← Prof G Markets
Prof G Markets
Nippon & U.S. Steel Deal Closes, Fed Holds Steady, and YouTube Wins Over Older Viewers
00:28:28
Loading summary
Transcript28 lines
- [00:00]
Ed Wilson
Support for the show comes from Attio. Attio is an AI native CRM built for the next era of companies. Its powerful data structure adapts to your business models, syncs in all of your contacts in minutes, and enriches your business with actionable data. Attio also allows you to create email sequences, real time reports and powerful automations all to help you build what matters your company, join industry leaders including flat file, replicate, modal and more. You can go to attio.com profg and you'll get 15% off your first year. Then that's attio.com profg support for the show comes from LPL Financial. What if you could take that dream vacation or take that idea and go start that business? What if you could grow your career or your company when it comes to your finances, your business, your future? LPL Financial believes the only question should be what if you could visit LPL.com to learn more. LPL Financial member Finra Sipc no strategy assures success or protects against loss. Investing involves risk, including possible loss of principle.
- [01:09]
Scott Galloway
Support for the show comes from Intuit SMB Media Labs. Reaching the right small businesses starts with the right data. Intuit SMB Media Labs is a first of its kind small business ad network with access to audiences and insights from the makers of QuickBooks. You can target key decision makers by industry size, maturity, location and more. Your gateway to B2B SMB marketing success. Learn more at medialabs.intuit.com today's number 37.5.
- [01:40]
Claire
That's how many megabytes of data there are in each human sperm cell. For some reason, our producers love to start this show with a gross number. But this one is actually quite interesting. It means that the average load contains 16 terabytes of data, which is the equivalent of 250 iPhones. So I know that there is a young men crisis happening right now. A lot of guys out there might be feeling down on themselves, but I just want to remind you that at the very least you're great at storing data.
- [02:14]
Joshua Gruen Specht
Money markets matter.
- [02:16]
Claire
If money is evil, then that building is hell. The show goes on.
- [02:22]
Ed Wilson
Sell.
- [02:23]
Claire
Sell. Welcome to Property Markets. I'm Ed Wilson. It is June 19th. Let's check in on yesterday's market vitals. The major indices climbed through the morning, then erased those gains following the Fed's interest rate announcement. We'll talk more about the Fed's decision in a moment. Meanwhile, oil prices held steady after Trump said Iran wants to negotiate over its nuclear program. Coinbase stock soared 16% as the Senate passed a stablecoin bill known as the Genius Act. And Uber and Lyft shares fell around 2% after Waymo applied for a New York City testing permit. Okay, what else is happening? Nippon Steel has officially closed its $14 billion takeover of U.S. steel. The combined company will form the world's second largest steel maker. It will also put an end to a political saga that has lasted 18 months, ever since the acquisition was first announced. As you'll remember, President Biden was against this deal. He said it was a national security risk. So was President Trump, for many of the same reasons. But it was all settled under this very unusual deal that gave the US Government what is known as a golden share in the new company. Scott and I discussed this golden share a couple weeks ago when it was first announced. At the time, we didn't really know what it meant. We knew it gave Trump some level of control, but we didn't know the specifics. Well, now with the deal completed, we do know the specifics. The golden share will give the President the perpetual right to veto any decisions that concern the following capital investment, changing the company's name, changing the company's headquarters, redomiciling outside of the US Moving production abroad, making acquisitions, and also closing any existing facilities. So, in sum, the president's got a lot of control over this new company, and that is very unusual. As we've discussed before, the only times when the American government has ever taken up a stake in a company is when there was some level of systemic risk to the economy, such as AIG in 2008 or General Motors in 2009. Both of those were, of course, in response to the financial crisis. But the difference here is that there is no real risk to the economy. US Steel is. Is actually quite a small company. It's the 23rd largest steel maker in the world by production volume. It employs seven times fewer people than Chipotle, and at $14 billion, it's roughly as valuable to the marketplace as Texas Roadhouse. So for the president to have a golden share in this company, it is legitimately quite strange. And it begs a question, which is has Trump now set a precedent? And this is very important when it comes to M and A. Is it now acceptable or normal for the government to intervene during acquisitions and to exert its control over the decision making processes of a private business, as it has done with Nippon Steel here? This is the question that M and A experts are now concerned about, especially when it comes to foreign M and A, because it's now Very feasible that if another foreign company comes along and they say, we wanna buy an American company, Trump may now just point to the Nippon deal and say, well, you've gotta do what they did, you've gotta give me some control. And if he does that, then suddenly this whole golden share thing, which at present is an anomaly, it might eventually become the norm and that would shake up the M and A industry very dramatically. So we wanted to find out more about this, specifically how this impacts M and A. So our producer Claire spoke with Joshua Gruen Specht, a national security lawyer with Wilson Sonsini.
- [06:17]
Jerome Powell
In one sense, this is a pretty unusual situation. And the fact that many, many deals continue to go through without any kind of golden share type situation being imposed upon the parties to the transaction indicate that this may not be a highly generalizable thing situation. On the other hand, it is a new approach. And if the President of the United States decides that he likes it, then you could see it more often. And I do think that that would create some meaningful uncertainty for markets. I mean, it's a cliche to say that markets don't love uncertainty, but it's also true. And so what happens if this becomes a common structure is that foreign acquirers then have to take a look at capital markets transactions that they want to engage in in the the United States and say, am I going to get the benefit of my bargain? Am I going to acquire this business and actually own it at the other end of this transaction? Or are there meaningful ways in which I don't actually have the authority that I want over the business that I'm investing so much money to acquire? And I do think that if that happens, if this is a harbinger of a more common use of this structure, I do think that that could create, you know, meaningful uncertainty in the markets.
- [07:37]
Claire
Yeah. Can you say a little bit more about how that uncertainty might actually manifest? Are you basically saying foreign investors might slow their role into US Companies?
- [07:48]
Jerome Powell
Yeah, I mean, I think, I think that's really hard to predict. I think it depends on how common this becomes and what industries it's known to be a problem in. I think that could be a sector specific issue. But on the other hand, we do see regularly these days people investing even into highly sensitive technology sectors, semiconductors and so on and so forth without these structures. So if this does not become more common, I don't think there's going to be an effect. If it does, I think that investors will read the markets and say, hey, I see that in transactions, in let's just say metals and manufacturing. Let's say that this happens not just in steel but also in aluminum and another aluminum deal down the road and you know, a couple more mining deals. Then all of a sudden I do think that that foreign investment into those sectors, specifically in the United States, might start to taper.
- [08:40]
Claire
Well, I just think it's hilarious that Trump was supposed to be the guy who's going to bring about the M and A boom. I mean, people have been talking about this M and A slump that we've been seeing for several years now. And now what we're seeing is this golden share is actually according to Joshua, and I think he's right here, this could cost a chill over the M and A market. So we'll see if this becomes a trend. As of right now, it is just an anomaly. This is the only company where the government has this golden share, but it could become something more. And that's the thing that we need to keep an eye on. We'll be right back after the break for a look at the Fed meeting. Stay with us.
- [09:26]
Ed Wilson
Support for the show comes from public.com all right. If you're serious about investing, you need to know about public.com that's where you can invest in everything. Stocks, options, bonds and more. They even offer some of the highest yields in the industry including the bond account 6% or higher yield that remains locked in even if the Fed cuts rates. With Public, you can get the tools you need to make informed investment decisions. Their built in AI tools called alpha doesn't just tell you if an asset is is moving, it tells you why the asset is moving so you can actually understand what's driving your portfolio performance. Public is a FINRA registered SIPC insured US based company with a customer support team that actually cares. Bottom line, your investments deserve a platform that takes them as seriously as you do. Fund your account in five minutes or less at public.com profg and get up to $10,000 when you transfer your old portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities, options and bonds and a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Complete disclosures available@public.com disclosures I should also disclose I am an investor in public. Support for the show comes from Aura. A common piece of advice for staying healthy is listen to your body. But that's easier said than done. What is your body actually saying? Oura Ring can give you incredibly rich data about your body, including long term trends and feedback on the stats that matter for actually making you feel better over the long run. It helps you understand what your body needs by tracking over 30 biometrics 24 hours a day right from your finger, then delivers personalized insights and recommendations to help you improve how you feel every day. Because that's what it's really all about. Improving how you feel. Instead of just focusing on activity and performance, Aura emphasizes balance and rest. It also focuses on metrics related to mental health, heart health, stress and other areas that are critical for helping you live better and longer. And Oura Ring looks like a regular piece of jewelry. It's subtle, comfortable, stylish, waterproof, and has a battery that lasts up to eight days. That means you actually wear it. Getting old has never looked so good. Now give Aura the finger. Learn more@oura ring.com support for the show.
- [11:48]
Scott Galloway
Comes from Intuit SMB Media Labs when it comes to small business marketing, reaching the right audience starts with the right data. Intuit SMB Media Labs is a first of its kind small business ad network that helps your marketing work way smarter. By leveraging exclusive audiences and insights from the makers of QuickBooks, you can connect with the right customers efficiently and effectively. With a scale of 36 million, Intuit SMB Media Labs puts your brand in.
- [12:12]
Ed Wilson
Front of the small businesses that you.
- [12:13]
Scott Galloway
Need most, targeting key decision makers by industry size, maturity and location. More than just an audience, it's your SMB Media partner. Learn more@medialabs.in.
- [12:33]
Claire
We'Re back with property markets. The Federal Reserve met yesterday and Jerome Powell announced his interest rate decision for June. He decided to maintain interest rates as they are. We did not get a rate cut. Despite what the President's been pushing for, the Fed funds rate remains in the range of 4.25 to 4.5%. This was widely expected. Most economists thought we would not get a rate cut. But what is striking is what the Fed is signaling now about future rate cuts, and that is they're looking increasingly unlikely. Last month, most analysts expected we'd get a rate cut as soon as July. The probability of the July cut was around 70%. I made the prediction on the podcast that that would not happen. My belief was that Jerome Powell would wait for the next quarter of GDP data to come in and that we wouldn't see a rate cut until September. It is beginning to look like that will be the case. Two of the Fed officials out of the 19 are now expecting only one rate cut in 20, 25, and seven of them are now expecting no rate cuts at all this year. So the probability of a July rate cut, which was 70% last month, it is now down to 12.5%. So the Fed is getting more cautious about reducing interest rates, not less. Why? Well, as you'd probably guess, because of inflation. Despite what Trump and Besant keep saying about how inflation is done, it's over. And it's all because of our great policies. We've discussed that on the show. Despite all of that, the Fed believes that, yes, tariffs raise prices and therefore prices will rise. They now expect inflation to increase to 3.1% this year, and they also expect that unemployment will rise from 4.2% to 4.5% by the end of the year. So the calculus for the Fed is pretty simple. They believe tariffs are creating inflation or that they will create inflation. So they're deciding, no, we're not going to cut rates because if we did, we would accelerate that inflation. Pretty basic. Makes a lot of sense. But did that stop President Trump from hurling even more attacks at Jerome Powell? No, it didn't. He actually ramped it up yesterday.
- [14:51]
Donald Trump
I mean, we have almost no inflation. We've done a great job. We had. When I came in, we had a lot of inflation. We went through four years of the highest inflation in the history of our country with sleepy Joe Biden. And then it came down, because when I got elected and it started dropping because people understood that I knew what I was doing. But now we have a man that just refuses to lower the Fed rate, just refuses to do it. And he's not a smart person. I don't even think he's that political. I think he hates me. But that's okay. You know, he should. He should. I call him every name in the book, trying to get him to do something. I've been nice to him. I do it always. I don't know how to sell. I've been so nice to him. Fellas, you wouldn't. But let's have dinner. Too late. I'd call him. Too late. Come on. Too late. Let's have dinner. I do it every way in the book. I'm nasty, I'm nice. Nothing works. He's like, just a stupid person.
- [15:42]
Claire
Well, look, the good news is I don't think Jerome Powell cares much about what Trump has to say about him. Trump has tried to goad him several times, and Powell consistently never really reacts. The bad news, though, is I think a lot of Americans might actually think that what Trump is saying here is true or accurate. And it's so frustrating to watch because when Trump says inflation has come down, which it has, he's essentially taking credit for something he didn't do. Because yes, inflation fell in April, but this has been a years long process and it's a process for which we owe the credit to Jerome Powell. He's the one who decided to raise interest rates. He's the one who decided to hold them there despite all all the criticism he got that it would kill the economy. He's the one who brought down inflation and he was able to do it without killing the economy and without tanking employment. He achieved what most thought wasn't actually possible and that is a soft landing and he deserves credit for that. But here we have Trump, who actually inherited those inflation numbers and is now taking credit for them while also ruining them in the form of tariffs and at the same time calling Jerome Powell stupid. So I've said this before, but this is just a continuation of what I call the tariff inflation psyop. This is the administration trying to convince you that the reduced inflation that we've seen in the past couple of months isn't the result of the years of work by Jerome Powell, but it's the result of tariffs, which doesn't make any sense and also just isn't true. And when that inflation doesn't ticks back up again, which it will because of tariffs, my bet is they'll blame Jerome Powell again. They'll say no, no, no, it's not the tariffs, this is because of the bad policy at the central bank. But I just want to be clear because I think it's important. Thus far, Jerome Powell has gotten almost everything right. He was handed a very difficult situation. He decided to raise rates and keep them up, which he got a lot of criticism for, but he ultimately kept the economy moving was while bringing inflation down. And I just think we owe it to ourselves as a country to yes, criticize our leaders when they get things wrong, but also to give credit to our leaders when they get things right. And I'm sorry, but I'm just, I'm not gonna let Donald Trump change the record on this. Jerome Powell got it right. He did a phenomenal job. And I would have thought that the results would speak for themselves. But we have a president who's trying to mess with what the results are telling us. So let's just be very clear about this. Jerome Powell has done a great job so far. He is not a stupid person and he deserves to get the credit here, not Trump Our final story. Last month, for the first time ever, Americans watched more TV via streaming services than they did through broadcast and cable networks combined. That is according to a new report from Nielsen. Nielsen started measuring streaming compared to broadcasting Cable back in 2021. And at that time, the gap was actually huge. Cable and broadcast made up two thirds of overall TV viewing time, and streaming at the time made up just 26%. Now the dynamic has officially switched, and streaming now makes up 45% of total TV viewing time in America, more than cable and broadcast combined. So nothing necessarily new to us here. I think this mostly just ratifies what we've been talking about for a long time, which is that traditional TV is on the way out, and this is our proof. We have the data. Yes, it's out. But there were some other little data points in this report that I thought were especially interesting. And the one that really caught my attention is what has happened to the viewing habits of old people, or boomers, or people over the age of 65. And what the report found is that old people still watch a ton of tv, more than any other age group, but they are increasingly moving over to streaming, and that's what clinched it this month. That is the reason why streaming officially took the crown in May. But what's even more interesting is that there is one streaming service that old people seem to love right now more than any other platform. And I'll give you a moment to guess, because the answer, at least to me, is quite surprising. Okay, locked your answer in. The answer is YouTube. Yes, YouTube. Watch time for people over 65 has risen 106% since May 2023. And old people are now the fastest growing cohort of any age group to be watching YouTube from a television set. In fact, the amount of time that boomers are spending on YouTube is now equal to that of children under the age of 11. This is crazy. This is the group that famously watches a ton of YouTube. This is why Cocomelon is the third most popular channel on the platform. So now old people are actually rivaling children in terms of their addiction to YouTube, which is just fascinating because, you know, it used to be that old people were addicted to cable shows like Fox and CNN and msnbc. Scott regularly makes fun of this. He often points out the fact that the average age of an MSNBC viewer is 70. And by the way, yes, that is actually true. But now old people are migrating from those networks and they're moving to, of all platforms, YouTube. So let's get Scott on the line, because I want to hear his reaction to this report. Hey, Scott.
- [21:41]
Joshua Gruen Specht
Eduardo, mi amigo, where are you right now? So I am at the Google beach party, which is the most obvious branding mistake of Cannes. And that is if they called it the YouTube beach, it would be much cooler and they'd get much cooler entertainment. Instead they call it Google beach and it gets an okay crowd because it's a huge company, but it doesn't or it's, it doesn't get the same sort of riz, if you will. If they call it a YouTube beach. Anyways, that's where I am. I'm literally sleeping with the enemy and I'm Coco Chanel sucking some Nazi cock right now. Too much? Too much?
- [22:20]
Claire
No, not too much at all. Let's get your reaction to this Nielsen report. Specifically. YouTube is absolutely crushing right now. Any thoughts?
- [22:29]
Joshua Gruen Specht
The streaming news just blew me away. In the last couple of years or four years, steamer's up 71%, cable down 30 something percent, broadcast down 20% but already off a very diminished base. That's dramatic. And what I see is that the thing, the data that really struck me was that if you look at the cost per minute of YouTube, YouTube gets about 13% of all viewership. Netflix about 8, they say about 5. Netflix has to spend about 50 cents on content per minute of viewership. So about they spent 18 billion. That means they're getting about 36 billion minutes of absorption or viewership. This is what blew my mind. YouTube spends 20 cents. Why? Because it's an asset like model. They don't produce any content, they just have a revenue share program. On TikTok only spent about 2 cents because the revenue share program doesn't need to be as generous because their algorithm is so good. So what you have is essentially all of these TikToks of Hollywood and LA professionals prying into their camera about how Hollywood is disappearing and the jobs are disappearing. If you look at YouTube, YouTube actually spends as much on content creation as Netflix does. They're just spending it on creators across the world. So the same amount of content spent is actually happening, maybe even more. It's just not being funneled through sag, AFTRA or the typical actors. So what you have here is essentially YouTube and TikTok are doing to Netflix what Netflix did to Comcast and Fox.
- [24:16]
Claire
So Scott, what are your predictions for how this all plays out?
- [24:20]
Joshua Gruen Specht
Okay, so some predictions. Well, naturally you think this is probably going to put strain on Netflix. It's had an unbelievable run. So if you're going to make predictions, you would say that Netflix stock is going to come under pressure over the next two or three years as it continues to lose share to set light companies, if you will. Specifically YouTube and TikTok. ByteDance, which owns TikTok, is probably the most undervalued tech company right now, trading at 3 times revenues versus OpenAI at 30. And that Alphabet is undervalued, given that it has YouTube and only trades with 6, a multiple of 16 versus everyone else in the S&P at 26. And also sort of a long shot prediction is that Alphabet prophylactically spins YouTube because if the stock of Alphabet goes down, they'll decide to spin this juggernaut called YouTube and try and make a deal with the DOJ and the FTC to say hold on before you try and break us up, what if we spend YouTube? But this is just really dramatic news around how the world is shaping in terms of the creator economy and who the winners and losers are. But Ed, enough of that shit. I'm going from Google beach to the Spotify party, who really knows how to throw a party. And I'm going to try and steal this giant YouTube balloon. What do you think? What do you think? Should I do that? Is that a good idea?
- [25:47]
Claire
Get after it.
- [25:48]
Joshua Gruen Specht
Peace.
- [25:49]
Claire
Okay, bye, Scott. So look, I think this all plays into a dynamic that I've discussed for several years now. And that is, I think YouTube is the most ascendant media platform in the world. And I also think it is the most underhyped media platform in the world. And the reason I say underhyped is because when you look at Google's valuation and you look at it vis a vis the sum of its parts, as we did a few weeks ago, you can only really conclude that the market is undervaluing YouTube. And if you want to see our analysis there, you can go check out that episode. But the reality for YouTube is this. It is not only the most popular streaming platform on mobile and desktop, it is also the most popular streaming platform on TV. And by far it makes up 12.5% of total TV viewing time. Now the number two is Netflix at seven and a half percent. The number three is Disney at 5%. So YouTube is still the juggernaut. We already knew that. But it's worth reemphasizing. And in addition, YouTube is now stealing what is the largest and most addicted cohort in the TV ecosystem, and that is old people, people over the age of 65. So great news for YouTube, in my view. Even more reason to buy Google stock, but ultimately just more terrible news for cable and broadcast, which continue their decline. Okay, that's it for today. Thanks for listening to Profit Markets from the Vox Media Podcast Network. I'm Ed Elson. Tune in tomorrow for our conversation with Justin Wolfers. Only on property markets you have in kind Reunion.
- [27:53]
Modelo
Bring the Savor with Modelo Chelada, a mouthwatering mix of authentic Mexican beer, bold fruit flavors and spices. Bring the heat with Santia Picante or the citrus burst of Limonizal Modelo Chelada. Bring the Sabor drink responsibly. Modelo Chelada flavored beers imported by Crown Imports, Chicago, Illinois.
- [28:09]
Pure Leaf
Support for this show comes from Pure Leaf Iced Tea. When you find yourself in the afternoon slump, you need the right thing to make you bounce back. You need Pure Leaf iced tea. It's real brewed tea made in a variety of bold flavors with just the right amount of naturally occurring caffeine. You're left feeling refreshed and revitalized so you can be ready to take on what's next. The next time you need to hit the reset button, grab a Pure Leaf iced tea. Time for a tea break. Time for a Pure Leaf.