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- [00:02]
Ed Elson
Support for today's show comes from darktrace. Darktrace is the cybersecurity defenders deserve and the one they need to defend. Beyond darktrace is AI cybersecurity that can stop novel threats before they become breaches across email, clouds, networks, and more. With the power to see across your entire attack surface, Cyber defenders, including IT decision makers, CISOs and cyber security professionals, now have the ability to stop zero days before day zero. The world needs defenders. Defenders need Darktrace. Visit darktrace.com defenders for more information.
- [00:39]
Liz Hoffman
What does it really mean to be a neighbor? It's just everyday people. You know, it's just people who are retired. They have a couple hours in the afternoon, so they're going to do patrols. And it's people who are, you know, real estate agents, you know, driving around, like, trying to track how ice is moving and alert neighbors when things are are not safe. The rise of mutual aid in times of crisis.
- [01:02]
Ed Elson
That's this week on Explain It To Me.
- [01:05]
Liz Hoffman
New episodes Sundays. Wherever you get your podcasts. Hi, this is Bella Freud.
- [01:14]
Ed Elson
I'm the host of Fashion Neurosis. This week on the show, Esther Perel is on my couch. Erotic recovery is part of trauma healing.
- [01:24]
Liz Hoffman
God, that's interesting.
- [01:26]
Ed Elson
It's not the reward at the end. Yeah.
- [01:29]
Mark Zandi
That's the difference.
- [01:30]
Ed Elson
And I think we both come together around that construct. Yeah. Find fashion neurosis on YouTube or wherever.
- [01:38]
Mark Zandi
You get your podcasts. Today's number, 49,500. That is the current value of the DAO, down from 50,000 on Thursday. As a result, Attorney General Pam Bondi has officially declared that child sex trafficking is once again illegal.
- [02:03]
Ed Elson
Money market matter.
- [02:04]
Mark Zandi
If money is evil, then that building is hell.
- [02:07]
Ed Elson
The show goes on.
- [02:11]
Liz Hoffman
Sell.
- [02:11]
Ed Elson
Sell.
- [02:13]
Mark Zandi
Welcome to Property Markets. I'm Ed elson. It is February 17th. Let's check in on yesterday's market vitals. Markets were closed in the US For President's Day, and stock futures were muted following last week's inflation report. More on that in a minute. Meanwhile, bitcoin dropped below $68,000 as its bear market dragged on. It has now fallen for four weeks in a row. And finally, Bloomberg reported that Warner Brothers Discovery may reopen negotiations with Paramount. Okay, what else is happening? January inflation data looks like good news at first glance. According to the Consumer Price Index, headline, inflation rose 2.4% year over year, which is slightly lower than expected. Meanwhile, core inflation came in right on target at 2.5%. But beneath the surface, the picture is less reassuring. Prices for services, excluding energy, jumped 0.4% in January. That's the fastest monthly pace since July. And there is another wrinkle. We are still missing October data which is distorting the year over year picture. So here is the real question. Is inflation actually cooling or is the data just wrong? To help answer that question, we're speaking with Mark Zandi, Chief Economist at Moody's Analytics. Mark, thanks for joining us on property markets.
- [03:34]
Ed Elson
Hi Ed, good to be with you.
- [03:36]
Mark Zandi
So I want to jump right into this, OK, the CPI report comes out. Inflation's up 2.4% year over year. Really good report on its face. People were excited about it, especially this administration which they're saying that basically inflation is coming down. The giant elephant in the room to me as soon as I saw this was something that we've discussed in previous conversations when the last report came out and the report before that came out, which is the numbers are probably wrong. And something that we've been talking a lot about is the fact that this shutdown that happened in October caused the Bureau of Labor Statistics to just not count up prices in October. They just made the assumption that inflation was flat, which of course doesn't really make any sense and that that has reverberated through to the numbers that we're seeing in every inflation report subsequently. And so my reaction was this is just wrong again and that's what people should be talking about. The numbers are wrong. So talk about that for us. To what extent are these numbers wrong? Are they wrong? And what did you make of this new CPI report for January?
- [04:53]
Ed Elson
Yeah, I don't know that I'd overstate the case. I mean these numbers understate inflation because of the, the October government shutdown and the fact that the bails couldn't collect the data for sure. But probably if you account for that, it probably adds a tenth or two to year over year growth. So instead of 2425 which was top line CPI, core CPI, it's probably what, 2.5, 2.6, maybe 2.7, something like that. So inflation, if you take these numbers at face value, don't put it into any other context, make the correction I just made, you'd say okay, it's not great, it's still above where the Fed would consider to be target and what I think most Americans would consider to be comfortable. But it's okay. But that's not the end of the story. There's a lot more to the story than just these CPI numbers.
- [05:46]
Mark Zandi
Let's hear what else is in the story here. What else should we be focusing on?
- [05:51]
Ed Elson
Well, there's other measures of inflation. I mean, obviously the most important is the consumer expenditure deflator, the pce. That's the measure of inflation the Fed uses to set its 2% target. And we are now getting a lot more data coming in. The cpi, the ppi, all that information feeds into this other measure of inflation that's kind of the bible for inflation measures. Measures inflation in a better way, accounts for a lot of the problems the CPI has. And that is going to come in hot for the month of January. When we get that number a month from now, we're going to have a different conversation around that. It's going to come in at least 3, 10 of a percent up in the month, maybe 4 10. And year over year is going to be close to 3%. And that's the reality of inflation. If you take all the different measures and you add it all up and you make all the corrections and adjustments and everything else feels like to me inflation is sitting around 3%, not 2%. That's where the Fed wants it. That's where I think most Americans again would feel comfortable with. It's closer to 3%.
- [06:51]
Mark Zandi
I think the thing that's confusing for a lot of people is there are all these different measures of inflation. You've got cpi, you've got pce. There are questions about how those are measured and which one is more accurate. Then you have the third party data you have, you know, you've been measuring your inflation over at Moody's, you've got, you know, other sources and a question is like, what are you supposed to trust and what is actually the most accurate reading? And what, what number is the right number? Which is increasingly becoming a real question. Especially when the data was kind of messed up in October. Just as an observer, I'm sitting here, I'm like, which number am I even supposed to be focusing on? What would you recommend to people who are trying to figure out what the actual deal is?
- [07:45]
Ed Elson
Well, this is why I get paid a salary. I direct the data for you. Look, the reality is that data, any data, are an imprecise representation of reality. Some data gives you a more precise representation, others not as precise. None of them are perfect. They all have their flaws and issues for lots of different reasons, some obvious, some not so obvious. But I think the way to think about this is you take the plethora of information that's available, you weight those pieces of information, data that you know are more reliable for methodological reasons, survey based reasons, whatever the, you know, whatever Your look criteria, you're, you're looking at and you make a judgment as to, you know, where we are. This is what the Federal Reserve does when they meet. They, you know, to think about the job market and they have to think about inflation and this is what they do. They have these kinds of discussions and debates about well, is this measure better, is that measure better? What's wrong with this? What about that thing over there? You know, what about these new third party measures? That's what they do. That's what they do for a living to set policy. So there's no good. Unfortunately, I can't give you something you're going to feel really satisfied with. Yeah, there is no satisfaction here. You've got to take all these pieces of information together and make a judgment based on that imprecise representation of reality.
- [09:06]
Mark Zandi
Yeah, when I look at the number that came out, 2.4%, I mean still that's price is going up and it's not the 2% number that we wanted. But the information that I'm sort of synthesizing, one, the issues that we had in October that we've discussed. Right. Two, I'm thinking about tariffs and the fact that tariffs have been passed through a 96% completion rate. According to this report, 96% of the pass through is going, being passed on to consumers. So you've got tariffs which is, you know, raising prices as well. I'm also going off of just general personal experience where I go around and I'm paying for things that are, are a lot more expensive than they used to be at the grocery store and otherwise. And I'm putting that all together and I'm thinking inflation's not improving. Inflation is getting worse based on, that's my read. But some would say no, that's not taking the data into proper account and maybe you're biased for various reasons. So when you look at all of the signals and data points that are out there, what would be your general characterization of inflation right now? Would you say that it is getting better, worse or about the same?
- [10:26]
Ed Elson
I think it's too high. I think it's about 3% and I don't think it's getting any better. And I suspect if we do a, if I give you my forecast, I'd say it's going to get a little bit worse before ultimately it will get better. I mean we've got more tariff pass through to go. We're still seeing the fallout from the effects of the heavy handed immigration policy on the labor market, on wages, on cost you can see it in the service price inflation. So it's high, it's uncomfortably high, and it's not going to get any better, at least not anytime soon. There's all kinds of caveats to that statement. What the Supreme Court decides what the President does in response to what the Supreme Court decides on the tariffs, so forth and so on. But that's my characterization of it. I will say, in response to Ed's inflation rate, everybody has their own inflation rate because everyone's buys different things and are focused on different things. My basket of goods and services I buy are different than yours. They're different than Claire's, the engineer here. So we each have our own basket of goods. The other thing I'd say is, in terms of perception, often what we perceive about inflation is related to what we buy on a regular basis. I buy a cup of coffee every morning. I have beef once or twice a week. I buy certain kind of clothing regularly. I need electricity every single day, so forth and so on. The prices for those things, gasoline, obviously, because we all buy gas, most of us, not you guys in New York, but most of us buy gas once or twice a week. So those are the things that we see those on a regular basis. We are monitoring those on a regular basis. And so they have a heavier influence on our thinking about what inflation actually is. So there's a lot of things out there. Like if you go buy a car, you don't buy that once every three, five, seven years. But that's still in the price index, by the way. That's another thing to consider. One other big caveat. In the cpi, the Consumer Price Index, and in the pce, there are quality adjustments. So cars are obvious every year. If you go look at the car, new cars that come out, they're better than the year before. That's measured in the CPI as a quality improvement. And you can actually see price declines. In fact, you're seeing price declines for vehicles in part because of that quality adjustment.
- [12:45]
Mark Zandi
Right.
- [12:46]
Ed Elson
So, you know, there's all kinds of things like that that make a gap between, you know, what's actually going on in your perception. But it probably. I agree with your perception. Inflation is too high. It's uncomfortably high for most Americans. It's way too high and it's not. It's not coming in.
- [13:01]
Mark Zandi
Yeah, I think that that quality adjustment kind of portrays a good picture of what's happening in the CPI where, you know, a lot of people, I think, are confused that year over year number in January, it's like it's not just we're going to measure what prices are in January across the board and then take the difference between what prices were last year. There are so many of these imputations and adjustments that they're making on a rolling month to month basis, which is why the numbers are so soft and it's so unsatisfying for someone like me who wants the real answer.
- [13:33]
Ed Elson
Yeah, I mean were you raised as an engineer? It sounds like you were. I mean you want precision.
- [13:39]
Mark Zandi
I was not.
- [13:40]
Ed Elson
There's no such thing as. There's no such thing. Okay. But here's the other thing. There's so called what economists call base effects. So every January you get these. A lot of businesses, that's when they raise their prices for whatever it is that they're selling. Right. This is the beginning of the year. They say, okay, now we're going to start with this new price increase. And in recent years, last couple, three, four years since the pandemic, you saw big price increases in January. We saw big price increase in January. This, but not quite as big. So this goes to seasonal adjustment. The seasonal adjustment makes things look weaker than they otherwise would have been. So even though it's year over year, you still have those adjustment effects and those base year effects. And so that's also probably pushing down the measured CPI rate year over year and making it inconsistent with how we think and, and feel about inflation broadly.
- [14:31]
Mark Zandi
Yeah. Just looking ahead, your forecasting for inflation you mentioned, you think that it's going to get a little bit worse before it gets better. Speak more before we end here about what you expect will happen to prices across America over the next say 12 months.
- [14:49]
Ed Elson
Yeah. If you told me over the next six months the year over year rate of inflation, let's use the pce because I think that's just what we should be using is going to go from 3% to three and a quarter. Could be as high as three and a half percent by mid year and then it'll start to fade because you know we'll get most of the. There's still more pass through to go between businesses to consumers on the tariffs. Yeah, 96%. I think that's that New York Fed study you're probably referring to that the 90% pass through was to consumers and businesses. There's still a lot more to go from business to consumer and that's going to happen. And so I expect some higher. But by the end of the year we'll get through the other side of that and we should start to see some moderation. And I'm hopeful, fingers crossed, that we get inflation headed definitively back to that 2% target by early next year. This time next year.
- [15:44]
Mark Zandi
All right. Mark Zandi, chief economist at Moody's Analytics. Mark, always appreciate it. Thank you.
- [15:50]
Ed Elson
Key time Ed.
- [15:53]
Mark Zandi
After the break, the nation's top antitrust lawyer is fired. And for even more markets insights, you can subscribe to my Weekly newsletter@edwardelson.substack.com.
- [16:11]
Liz Hoffman
Hi everyone. This week on on with Kara Swisher, I'm joined by the iconic actor and activist Jane Fonda. You've heard of her. Jane and I talked about her roots as an activist dating back to the 1970s when she was protesting the Vietnam War, to her ongoing fight for climate, free speech and ultimately our democracy. Here's a taste of what she had to say. Hope is very different than optimism. You know, optimism is everything's going to be fine and you don't do anything about it. Hope is a muscle. Hope is when you fight, hope can be rage filled. Breaking down the door with a battering ram. This is a wonderful conversation. I am privileged to be able to talk to people like this. Jane Fonda is the bomb. She just is. She's always been that way. She remains that way. She will go down in history as that. You can listen wherever you get your podcasts and search for us too on YouTube and be sure to follow on with Kara Swisher for more. Megan Rapinoe here this week on A Touch More, the one and only Flaje Johnson joins us to talk about leveling up for the wnba, managing nil money and how she's nurturing her music career. We're also taking a closer look at why participation in girls sports is declining. Surprising, we know. And we're giving some love to Valentine's Day and what it's like dating a pro athlete and who's the best athlete couple of all time. Check out the latest episode of A Touch More wherever you get your podcasts and on YouTube. Last month, Nora Mabey, a reporter in Montana, was looking around on Facebook for story ideas. In Montana, particularly in rural areas, Facebook is where a lot of news is shared. And a post from the local sheriff caught her eye. He said that border patrol agents had rocked up outside of business in the very small town of Freud, Montana, to take someone in and that he, the sheriff, was trying to assist them. But then at the end of his post, he added this it's important to note that this man was not a threat, not a danger to his community, has no criminal history and has been a great member of this community, which I just haven't seen a statement like that from law enforcement, particularly in a really, you know, conservative area that typically has a lot of support for all types of law enforcement, Border Patrol included. Coming up on TODAY explained the story of Freud, Montana, a town where most people voted for for President Trump, and how residents reacted when reality hit home. Today explained drops every weekday.
- [18:56]
Mark Zandi
We're back with Prof. G Markets. The White House just fired its top antitrust enforcer last Thursday. Gail Slater was ousted as the DOJ's antitrust chief. When she was confirmed last March, Slater told lawmakers she would resist any political interference in her division. Less than a year later, she was forced out for resisting settlements with companies represented by Trump connected lobbyists. Her departure marked the end of a battle between populists who wanted tough enforcement and a pro business wing that sides with corporate interests here to break down what all of this means, why she was fired. We're speaking with Liz Hoffman, business and finance editor at Semaphore. Liz, thank you for joining us on Prof. G Markets.
- [19:39]
Liz Hoffman
Thanks for having me back.
- [19:40]
Mark Zandi
So Gail Slater is out. It was a short run. How did we get to this point?
- [19:47]
Liz Hoffman
Yeah, you know, this kind of long and coming kind of ideological collapse inside the DOJ's Antitrust Division, you know, finally came to a head last week. Gail Slater, as you said, is out. Happened a couple days after her top deputy left. And there had been these flashpoints mostly over a handful of large mergers that had been brewing almost since the Trump slave, like the early days of the Trump administration. And the simplest version of the story, which I actually have some doubts about, but that there were these big corporate mergers. You might remember HP Enterprise trying to buy Juniper Networks. There was a large merger of two real estate brokerages where the consensus was that the DOJ had some questions and were skeptical that those mergers would result in sort of a lessening of competition in those markets and that the companies hired a bunch of lobbyists and went over their heads to the White House, to Trump officials at doj, and they kind of got waved through. And there's a little bit of truth to that. I think it's probably a little overblown and there's some other reasons that this was kind of never going to work, but that the tensions just sort of boiled over. And, you know, Gail Slater served at the pleasure of the president and that ran out.
- [20:58]
Mark Zandi
So you've been reporting on this. A few weeks ago you wrote, quote, companies whose mergers have been challenged or investigated by Slater's office have won favorable settlements by going around her to lobby Trump DOJ officials. You also pointed out that one of her deputies, Roger Alford, that he said the decisions are made, quote, depending on whether the request or information comes from a MAGA friend. That guy was later pushed out. So he gets pushed out. Now Gail Slater gets pushed out. This has been building for a while. This seems to me to be the big story, that no one is talking about this idea that Gail Slater and her team actually tried antitrust enforcement. But then if a friend of the president or a friend of the administration comes along, they can just go around her and they don't have to deal with the enforcement, which seems kind of like corruption, at least to me, is it not?
- [21:54]
Liz Hoffman
Look, the Trump administration has a lot of channels that don't exist in other administrations, and companies are using those to their advantage. That said, the Department of Justice is run by the Attorney General, who's appointed by the president. And like, it is not crazy to say that he wants people in those seats who share his politics and his ideology. And what's interesting about all of this is that coming into the Trump administration, there was a sense that we were going to have this sort of MAGA populist. There's a strain of MAGA that is almost very progressive in its dislike of big corporations and its skepticism of mergers and corporate power. And, you know, people talk about kind of the horseshoe theory of politics, where the kind of Bernie Bros. And the Steve Bannons of the world share a lot, have a lot in common. On this particular issue, they were sort of jokingly called conservatives. These are Republicans who liked what Lina Khan, the Biden antitrust cop, was doing in really aggressively swatting away these mergers and challenging monopoly business models. And so there's a sense coming in that you were going to see kind of an interesting tension. And it's just so obvious to me that the populace have lost that fight. You can argue about, you know, to what extent Gail Slater was ever really inclined to pursue it. But. But that, you know, I think the simplest explanation it was, is that it was never real. That really what we were seeing was a dislike, like visceral dislike inside the White House and the Trump campaign and then administration of big tech for mostly personal culture war reasons. Right. That getting thrown off these platforms was like an incredibly searing, formative experience for a lot of these guys. And it's a grudge that they have really nursed and that the platforms bigness allowed antitrust to be kind of the way that that got enforced and talked about, but that that problem has sort of solved itself.
- [23:47]
Ed Elson
Right.
- [23:47]
Liz Hoffman
As Mark Zuckerberg has pivoted meta away from content, from policing content. And Elon Musk's X is sort of undeniably back and relevant in a way. And so those fights have just sort of lost their edge. Which means that the sort of usefulness of antitrust enforcement is a way to express those. Those views just kind of went away.
- [24:06]
Mark Zandi
Right.
- [24:07]
Liz Hoffman
So I think this is just sort of the inevitable collapse of like an ideological coalition that we all kind of wanted to be there because it was interesting strange bad fellows are our fun politics. But I'm not sure it was ever real.
- [24:18]
Mark Zandi
Yeah, it's becoming clearer than ever that it was never actually about antitrust. It was never about monopolization, it was about wokeness and censorship. And that's what we saw with Netflix as well. Right.
- [24:31]
Liz Hoffman
For sure. I mean there's lots of mergers that would never sort of get to your radar or mine, but that the DOJ's sort of day to day job is challenging those because they are anti competitive in smaller markets. And we didn't see any of that either. It's not like Gail Slater was bringing cases left and right over the consolidation of some dental practices in Arizona. I mean, that wasn't. I think if you were looking for signs that there was a real appetite to continue really what the Biden administration's policy had been, which is deterring consolidation, we never really saw that.
- [25:04]
Mark Zandi
Yeah, it's really interesting because on this show we're kind of pro antitrust regulation or antitrust enforcement. I think this is something we've been talking about for a long time, at least at Prof. G. Which is the just continued consolidation of big tech and this feeling that maybe we want some level of antitrust enforcement, but it's never actually going to happen. And I think the best example was what happened with Google last year where it was decided it was agreed, yes, they were operating an illegal monopoly. But then when it came to figuring out what the remedies were going to be, they decided actually we're not going to issue a remedy because AI is now happening and it's a different time now and it doesn't really make sense anymore. We thought that Gail Slater was going to be sort of the champion, or maybe not the champion, but she was sort of the sleeper pick who was actually gonna crack down on antitrust. And it was one of these people that I was like, okay, maybe Trump's actually picked someone decent here. We then spoke with Jonathan Kanter, who was the former head of the antitrust division at the DoJ, I asked him what he thought about Gail Slater. Here's what he had to say about her.
- [26:12]
Liz Hoffman
I know Gayle, she's extremely talented. She's very well qualified. She's level headed.
- [26:18]
Ed Elson
This is not somebody who's on the fringe.
- [26:20]
Liz Hoffman
It's not somebody who comes in without any experience. It's not a made for TV job.
- [26:24]
Ed Elson
Posting like perhaps in some other.
- [26:26]
Liz Hoffman
This is somebody who's a serious, dedicated antitrust lawyer. And I think it's well respected, is.
- [26:31]
Ed Elson
Well respected in the antitrust community.
- [26:33]
Mark Zandi
I guess my question would be, would you agree with that characterization? And is it not kind of a shame that someone who both sides of the aisle seem to agree was pretty good is now out? I guess because she didn't do whatever Pam Bondi told her to do.
- [26:51]
Liz Hoffman
I mean, that is the reality of this administration. Right?
- [26:54]
Mark Zandi
Yeah.
- [26:55]
Liz Hoffman
A plurality or a majority of people who come through, it kind of come out worse on the other side, but yeah. I'm curious, when did you talk to Jonathan? Was that on the way in when Slater was.
- [27:04]
Mark Zandi
That was right after the nomination. Yeah. Yeah.
- [27:06]
Liz Hoffman
I mean, and I think that really did capture the hope that sort of both progressives like Jonathan and sort of MAGA populists like Steve Bannon and by the way, like J.D. vance.
- [27:19]
Ed Elson
Right.
- [27:20]
Liz Hoffman
Who has been, who had very nice things to say over the years about Lina Khan and thought that companies were too big. You know, there was a sense that they, that there was some sort of political realignment happening around this issue and it just like obviously did not happen.
- [27:34]
Mark Zandi
Yeah.
- [27:35]
Liz Hoffman
And people who, you know, would like to see more robust antitrust enforcement are like, very disappointed. And I spent a little time in some of the MAGA group chats last week. I'm like, people were really, really upset about this.
- [27:47]
Mark Zandi
Right.
- [27:48]
Liz Hoffman
But I think, as always, kind of the simplest explanation is, is the right one, which is that like it was never real.
- [27:54]
Mark Zandi
Yeah. All right, Liz Hoffman, thank you for your time.
- [27:56]
Liz Hoffman
Thanks, Ed.
- [28:03]
Mark Zandi
As you've probably seen, tech stocks are being taken to the woodshed. In the past month, software stocks have fallen 16% on average. Big tech stocks have fallen as well. Google's lost 7%. Microsoft has lost 14%. But one of the biggest big tech losers so far is indeed Amazon. Amazon is down 17%. In fact, it fell for nine straight days last week, which was its longest losing streak since 2006. So why has this destruction happened? Well, as we've discussed before, it's all because of AI a few weeks ago, OpenAI and Anthropic released new AI tools. Those tools went viral. They showed they can pretty much do everything that a white collar worker is supposed to do. And since that happened, roughly $2 trillion in market value has been erased. And the idea behind this sell off is that AI is going to make legacy tech companies irrelevant. Why would you pay for traditional software if you can just vibe code your own software with Claude? This applies to Amazon too. Why invest in a legacy e commerce company when AI might upend online shopping altogether? Now I have laid out before why I don't think this sell off makes much sense. I don't think these legacy software companies are going to get nearly as hard as the markets seem to think. I think that for various reasons such as enterprise security and switching costs, lots more reasons which you can read about on my substack. I run through the whole thing. But when it comes to Amazon, there is another very big and not very talked about reason why this sell off really doesn't make any sense at all. And I'm going to tell you what it is. But before I do that, let me first just remind you how badly Amazon is getting punished right now. So Amazon has historically traded at 57 times earnings. It is currently trading at 28 times earnings. Just to put that in perspective, Walmart, whose revenue grew less than 6% last quarter, year over year, Walmart is trading at 47 times earnings. Costco, which has practically no digital footprint at all, is trading at 55 times earnings. Meanwhile, Amazon, whose growth rate is nearly twice as high, is trading at a multiple that is nearly twice as low as those companies. So Wall street hates Amazon right now. And the reason they hate it is again because of AI, because of the disruption that AI companies like Anthropic, like OpenAI, could levy on their business. Okay, now I'm going to tell you why this sell off is stupid. And it's quite simple. The reason it is stupid is because Amazon owns nearly a fifth of Anthropic. In fact, Amazon is one of Anthropic's largest and earliest investors. They have invested roughly $8 billion in Anthropic going back as far as 2023, before most investors even knew what this company was. So what that means is that any success that is achieved by Anthropic will also be achieved by Amazon and by Amazon shareholders. Why? Because they literally own the business. Now, some investors know all about this, but as someone who spends most of their time talking about these companies, what I can tell you is that it is Shocking how many people don't know about it. It is rarely acknowledged in research notes. It's almost never discussed in analyst calls. It's not even treated as a footnote. It's treated as something even smaller. It's almost as if this investment doesn't even exist. So why is no one talking about it? Why is no one talking about the fact that Amazon owns nearly a fifth of Anthropic? Well, I've thought about it and the answer is now clear to me. The reason no one is talking about it is because Amazon isn't talking about it. In fact, Amazon doesn't really talk about it at all. Supposedly, their Anthropic stake is now worth more than $60 billion, which would imply that they own more than 16% of the company. But that is based on an internal review of their balance sheet, which is based on an internal valuation of Anthropic. And it actually has nothing to do with the current market price of Anthropic based on its most recent funding round. So what that basically means is we actually don't know how much of Anthropic Amazon actually owns. We can make assumptions, and based on our assumptions, it is more than 16%, but it could be even higher than that. We actually don't know why, because they haven't told us. Amazon has given us almost nothing. So this is an open letter to Andy Jassy and to the Amazon executive team. Your Stock has fallen 17% in the past month. You don't have a business problem. Your business is tearing right now. You have a multiple problem. You have a valuation problem. Investors don't like the story you're telling about your company. They specifically don't like the story you're telling about AI. And that is because you're omitting one of the most important elements of the story, which is that you are one of the largest and earliest investors in the hottest AI company in the world. That is a very big deal and it needs to be communicated. So my message to Andy Jassy is the following. Tell us about it. Tell us exactly what the terms are with Anthropic. Tell us exactly what your stake is. Tell your shareholders how much they have to gain here. Make this part of the story, by the way. I would also add that Microsoft should be doing the exact same thing. Microsoft owns nearly a third of OpenAI. And again, not enough people are talking about it. Now, I can understand the hesitation from Amazon. Anthropic is a private company. They're issuing convertible notes. There are possibly some antitrust concerns, et cetera, et cetera. But let's also acknowledge that the AI narrative is now reaching an inflection point. We are witnessing a fundamental RE rating of the tech industry. Wall street is picking its winners and it's picking its losers. And they have decided that you, Amazon, are a loser. I and many others know that you're not. So if you want to improve the multiple, you have to improve the story. And right now your story is missing a giant chapter that investors want to hear about. And that chapter is indeed anthropic. Okay, that's it for today. This episode was produced by T.W. miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Thank you for listening to Prof. G Markets from Profg Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.