That means you're going to be able to borrow or need to borrow a quarter less to send your kid to college. It means you're going to be able to eat out four times a month instead of three times a month. This has a material impact on your well being and your prosperity. And because of own goals, we are dramatically reducing the prosperity of Americans. And this is when they're going to get angry. And again, we can manage, and the American public can manage a 4 and a half or 4% inflation rate in the short term. Sure it's hard for them, they see it. But in 10 years, if this shit keeps compounding because of the poor fiscal policies and structural shifts in our economy and our alliances, the result in stubborn inflation, including the massive debt problem we have because of irresponsible spending on both sides of the aisle. You just end up with a society where I mean the reason my parents came here was not for religious freedom. It wasn't to express their first amendment rights. They weren't fleeing religious prosecution from Glasgow and London. They came here because they wanted as middle class household to be able to buy a home in Laguna Niguel. And when they stood on their tippy toes on the second floor, they could actually see the ocean. That was a life they just never dreamt of. And be able to go to this amazing restaurant called the Sizzler. Hashtag awesome. You don't remember it. Incredible restaurant. And they had just this. My dad could join a country club. I mean I remember him saying to me, I used to play, go watch him play golf. And he was like, he's like, you don't understand. This is a dream of mine to be able to join a country club. The idea he played golf growing up. But every year that wages cannot keep pace with this inflation, you're going to see a compounding of a decline in the prosperity of Americans.
- [47:35]
Ed
That's how economies stumble and then fall and then fail. Is your wage growth doesn't keep up with inflation. That's happening right now. We just learned that that is the trajectory that we are on because of crucially not things exogenous events that happened to America, but actual decisions that were made in Washington that created this inflation, that created that lack of prosperity and that decline in wages, in wage growth. So that's the thing that drives me nuts here, is that we're not talking about things. Tragedies happen, like Covid happened. And that was really bad for a lot of countries and a lot of economies. And it was the contributor to inflation. That is why we saw such insane inflation back in 2022. That was a real problem for a lot of people that put huge economic pressure on millions of Americans. But again, that was an exogenous event. Now, you can argue as to whether the Biden administration did a good job of dealing with that exogenous event, whether they should have made different decisions, how they handled it. Have at it. Blame them all you want. But that wasn't a situation where we invented a problem out of thin air based on the decisions that came out of Washington. And as you've pointed out, and as I've said, we've had those two big decisions. One was the tariffs boom, percentage point. And the other is Iran boom, another percentage point. And it seems like that's not going away. I know a lot of traders keep on trying to be optimistic, and that's what we saw last month. But again, we're seeing what's happening here. We're seeing that the strikes are continuing. This is not. This is not getting better. And I want to just add one other very important decision that actively has harmed our economy. And it's. It's kind of hard to do that. It's kind of hard to make a decision that specifically makes things worse. You have to make a pretty bold and stupid decision to do that. But here's one that I've got for you, which is crazy. As you know, our emergency oil reserves have been massively depleted because of the oil shortage that we're experiencing because of the war. Reserves have hit their lowest level since 1983. We are down to 311 million barrels. The operational minimum is 200 million. So we're getting into very precarious territory here when it comes to our oil reserves in America. Great time to have a big, bolstered and sophisticated clean energy industry. But Trump has canceled or delayed $83 billion worth of clean energy projects in the US so far. Why? Because he thinks that clean energy is woke and lame and he'd rather be drilling for oil. And in fact, the administration is now actually paying companies to not build renewable energy projects. There's this company, TotalEnergies, a French energy company. They had planned to build a wind farm on the East Coast. Trump forced them to cancel that project and then paid them a billion dollars in compensation because he had canceled it and he had to now pay them. So we're actually paying Money to companies to not build this stuff. And to your point about China, who is building clean energy faster than any other nation in the world? China. They're responsible for 55% of global clean energy investments over the past seven years. They are ramping up their clean energy investment, ramping up their spending. They're responsible for 80% of the solar energy investment in the world. So they're speeding way ahead of us and they're accelerating. They're increasing the amount that they are investing into renewable energies each year. We're decreasing ours because we think that
- [51:30]
Scott Galloway
it's woke a myth on the right. They have somehow associated renewables with a woke ideology. The go woke go broke that somehow renewables are non economic. You know what state is number one producer of wind energy?
- [51:45]
Ed
Yes. Texas.
- [51:46]
Scott Galloway
Ding ding ding. 100%. 100%. And do you think it's because Texas leadership is woke? No, it's because economically at a given point on a summer's day in Texas, 60% of the electricity is being produced by wind. And they're not doing it because they're granola or kale eating Birkenstock wearing progressives. They're doing it because it makes sense economically. So again we have attached, we have politicized economics here to an unhealthy extent where we've said okay, renewables. And also again to both sides it Europe has probably gone too far in terms of politicizing nuclear power, politicizing fossil fuels. And the energy costs in Europe have been a real real dampening or registered a real dampening in economic growth because it has become energy fossil fuels and nuclear become too politicized from the left. But both sides tend to do this. And this is an example of the right attaching an ideology that is just non economic and irrational on the both sides.
- [52:59]
Ed
I mean I kind of agree but part of me wonders if it's, I mean you made this point like you want to be balanced here. I don't know why you even need to say that at this point because the extent to which the mythologies on the right are damaging the lives of millions to a degree that is like unlike anything we've seen in a long time. The extent to which these very stupid mythologies and to be clear, I agree with you that mythologies have existed on the left and they've caused problems before. But I don't think we've any, we've, we've seen anything like the mythologies that we're seeing on the right, specifically the anti woke mythologies.
- [53:43]
Scott Galloway
That's fair.
- [53:44]
Ed
That are creating these ridiculous decisions. So pull me is kind of like, why? Why even spend an iota of energy trying to be like balanced on it when it's so clear the size of the problem of the mythology on this one side. And I don't know if Republicans even necessarily unanimously agree with the decisions that he's making. It's basically just him and his close circle and that's the damage. That's what we need to get angry about. We'll be right back. And for even more markets content, Sign up for our newsletter@profgmarkets.com.
- [54:36]
Scott Galloway
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- [55:37]
Ed
Running a business shouldn't feel like surviving
- [55:39]
Scott Galloway
a software group project.
- [55:41]
Ed
One app for accounting, another for inventory, another for sales, and somehow none of
- [55:45]
Scott Galloway
them talk to each other. That's where Odoo comes in. An all in one business management software
- [55:50]
Ed
that brings every part of your business
- [55:51]
Scott Galloway
together, from sales and accounting to inventory
- [55:54]
Ed
and marketing, all in one powerful platform.
- [55:56]
Scott Galloway
No messy integrations, no bouncing between tabs, and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system.
- [56:05]
Ed
Try for free today at odoo.com Vox that's O-O-O.com Vox.
- [56:15]
Scott Galloway
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- [56:57]
Ed
We're back with Prof. G Markets. At first glance, it appears that we may be in the middle of a small business boom. According to the Census Bureau, Americans filed nearly 6 million applications last year to start new businesses. That is the most on record. But the data doesn't tell the whole story. Only 1.7 million of those applications were identified as high propensity businesses, meaning that they intend to hire paid employees. The vast majority of the applications were for entrepreneurs with no plans to hire people. So, Scott, this really grabbed my attention because I've been seeing this argument that we're seeing this small business boom, which I was down to run with. It's a reason to be optimistic. The fact that small business applications, new business applications have exploded. Last year they were up 10% year over year, hit a record. It's continued into the first half of this year. But most of those businesses are, quote, likely non employer businesses. So these are businesses with a very low likelihood of producing actual payrolls. And this is a methodology that the census uses. They include things like have you indicated that you're hiring? Have you provided a first wages paid date? Are you in an industry with strong employment demand, et cetera. And it turns out that more than 70% of these new businesses that we're supposed to be celebrating are likely non employers. So this seems like a little bit of a fake boom.
- [58:35]
Scott Galloway
This blew me away. So just in terms of how the sausage gets made here, we do editorial calls where the analysts pitch stories and Ed comments on them and I comment on them and we decide and our producer decides what stories we're going to do or not do. And this just blew my mind because I have this whole AI optimus rap. And one of the stats I just love is that new business formation is at a record high. And this just punctured that argument because again, numbers can be misleading. Right? Six million new business applications, which is a record. It sounds like a renaissance of the American entrepreneurial spirit. But as you guys pointed out, it isn't only 1.7 million or about 30% of them were quote unquote, high propensity, meaning they have any intention to hire people. The other 4 million plus are one person, a laptop and an LLC. So when you try and start a restaurant, you're going to hire 10, 20, 30 people. When you're starting a food blog as a Side hustle that's not great for the employment market. I mean, what the data shows is this isn't a small business boom, it's a side hustle economy dressed up in Census bureau language. And it probably in some ways reflects something unhealthy about the economy. One in three adults say they're planning a business or side hustle in 2026 and that's up 94% year over year, which is okay, there's something very good about that. But the question is, is it entrepreneurial confidence or economic anxiety wearing a founder's hoodie? And people aren't starting companies because times are good. They're hedging because they can't afford to pay their rent with their main hustle. So this is one of those many times where I realize, like, I don't know what I don't know. And this quote unquote, new business boom as supported by new business applications isn't really a new business boom.
- [60:32]
Ed
Yeah, I think this is a really important data point and I just want to just clarify for everyone. So As I said, 70% of these new businesses are likely non employers, according to the census. You compare this to the mid-2000s, the share of likely non employer businesses. So businesses that are probably not going to employ anyone, that share has doubled. So yeah, we're seeing new businesses, but most of them are not really contributing to the economy. Now the question is, why is this happening? What's actually going on here? So one theory is that you're seeing the rise of the AI enabled solopreneur. That AI can sort of allow you to kind of form your own thing and you start your own business. That might be it. But when you look at the data, this trend began way before AI. This happened. It exploded in Covid. So this was a Covid development where suddenly all of these kind of like non employee businesses just skyrocketed. There's another theory. Maybe it's just a lot more people are self employed now. Now people quit their jobs and now they're doing their own, their own solo companies. But if you look at the self employment rate and the number of self employed Americans today, it is actually down. It has fallen quite significantly over the past few years. So that leads me to one conclusion that makes a lot of sense, which is that these are all kind of bullshit side gigs. This is I'm bored at work, I'm still employed at work, but I work remotely and I kind of want to start like a lifestyle brand. And I'm going to make an Instagram account and maybe I'm going to make a substack and maybe if I'm feeling really excited about it, I'll also create an llc because I'm interested in doing that. But to be clear, that's not a business that is actually contributing to the economy. It's basically like, it's basically a hobby. It's basically like a more legit vehicle to express yourself based out of the boredom that you feel in your real job. And I think that this is becoming a real trend here, especially among young people, because I think young people are so disillusioned by the notion of traditional work, by the notion of being an employee and receiving a salary and receiving a wage. I mean, this is part of sort of the Andrew Tate floss philosophy of don't be a wagey, don't be a wage slave. You need to start your own business. You need to be an entrepreneur, you need to be a, a hustler. The, the entrepreneurship mindset has become such a hot thing, especially among young people who are living in an increasingly digital and social media driven world to the point where I think we are all fantasizing about that by creating these little bullshit side hustles and saying I'm an entrepreneur now. But in reality you're not because you still work for a company and you're not generating a livable income off of your side hustle off of your business that you're saying makes you a founder. And I think that that is the problem that we're running into and it's being reflected in the data.
- [63:44]
Scott Galloway
In my 30 year career, 40, I've only worked for another organization or a company for two of those years and it was right out of UCLA and was Morgan Stanley analyst program and the rest. It's been me starting my own businesses. And so when kids, when I say kids, students come to me in my office hours, they don't want to talk about strategy or brand strategy, they want to talk about, they want career advice. And typically the most common thing I get is I have an offer from Google and JP Morgan, but I'm thinking about maybe trying to start my own business. And they come to me because I'm an entrepreneur that's registered some success and they think I'm going to encourage them to start a business. And my answer is universally, don't be a fucking idiot, go to work for Google. Entrepreneurship is romanticized. Six out of seven startups fail. There has never been a wealth creation machine like the American corporation. It's not as sexy, it's not as romantic. There's a lot of bullshit, there's a lot of politics, but they will remove that mole on your back. And it is the best way to get rich slowly in history. And these platforms, the American corporation, are the most unbelievable platforms. If you're so many of these dudes who work at the Alphabets, the JP Morgans, the Goldmans, the snowflakes, The sales forces of the world think they're so badass and they should start their own company. And for most of them, I can look at them and say, call Marc Benioff and say thank you. Because you have had access to a platform that has created millions of dollars in economic security. And guess what boss? You are not that talented. You attached your cart to a fucking thoroughbred because you live in America and you have the right certification and you're probably very talented. But nothing leverages talent like the US Corporation. Some people aren't cut out for it. I didn't have the skills, not because I'm such a baller and needed to do my own thing, but I literally was too insecure to work at a corporation. Every time people went into a conference room, I thought they were talking about me. I was constantly in a state of anxiety because I just didn't know how to navigate the politics of an organization. I was too immature and I resented people who I thought were not as smart as me, making more money than me. I hated not understanding why decisions were being made without my input. Okay, folks, that is a small price to pay for what is, with a great company, an unbelievable chance to increase your skills. Have an HR organization trying to invest in you. I find most big companies have a certain paternal feel. I do do think that most of them try to take good care of their employees for not only shareholder reasons, but they generally try to be good citizens. But everybody wants to be an entrepreneur. And then let me act like a real boomer here. My companies, I've always been, I think I have. I can rightfully say I'm great at working with young people and I appreciate and love working with young people. The average, I think the median age at property markets is 26. And the creativity and dynamism of this generation, this youngest generation, is unparalleled. It's the most I've worked with every 20 something. You know, that, that, that our economy has spit out since 1980, 1990, when I started my first company. This is the most talented generation of 20 somethings in history. Their facility with technology, their social responsibility, their willingness to work hard amongst a cohort of this cohort what worries me is that when I was coming out of college it was a given that you were going to have to put on a suit, that you were going to have to wake up at 7am, that you were going to have to commute downtown, that you were going to have to navigate a corporation, that you were going to have to behave a certain way, that you were going to have to not go out on a Wednesday night because you had to be up at oh, dark hundred hours on Thursday morning. And I needed that discipline and it served me well the rest of my life. And I worry that a lot of people of your generation never developed that level of discipline because of remote work, because of sometimes parents who indulge their quote unquote passion of pursuing a food blog or starting a jewelry line. And that we have a larger portion of of young men and women in this cohort that are in for a bit of a rude awakening because they haven't been exposed to the requisite discipline of being really successful in this economy. Having said that, I appreciate how many young people have started their own business, worked their asses off and are building something great. Entrepreneurship has served me well. But I think this is a double edged sword and a younger generation that has some of the most talented people in the history of the economy. But I worry that some of the gestalt of the zeitgeist is setting them up for failure.
- [69:08]
Ed
The trouble to me isn't the idea of someone thinking I'm going to take a risk and I'm going to take a swing and I'm going to leave my job and start a company. Maybe they'll be right, maybe they'll be wrong, but they're assessing the risk and they're deciding to take the risk. And I kind of respect that. The thing that I don't respect is what we're increasingly seeing based on this data, which is you actually don't leave your job job, you stick around as an employee and then over on the side you start your little company because not because you're actually like trying to, to, to change your life but because you like the idea of being a founder, you like the idea of being a business owner. And if we look at the data, the way Gen Z thinks about this stuff, it's really striking fit. More than half of Gen Z has say they have seriously considered starting a business in the past 12 months. So one in two Gen Zers on the street they want to start a business. 70% of them say that business ownership is part of The American Dream. And if you believe that most of us are trying to pursue the American Dream, that means most of us think that the only way to be fulfilled and to live a successful life and have a successful career is to own your own business and to be an entrepreneur. But here is my favorite stat. Last year on LinkedIn, there was a 69% jump in LinkedIn profiles who added the title founder to their bio. And this is the problem. This is the thing that I take issue with, where you like the idea of being a founder, you like the ethos and the culture, and you like to be able to call yourself a founder because founders are cool and they go on podcasts and they have interesting lives and maybe they have large social media followings and they're kind of of something of an influencer at this point. But you're not willing to take the actual risks that it takes to actually build a business, which, as you say, six out of seven times fails, because it's really, really hard and it's actually quite grueling and not very sexy when you live the actual life that is required to make that business successful. So we're just living in this limbo period, this, like, paralysis of like, oh, I kind of. I have my job, but I kind of want to be a founder. And then you end up just living your life without actually doing anything with it.
- [71:26]
Scott Galloway
So the notion that entrepreneurship takes a toll on you, Ed. Let me just prove that. Look at me, Ed. Seriously, come closer. Look at me. Okay? I have a real BMI bonnet around the whole founder thing. And let me. If you typed in the name on LinkedIn of every company I've started, you're going to find there are 30 or 40 co founders of all these companies. Everyone has decided they're a co founder of red envelope of profit. And people would call themselves co founders and I'd be like, fine, have at it. Titles are cheap. Have at it. But here's what a founder is. A founder signs the front of checks, not the back of checks. And the reality is the vast majority of people are not willing to put their own money. Here's what it means, you know, L2, amazing, great company, smart people. We sold for 160 million. I got very lucky. Extraordinary. All the moons lined up. The first two years of L2 was me going home and telling my girlfriend, who had just given birth to our second son in about 36 months, oh, business is good. And I apologize, I can't be home for bath time. I am working 14 fucking hours a day. And I've got to work all day Sunday and just go in on Sunday to be emotionally supportive of the people who showed up on Sunday. And in exchange for that, on the 1st or the 31st of every month, we've got to take $100,000 out of our savings and put it into the company. And my girlfriend would literally look at me with this look of fear, like, what the fuck are you doing to our family? And I would have to sit there for an hour and explain to her why hopefully it was going to pay off. And not once, but twice I came within a hair of losing it all, couldn't pay my lease on my office, was going to have to shut the whole thing down and go home and not only lay off a bunch of people, but go home and tell my girlfriend and the mother and my children, oh, the $1.2 million or basically the majority of our savings is gone. That's what entrepreneurship is, folks. And sometimes, and by the way, that's a good story. It worked out. So. But back to this notion. People love to call themselves a founder. Have at it. Let me give you the sweet spot. If you think of going to work for a company, there's employee zero, the founder, there's employee 200,000 at IBM, right? Where's the sweet spot? My experience is the sweet spot is somewhere between employee 10 and employee, like call it 100. At a fast growing great firm with great founders because the founder risk is so immense, it's like infant mortality in the 1500s. You just don't know what's going to take the baby out. You just don't know. Right? They could catch typhoid, malnutrition. You just don't know what's going to kill this thing. Thing. That's kind of macabre anyways, once that risk has been starched out, if you find Marc Benioff and you got this guy worked at Oracle, this company's raising a shit ton of money. It's a great product and I could be the 300th employee and be the VP of marketing and get a quarter of a point. That's the sweet spot. Because you will every one of the first 1, 2, 3,000 people at Alphabet at any of these companies, even the companies you don't think of like a Palantir, they're worth tens of millions of dollars and they registered a fraction of the risk and the psychic damage. The sweet spot is kind of employee 10 to 100 or 10 to 1,000. If it's Amazon. If it's Amazon on series B and you meet Jeff Bezos and you're going to be the 1200th employee managing their fulfillment centers and you're going to get at millions of options, go all in. That's an unbelievable. And then as an investor, I find that the sweet spot is actually way late when basically the most successful businesses, the lowest failure rate of any startup is nursing homes because they're unsexy. I find the greatest returns I've registered and the greatest place to invest is in distressed is in companies that have gotten the shit beaten out of it and everyone's written them off for debt, both in equities and in distressed debt. I find from an investor standpoint, from your own human capital, you want to be at letters B and C, not letter A, not letter D or E. And from an investment standpoint, you want to invest in a nursing home.
- [76:15]
Ed
All right, let's take a look at the week ahead. We'll see earnings from Microsoft, Meta, Apple and Amazon. We'll also get the Federal Reserve's interest rate decision for July. Scott, do you have any predictions?
- [76:27]
Scott Galloway
So the, the number that is the number of the month is 58 and that is in January of 2025, the token usage from Chinese LLMs was 10%. In July it's 58%. So there are now, there's now more token usage of Chinese AI firms than frontier models in the U.S. now, the dollar volume is still much greater because get this, anthropic and chatgpt are 35 times more expensive than deepseek. So what you're seeing here is a bifurcation in the market. I'm not catastrophizing that Frontier models are going to go out of business. I think they're great businesses. I think their valuations are going to get crushed, but they're still amazing businesses. What's happening in the AI market is what happened in the automobile market. And we're becoming Germany. We have very high end, aspirational luxury brands that are the best cars on the road, that are higher margin, higher price tag. But Chinese models are Basically Honda, Hyundai, BYD. They're offering 80% of Frontier models for 10% of the price. And the reality is, and I hate to say this, I think China is winning the AI race because it's not about having the most expensive or even the best product. It's about putting the most AI in the most people's hands. And that's what China is doing. The AI market is turning into Germany versus Japan and Toyota is the most valuable automobile company in the world, except for a meme stock called Tesla. That's where people will fill up the comments. Well, what about Tesla?
- [77:57]
Ed
Well, it's down 15% in a week.
- [78:00]
Scott Galloway
AI is becoming bifurcated into frontier models and into the models that get in everyone's hands. And I would argue that if you look at the low cost automobile producers, they're more relevant than the high end guys.
- [78:13]
Ed
All right, I like it. At my quick prediction, we had inflation at 4.2. It went down to 3.5. People seem to think that's going to be the trajectory of inflation that's going to keep going down. I don't think so. I think we're going to go up above 4. We're going to be hovering around 4.5 for the rest of the year. I think I've said it before, but I'll say it again. I don't think we're getting out of this situation anytime soon. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Corty. Our research team is dan shalon. Kristen O', donagough, you and Mia Silverio. Jake McPherson is our social producer, Drew Burroughs is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Profgy Markets from Prof. G Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.
- [79:13]
Scott Galloway
You Happy and kind reunion
- [79:24]
Ed
as the World turns and the dark. Running a business shouldn't feel like surviving
- [79:46]
Scott Galloway
a software group project.
- [79:47]
Ed
One app for accounting, another for inventory,
- [79:49]
Scott Galloway
another for sales, and somehow none of them talk to each other. That's where Odoo comes in. An all in one business management software
- [79:56]
Ed
that brings every part of your business
- [79:57]
Scott Galloway
together, from sales and accounting to inventory
- [80:00]
Ed
and marketing, all in one powerful platform.
- [80:02]
Scott Galloway
No messy integrations, no bouncing between tabs, and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system.
- [80:11]
Ed
Try for free today at odoo.com Vox that's O D o-o.com Vox
- [80:19]
Scott Galloway
hi, Ryan Reynolds here for Mint Mobile. Are you looking for a beach read this summer? May I suggest your big wireless bill? It's got suspense, mystery, a slightly flat emotional arc, and a shocking twist where you realize you've been overpaying the entire time. Fortunately, though, Mint's story is better. Every plan $15 a month, even unlimited.
- [80:36]
Ed
That's it. Happy ending, zero tears.
- [80:39]
Scott Galloway
Give it a try@mintmobile.com Switch upfront payment of $45 for three months, $90 for six months or $180 for a 12 month plan. Required $15 per month equivalent taxes and fees. Extra initial plan term only greater than 50 gigabytes may slow when network is busy.
- [80:49]
Ed
See terms in the U.S. there's a break in every 26 seconds. But when intruders step near SimpliSafe, home security steps up. Stop.
- [80:57]
Scott Galloway
This is SimpliSafe.
- [80:58]
Ed
Police are on the way. Using AI alerts, U.S. based live agents help deter break ins. Simplisafe no long term contracts. Save 50% on your new system with professional monitoring@simplisafe.com Spotify or with promo code Spotify Outdoor Deterrence requires a Simplisafe Active Guard Outdoor Protection plan starting at $49.99 a month. Visit simplisafe.com licenses for alarm license information. Tennessee 2012.