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- [00:00]
A
Support for the show comes from Ghelt. Don't ignore taxes until it's tax season. Avoid the stress and get year round tax strategy with Gilt. Ghelt is your partner in taxes proactive premium and built for business owners, investors and high net worth individuals. With features that include filing and review directly from the platform, a roadmap to track progress, and ongoing expert guidance. Their elite CPAs provide personalized tax strategy for both your personal and business taxes. Get a personalized consultation and 10% off your first year of service when you mention propg markets. Visit joingelt.com profg to learn more. That's joing E-L-T.com profg for more information. Support for the show comes from Anthropic, the team behind Claude. When you're analyzing market trends or trying to understand what's really driving economic shifts, you need more than surface level takes. Meet Claude, the AI thinking partner that works through complexity with you. Whether you're dissecting earnings reports or exploring the ripple effect of policy changes, Cloud helps you dig deeper into the analysis that matters. Try Claude for free at Claude AI ProPGMarkets and see why the world's best problem solvers choose Claude as their thinking partner. Today's number 50% cocaine levels in Nantucket sewage were found to be 50% above the US average. Ed Schuster I like to have my cocaine mixed with semen. I call it a coconut. Welcome to Prop G Markets. You know, actually, True story out. I've never done cocaine. You know why? This isn't a joke either.
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B
Why is that?
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A
When I was in high school, I was playing soccer and I got true story. Got kicked in the face and I had the most radical bloody noses. I used to have to get up in the middle of the night. Or my mom used to have to get up in the middle of the night and come in because my I'd wake up, I'd feel something warm and I'd be spraying blood from my nose and my mom would sit up with me and level my head and she used to give me math problems. I used to really like math to try and calm me down. And I just figured out that, oh, cocaine is probably not the drug for the dog given that I'm prone to massive bloody noses.
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B
Also bloody noses and panic attacks.
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A
Yeah, I'm so attracted. It's hard to believe I didn't do better. It's hard to believe I lost my virginity at 19. Oh yeah, that's the kid who sprays blood from his face and has panic attacks that Makes me happy. Now look at me now. I'm in Nashville. I'm in Nashville getting paid 200 grand to speak to a bunch of people in lavaliers talking about the cloud or whatever in healthcare.
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B
You should just get up and do math problems on stage. I didn't know that about you. I love that. It's very sweet, actually. It's the image of you doing math problems in bed to calm yourself down.
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A
Well, my mom used to do them for me. You know, she'd have to get up three hours later and holler ass to San Bernardino Valley to oversee a secretarial poll. Anyways, fun reminiscing with you, Ed. How are you? I heard. Are you still in Vegas? Are you back?
- [03:00]
B
I'm still in Vegas. It's 7am here in Vegas, speaking to PwC in a few hours.
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A
PwC, such an exciting, vibrant company and clearly indicated by their choice of speakers at their. At their event.
- [03:16]
B
I was very impressive this, this operation. I was just checking it out. Yesterday they had Richard Branson as the keynote and I was like, am I going to be on that stage? And they're like, no, no, you're going to be on this other stage over here.
- [03:27]
A
You're in one of the breakout rooms where we have someone, oh, we need something on Gen Z. And they're like, find that guy that's on MSNBC all the time.
- [03:36]
B
What's the bold guy's name?
- [03:37]
A
Yeah, wait, it's his. It's the guy that look, the guy that's like the younger, handsome version of that. That idiot professor.
- [03:45]
B
Exactly. That's. That's how we do it here. That's how we make our money.
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A
All right, should we get to the headlines, my brother?
- [03:50]
B
Let's do it.
- [03:53]
A
Now at the time to buy.
- [03:56]
B
I hope you have plenty of the wherewithal. It was a huge week for the Ellison family. David Ellison's Paramount Skydance is reportedly preparing a bid for all of Warner Brothers Discovery. Meanwhile, his father, Larry Ellison, emerged as a potential buyer of TikTok. As we discussed last week, earlier reports suggest a consortium of U.S. firms, including Oracle and Andreessen Horowitz, will take an 80% stake in TikTok's U.S. operations. So in sum, it's been a lot of attention, a lot of media for the Ellison family. And it appears that this family may be coming in and taking over media. Taking over. They've already taken over Paramount. They look to maybe be taking over Warner Brothers Discovery and now maybe also TikTok. So we thought this was probably the right time to Do a little bit of a spotlight on this family, on the Ellisons and Larry Ellison specifically. Just a quick biography on Larry Ellison. So he was born in 1944. He's 81 years old. He was adopted as a child. He was born in the Bronx, but he grew up in Chicago. Star science student, ended up moving to California to be a programmer. In the late seventies he created Oracle. And basically Oracle was just building software for Fortune 500 companies and that's essentially the work that they do today. Went public in 1986 at just a couple hundred million dollars. Company steadily grew. It's quite an old company, I don't think people fully realize that. Now worth $850 billion and he's got 40% ownership. So that's where all of his wealth comes from. He's also been on the board of Apple, he's been on the board of Tesla. He's Elon's mentor. And he's also a big Republican donor. And he's been close friends with Trump going back to his first term. Then there's his son, David Ellison. He was born in 1983. He's 42. He went to film school at USC. He dropped out to make his first movie. Can't make this shit. He founded Skydance in 2010. He has since then produced pretty big movies, one of them being Top Gun. And then of course he bought Paramount for $8 billion. And now he's reportedly looking to buy Warner Brothers. So we are seeing the consolidation of media into the hands of this very rich family. Larry Ellison and David Ellison. Scott, your reactions.
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A
There's no denying Larry Ellison is a visionary. And I don't think his CEO probably Safra Katz, I think her name is.
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B
That's right.
- [06:28]
A
I don't think she gets enough credit. But he's clearly a visionary and one of the more important figures. Also you forgot to mention he's married to a really hot 33 year old. You know why 81 year old billionaires marry 33 year olds, right?
- [06:41]
B
Why is that?
- [06:42]
A
Because they can, Ed. Because they can see above. Richest man in the world right now. Anyways, he's clearly a, a brilliant businessman. Lower, you know, keeps a lower profile. I mean, I remember talking about Larry Ellison when I was in business school. That's how old he is or how long he's been around, how long he's been a key player. Like he's, he's essentially on the right end. He's played this perfectly in terms of shareholder value. And that is we now have this oligarchy where some of the wealthiest people in the world are, are Russians who were on the right side of Putin and in exchange for the loyalty and a vig, were given the nickel industry in Irkutsk and became billionaires and bought premier league football teams and party on yachts off the coast of the south of France. That is effectively what's happening here. And that is, it's not that Larry Ellison isn't really talented. It's not that he doesn't deserve to be one of the wealthiest men in the world, but when you start carving up companies and giving them and awarding them to your Republican friends, that, I mean, the bottom line is they're engaging in something and they're choosing money over any sort of, I would say, traditional American values of free play and capitalism. But they're basically oligarchs being awarded, in this case, ByteDance, in exchange for their loyalty to President Trump. And this sort of moves me to solutions. If I were the Democrats, I'd be drafting legislation right now that would not pass that basically says, look, be clear, folks. If you are awarded companies without the Democratic or capital, you know, capitalism process, I don't know what the laws are. If we get back in control, back of the House, and if we get control of the White House, we're going to take the company away from you. We're going to force you to sell it at what might be huge economic cost to you. So I'm sort of, and, you know, with what happened with Kimmel, I'm sort of done with what I'll call the analysis. We know this is wrong. We know that you're not supposed to take companies and award them to your friends and then put members of the administration on the board that socialism meets cronyism. I'm now at the point where, okay, what can we do? And I don't know if it's, you know, I don't know if it's trying to convince companies not to use Oracle for compute or be a client of theirs. I don't know what it is. You know, this morning I spent 22 minutes trying to figure out how to cancel my Disney subscription. Description. It's not easy. It was pretty easy to sign up. It's not easy to cancel. What do you know?
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B
Did you get it done?
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A
Yeah, I think so. Anyways, I don't know where I am. Ed, bring us back. What do you think?
- [09:17]
B
Well, I think it's concerning the amount of power and consolidation. I mean, we talk about this a lot on the show. The consolidation of power and wealth into the hands of a small few. But I think what we're seeing this year is that this is happening most acutely in media. And yes, media is just another industry, but media is massively influential in terms of the lives of everyday Americans. I mean, it's the media that really defines and sets the trajectory of the national conversation. And so, yeah, you can have some oligarchies emerging in smelting and in industrials, and that's sort of been around forever. But what we are now seeing is an oligarchy emerging in media and it is political. And that is something that I think is worth talking about or at least being concerned about. Just the start here. In 1983, there were 50 companies that controlled 90% of American media. Today it's about six companies. And now beyond that, you are having these companies that are being split up and sliced and diced into the hands of basically a handful of billionaire families. I mean, you got the Redstones, which owned Paramount, but now that's gone to the Ellisons, so it's been consolidated even more. You got the Murdochs, who own Fox and News Corp. And of course, we just saw what happened with the fight over the Trust, where basically Rupert gave all of the power to his son Lachlan, because Lachlan was the only one who's opinions and political views aligned with his. I mean, the succession story literally played out. You've got Bezos, which, I mean, he owns the Washington Post, and then of course, Amazon. Amazon's becoming a big player in entertainment. Amazon Prime Media, Sulzberger's own in the New York Times, Robert's family owning Comcast, or at least controlling all of the votes there. And now you've got the Ellisons, who will presumably control Paramount and Warner Brothers. So that means they're going to have cbs, cnn, tnt, tbs, hbo, hbo, Max, Paramount plus, et cetera, et cetera. I mean, this is basically all of Hollywood and you've got this digital media thing going on, which is Google and Meta Control, basically half of the digital ad market. But the only company that's really on their tail is TikTok. And it appears that the Ellisons will have control over that too. We're not sure exactly how much control, but certainly a good amount. And that basically leaves you with two companies left over in the media ecosystem that aren't really controlled by a family of billionaires, and that is Disney and Netflix. That's basically it. And so I think the question that is worth asking is like, what does America look like in a world where the media is controlled by these billionaires and let's face it, by their children. I mean, this is what we're seeing. It's sort of the rise of Nepo Media. What does that look like?
- [12:33]
A
It looks like Russia with Chipotle and Disneyland. I mean, we know the model here. I mean, you said a lot there. The consolidation of media, there's some nuance there. So the most dangerous thing about the consolidation of media has already happened and that is the majority, two thirds of Americans are now getting their news from social media. And 2/3 of social media outside of China is controlled by one company, Search. Obviously the fastest growing streaming platform is one company or the largest streaming platform is one company that controls 90% of search. That's Alphabet. So the consolidation or the fears around consolidation, I think it's more or less about political thought leadership than it is. I mean, you mentioned Ted Sarandos. He doesn't want to be in news because he doesn't want to step into this, this bullshit. So he just uses cheap capital to produce a ton of content. And everyone feels like they have to have Netflix. But the news guys, the consolidation and the damage in terms of higher prices, inflation, a lack of concern, they're not guilty. The CEOs of these companies aren't guilty of attacking democracy or disabling free speech or creating incendiary content that results in rage and a disaffected youth. They're guilty of malice by omission and that is they just want to ignore it because they know that rage creates more clicks and more shareholder value. The consolidation, the only thing that's sort of, I don't want to say encouraging or not as bad is the consolidation of traditional media. It's the consolidation and concentration of power of companies that are becoming increasingly irrelevant. And I was thinking about Jimmy Kimmel being kicked off, Quite frankly, all these traditional media being co opted and losing relevance is good for new media. So everyone from Puck and Axios and the Free Press and us and are benefiting from this because increasingly people are turning to what I'd call more fearless real time media because there's a chill now across all of traditional media. When I was on, as I said, when I was on MSNBC and said we elected an insurrectionist and a rapist Mika on the most progressive network on tv, MSNBC stopped the show and said, you used a term there, he was found guilty of sexual abuse, which the judge went on to say is rape. And so these guys are scared. And as a result, consumers are going to increasingly continue. It's only going to accelerate the decline of traditional media. The other impact here, I don't wish for this to happen, but I generally find the people who work in Hollywood to find themselves really fucking precious. And that if SpongeBob SquarePants needs three writers instead of 14, they find that a cultural crime. I think Hollywood is absolutely about to get worse in terms of employment. And so there's two things. There's free speech and there's employment. The free speech argument is a more important one. But in terms of the real impact, I think, or one of the real impacts of Ellison's control of media is that I went to see the Fantastic Four with My son, my 15 year old, and I just couldn't get over the how long the credits went for. And Mia did some great research. More than 3200 people helped make the Fantastic Four, which has made just over 500 million at the box office. That adds out that that works out to about $150,000 in revenue per employee, which isn't great. Lyft made 5.8 billion last year with 2, 900 employees. Palantir made 2.9 billion last year with 3,900 employees. So I think what's going to happen, the consolidation will not only result in cost cutting and a concentration of power, unfortunately that leans more right because of the FCC and this authoritarian chill. But also I think you're going to see just an unbelievable adoption of AI and job destruction. Because I went through each of these categories and thought, okay, they're not going to need 24 costume designers in Sweden. They'll find a way to create an agentic layer between fabricators in China and AI enabled costume designers and only three, not 22 people. And the Ellisons are going to go line by line and, and using the incredible compute and relationships and insight of AI. And they're just going to clean out costs, quote unquote. They'll call it efficiencies. Because here's the thing about Iger and Zaslav. They have come of age into their 70s by being really good to talent and really thoughtful and not wanting to piss off the actors unions. Essentially, Iger was sort of Neville Chamberlain and this very charming guy in a cashmere sweater trying to appease everybody. David Ellison is Honey Badger. Honey Badger don't give a shit. They're going to try, I would bet within 12 to 24 months they're going to try and create the equivalent of movies like the Fantastic 4 for 20 million, not 200 million, using technology and AI. And I just think you're going to see so many people crying into their TikTok about who are former producers, gaffers, lighting, casting. I just think all that shit is going to get cleared out. So culturally there is. Or from a constitutional or democratic standpoint, we're in a very weird time with an incredible chill that is more reminiscent of much more authoritarian governments that usually doesn't end well. And then economically we're going to see if Warner ends up in the hands of the Ellisons. We're going to see AI show up much faster, much faster than it would have otherwise from the traditional Hollywood players who are much more empathetic, sympathetic and quite frankly want to be invited to cool parties in the Hollywood hills from actors. They don't. Ellison doesn't care. He's got his 33 year old girlfriend, he gets invited everything he wants. He doesn't need to hang out, he doesn't need to go to the Emmys or, you know, he'll let his kid go. He doesn't. That's not why he's there.
- [18:28]
B
We discussed this with rich greenfield of LightShed earlier in the week.
- [18:32]
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He was skeptical though he doesn't think it's going to happen as fast.
- [18:35]
B
Well, exactly. I think his he was pointing out these are, these are all rumors, we don't know for sure and nothing's been fully announced, which I think is a good point.
- [18:43]
A
But Stock was up 55% last week. Warner Brothers.
- [18:47]
B
Exactly. I mean the market, the market seems to believe that this is going to happen. But I thought his, I really liked one of his points which was, you know, I was asking him what, what is David Ellison's vision for this company? What is his vision for Paramount? What is his vision for Warner Brothers Discovery. And he said that the vision is basically to connect SoCal with NorCal, to connect Hollywood with Silicon Valley. And I think, you know, that's a simple way to put it, but I think that is right. He has the connections in Silicon Valley through his dad. He now has the connection. I mean he's the movie producer, he's the guy who produced Top Gun. And I think that is kind of exactly what we're gonna see. And just to quote him, David Ellison said, quote, we believe it's essential for Paramount to be able to expand its technology prowess to be both a media and technology enterprise. He said the mission involves improving algorithmic recommendation engines for Paramount plus. And he said that AI would quote, turbocharge content creation and drive efficiencies. So I think what you're saying is exactly right. I think the vision here is Hollywood is too dependent on these old ways of producing movies. And we have this thing called AI we have this thing called technology. For whatever reason, these production studios and the folks over at Disney and Burbank haven't really been using this technology. And so we're going to turbocharge the whole thing with AI and massively reduce costs. And I think that is probably what's going to happen. And so I think David Ellison coming in and buying this company, it's only going to accelerate the decline of traditional Hollywood. But then the question becomes what is the replacement going to be? I mean, what is media, what is the media landscape going to look like if Larry and his son own CNN and CBS and they decide these are non efficient businesses? We also don't really like the editorial direction. So let's have Barry Weiss come in and run cbs. Who knows, maybe let's have her run cnn. Maybe that's the plan. But in addition to that editorial direction, we're not going to, we're not going to pay Anderson Cooper $20 million a year to be our anchor. We're going to, we're going to, I don't know, hire some young scrappy person or we'll just hire some AI to do the job of reading the news.
- [21:11]
A
Well, first off, Anderson Cooper is worth 21 million. He's dreamy, he's thoughtful. I love Anderson Cooper anyways.
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B
Me too.
- [21:19]
A
I mean, a couple things. One, so first off, we want to bring the best of Silicon Valley with Los Angeles. Like we want to combine Northern and Southern California. You know who said the exact same thing when describing her vision for this nascent company? Meg Whitman said it about is a trivia question. Meg Whitman said the exact same thing about another company. Do you know what that company was?
- [21:41]
B
It was a quibi quibi.
- [21:43]
A
We want to bring together the best of San Francisco and Los Angeles. And I remember thinking, what is that In N out burger on a sourdough bun? What does that mean? Like, I just thought that was meaningless. What he's saying there is the following and this is what's going to happen. They're going to use AI to start producing the Fantastic Four with 300 people instead of 3,000. It's just where it's headed. And the drag in that. The thing that slowed that down is a group of executives making decisions that are used to making films. OLA and are really scared of sag, AFTRA and the WGA and want to maintain good relationships with them because they know these people. And you Know, this is how they grew up. They grew up in this ecosystem of talent. And so you have a, you have a concentration. There's, there's the meaningful and there's the profound. The meaningful is a lot of good people, very talented people are going to have to find new ways to make livings. The, the profound here is that what you just said? And that is CNN basically turns into. At any point the Trump administration can call Larry and say, you know, I really don't like, you know, I really don't like what you used Anderson Cooper. I wanted to, I really don't like that Dana Bash. She's, she's too, she's too fact driven and unafraid and calling bullshit on us like she's a danger to our democracy. And then all of a sudden Danna gets the message, hey, we need you to tone it down or isn't it time for you to, you know. And she's a fantastic journalist and I think has been really brave on this stuff. So the bottom line is, you know, they say democracy dies in the dark, which is a great tagline from the Post. It doesn't. It's dying in the full light of day. So I think it's the good news is I don't think as long as there's the Internet, there's going to be people who pop up and build good businesses saying it how it is. All it's probably going to do is just expedite cnn. Just, it's not gonna be good for CNN to all of a sudden be like hamstrung and start checking all their shit to make sure that it runs through the Ellison Trump filter.
- [23:46]
B
That was what was so remarkable about what happened with Jimmy Kimmel is Jimmy Kimmel gets fired and then everyone's sort of asking questions, why did this happen? And basically within a few hours, the whole Internet came to the realization that this all has to do with the coming acquisition of Tegna by nextstar. I mean, the journalism of the people just sort of came together in basically a few hours. And everyone said, hey, follow the money. Why are they doing this? They're trying to acquire this company, Tegna for more than $6 billion. They need to get the approval from government, they need to get the approval from the fcc. And so why did they do this? Because the FCC told them that we don't really like bad comments or negative comments or comments that run contrary to the President. We don't like what Jimmy Kimmel said about Charlie Kirk. And so they said, okay, let's fire Jimmy Kimmel let's get rid of that show and maybe this will greenlight our acquisition.
- [24:47]
A
That's exactly what happened, Ed. I mean, that's not.
- [24:49]
B
By the way, we saw this exact same thing play out with Paramount and Skydance. But the idea that, as you say, you know, that's the kind of thing that would have taken like days, maybe weeks of investigative journalism maybe 20, 30 years ago. But what was so incredible is, you know, we hear the news about Jimmy Kimmel at whatever, 5pm and then maybe three hours in, everyone says, hey, look, why this is happening? And you see it all over your social media. So you can try to suppress what people think and you can try to suppress this knowledge. But I agree with your point. So long as the Internet exists, it's all going to be in the light of day. We're going to know why all of this is happening.
- [25:32]
A
This is a market show, so we should temper our political views. So let's talk about my political views. I spent, hey, I'm really fucking jet lagged. I'm in Nashville on London time. So I was up at 4am doing research on what to do about. I'm kind of sick of Democrats all clutching their pearls and bringing on constitutional experts and free speech experts to basically all come to the same conclusion that this is wrong. Yeah, thank you, Captain Obvious. We know this is wrong. The question now is what do we do about it? And the relationship to markets is the following. I think the only thing. There was a number yesterday in your markets episode that was really fascinated me with your host Mark Zandi, who by the way, I think is fantastic. I really, I think he's such a huge asset for us and he's going to get me my third fucking Ferrari. So thank you, Mark.
- [26:24]
B
But, but he.
- [26:25]
A
Something that totally struck me. The 10 wealthiest percent of households are now responsible for 50% of consumer spending. That means the bottom 90 aren't doing very well. And it means that we have become like a third world nation where basically it's rich people have all the money. And so that's bad on a societal level. But I was trying to think there's the opportunity. And then he said something and correct me if I'm wrong, that the top three and a third percent are responsible for 30% of spending. Is that right?
- [26:54]
B
25%, yeah, 3.3% are responsible for a quarter of all consumer spending in America.
- [27:00]
A
I'm trying to move to action to try and figure out, okay, everyone's kind of figured out and we'll spend seven or 14 days trying to like confirm our beliefs with experts and Democrats and outrageous outrage statements from, you know, Senators Warren and Sanders, et cetera. Okay, let's skip to the what the fuck do we do part of this. And I'm increasingly of the mind that the only thing we can do here is not around legislation, it's not around media or expressing outrage or calling on Americans Better angels. Because if I walk around Nashville and I'm just someone trying to go to work, feed my kids, I'm not feeling a lot of difference. I don't feel like I'm living in an authoritarian government. So I don't know how worried I am. I believe that we have to or this is what I'm thinking and it might be a function of sleep deprivation. I think we have to move to the action part of this. And I think the most effective means of trying to arrest this, not slow march, but steady, fast march even, it feels like a sprint towards authoritarianism is some sort of economic strike. I have business accounts, personal accounts, private wealth accounts with Northern Trust, Silicon Valley bank, bank of America, Goldman Sachs and Northern Trust. I am contemplating transferring all of my assets to HSBC or Lloyds and being very public about it. And also I think that we should think about calling for a general economic strike, especially lean on the top three and a third percent of households because quite frankly, wealthy people can reduce their spending much more dramatically without much harm to them. You know, don't buy Van Cleef and Arpels for your wife at Christmas, don't go to St. Bart's maybe delay your mortgage payment, maybe transfer some of your assets out of a US bank into a European bank such that it would be striking how, how effectively the top 10%, maybe even the top 3% of income earning households who by the way tend to lean democratic and tend to probably be freaked out about this and I would like to think have some Fidel or recognition of the great rule of law and capitalism, full body contact capitalism that put them in the top three and a third percent. But I feel as if there needs to be some leadership around what I would call a general economic strike against some big American companies. And by the way, it doesn't come for free. It would be hard on the economy. People would lose their jobs if it was effective. But at this point I don't know what else we can do because we've lost control all three houses of government. The Supreme Court is now basically very conservative and supportive of the President. And for all of the media, hair on fire and everything. Consumers really don't seem to be responding. So I'm now of the mind, okay, one, the Democrats should shut down the government. We no longer have a government that's upholding the rule of law or the will of the majority of the people of our nation. So just shut it down. We should stop financing it. And two, I think we need to be thoughtful about how the wealthiest Americans can raise their hand in an economic way and say this is bullshit and we are going to find some soft tissue here and press on it. Your thoughts?
- [30:23]
B
I think that's the only way you make change, really. And I think the best example is Tesla. I mean, it wasn't screaming about how Elon is a Nazi that got him out of the White House. It was that people stopped buying Teslas and they had to get back to work. That's the reason he left, really? I think. I mean, of course he had the tussle with Donald Trump, but I think mostly what happened is he realized that Tesla's sales were declining, what, 20% just because of what he had said. Politically, I mean, it's a great way to enact change is to boycott. So I think you're on the right track if you want to enact change. I don't know about completely bailing on America. I mean, I don't know what moving your assets to HSBC or Lloyds would actually do. But I take your point and I do think it is probably the best way to affect change if you want to do that, especially if you have money. But we have another story to get into here, so can I move us along here?
- [31:21]
A
Hold on, I'm a little tired. Let me just do a little rail of the magic powder here. A little of the devil's dandruff.
- [31:30]
B
His nose bleeding.
- [31:30]
A
A little of the devil's dandruff. Oh God. Okay, sorry, go ahead.
- [31:35]
B
We'll be right back after the break. And for even more Prof. G Markets content, sign up for our newsletter@profmarkets.com subscribe.
- [31:51]
A
Support for the show comes from public.com you might already use AI tools to refine your emails and streamline your workflows. So why not see if it can optimize your investing as well? For that you can check out public.com public.com is the investing platform that takes your money as seriously as you do. With Public, you can build a multi asset portfolio of stocks, bonds, options and more. You can also access industry leaning Yields including the 4.1% APY you can earn on your cash with no fees or minimums. But what sets Public apart. AI isn't just a feature, it's woven into the entire experience, from portfolio insights to earnings Call Call Recaps Public gives you smarter context at every touch point. And the best part? You can earn up to $10,000 when you transfer your existing portfolio over to public. Go to public.comprovg to fund your account in five minutes. That's public.comprovg 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 Direction account are offered by Public Investing, Inc. Member FINRA and SIPC. Complete disclosures available at public.com disclosures support for the show comes from Framer on the one hand, you shouldn't judge a book by its cover. On the other hand, we all know what it's like to stumble on a janky website and assume that the operation behind it is janky as well. Bottom line, if you run a business, you need a website. And if you need a website, you need Framer. Framer is the design for its no code website that lets anyone ship a a production ready site in minutes. That means that you have the freedom to build a website that is professional, polished and uniquely yours. No code and no compromises built in AI will handle the heavy lifting. By generating starter layouts and the coding behind the scenes, you'll be able to a b test your design, set up funnels and see exactly where people click all from one place. And once you're ready to publish, Framer handles hosting, blazing fast load times and SEO while you sit back, put your feet up and do literally anything else with your time. Ready to build a site that looks hand coded without hiring a developer? Launch your site for free@framer.com and use code markets to get your first month of pro on the house. That's framer.com promo code markets framer.com promo code markets Rules and restrictions may apply.
- [34:02]
B
Support for the show comes from Mercury, the banking product that helps entrepreneurs do more with their money. For entrepreneurs, your banking transaction history is like a scrapbook of important moments in your startup's history. That deposit isn't just a deposit, it's the first batch of seed capital. That wire transfer is more than a wire transfer, it's payroll for your very first employees. Mercury is the banking product made by entrepreneurs for entrepreneurs. It's meticulously designed to make managing your business money effortlessly. Simple with banking cards, spend, management, invoicing, and more all in one place. You may remember I even spoke to a few of my my friends who are entrepreneurs about their experience. I haven't used the product myself, but from what I understand, if you're building a tech company, Mercury is the go to platform. My friends who are building tech companies absolutely love Mercury. Ready to see what powerful banking can do for your business? Visit mercury.com to apply in minutes. Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group column NA and Evolve bank and Track members FDIC. We're back with Profgy Markets. New data from OpenAI and Anthropic is shedding light on how people around the world are actually using large language models and the differences are striking. Anthropic's CLAUDE is primarily used for computer and mathematical tasks such as coding support. In contrast, OpenAI's models are more frequently used as an alternative to search engines, as well as for educational support and writing assistance. So essentially what we have here, I mean we knew AI was a big deal and we knew that everyone was using ChatGPT and everyone was using Claude, which is Anthropic's large language model. And a lot of money has gone into these companies. Everyone's been very excited, but this is essentially the first time where we're finally seeing what are people actually using this stuff for? Why do people like ChatGPT? What is the use case? And I think the most interesting learning here is the fact that people are using ChatGPT barely to do their work. I mean, in 2022, around half of the prompts for ChatGPT were work related. It's down to 25%. The biggest use case based on this study is practical guidance. That makes up 28% of all ChatGPT prompts. So asking for advice on what should my workout be today? I have these ingredients. What should I cook up tonight? I need some help on my homework. Just everyday advice. That is the main use case for ChatGPT. And then on the other side of the spectrum you've got claude, which is mostly being used for work. This is the key stat here. 36% of Claude prompts are related to coding and you Compare that to ChatGPT, which is at 4%. Meanwhile, 7% of prompts are science based, which basically means that 45% of the prompts that are going into CLAUDE are for computer science and mathematical work. That is a huge contrast to ChatGPT. So a lot of different implications there. But let's just start off with your reaction Scott, to this new data.
- [37:28]
A
Super interesting that essentially to distill down, it sounds like ChatGPT is kind of B2C and Anthropic is carving out a spot as B2B. And I think that's a really interesting insight. The other thing that's interesting, Mia pulled together some data because I'm, you know, I know all these presentations are talks I do, I talk a lot about AI and basically by most metrics, all of these things are kind of hitting parity. And that is in the 80s it was hard to develop a manufacturing advantage because people would just buy a great car, disassemble it, reassemble it, reverse engineer any sort of. You could have a two or three year lead in manufacturing excellence, but not much more than that. I feel like in AI there's a two to three minute lead because AI crawls, other AIs, reverse engineers, what they're.
- [38:13]
B
Doing.
- [38:15]
A
It just feels like it's going to be very hard to maintain any sort of technical advantage. And we see that in that as they all seem to can be converging, they all are sort of basically being trained on the same data and they're all using Nvidia. So the front end is getting increasingly hard to differentiate other than kind of positioning and what it's used for and going deeper around certain, certain use cases. What I tell people, you know, I tell people about, okay, how to use AI or get good at it. I like the second screen advice. I always have a second screen now. I mean, I'm in Nashville and I have chatgpt up on my phone and I try to force myself to just use ChatGPT and Cloud as often as possible to start thinking about how I use it. What I have found, and this is pulse marketing, but it's anecdotal, but it's still evidence. I use ChatGPT for your general queries and around data. And I also like ChatGPT a little bit more because I ask things like how could I have the biggest effect on sending a message economically? And Claudo says, you know, it gives me a bunch of bullshit like you should be thoughtful about and it's like, fuck you, just give me the answer. I don't need a lecture. And what's funny is that I've also said that these guys need to put in safety controls and when they do put in safety controls, I get angry. But ChatGPT is less politically correct, which I like. I use ChatGPT for my general queries. I use Anthropic or Claude for editing. I find when I do my no Mercy, no Malice newsletter and I'll go to it. I don't use it for ideas. I occasionally use ChatGPT to get some data. But what I use cloud for is I like to keep these things the newsletter each Friday to 1500 words and I always end up with 23 or 2500 words because just as I'm fond of hearing my own voice, I'm fond of reading my own words. And I keep writing and I use cloud and I find cloud is better. When I say, can you cut three or seven hundred words here and highlight which words you cut or which sentences or which paragraph you cut and why? And it'll come back and it's really outstanding. It says this paragraph is somewhat repetitive or it'll say, and it even uses my name like it knows me. It'll say, Scott, this paragraph is sort of off topic, right? So I find and again, people will find their own differences, but I think to not have both up and use both and compare them is not only not going to make your work better, you run more risk. Because what I what I find on a regular basis is this shit starts to hallucinate and it starts, it sometimes will just come back one or both of them with like crazy answers that are just flat out wrong. So anyways, I use both. But like everyone, I'm finding there's a difference between the two, but increasingly similar. And what I still hold on to what Robert Armstrong said, and he was on this morning's Markets, that I wonder if this is one of those technologies where the big winners are all of us, that it's going to be hard for any of these guys to maintain any sort of lead which will drive down prices. And similar to PCs and airlines and vaccines, the stakeholders that capture all the value are the consumers. And no one company is able to ring fence and have a tremendous amount of shareholder value.
- [41:22]
B
On that point about B2B versus B2C, that is exactly what we're seeing. In fact, consumer subscriptions are now making up 3/4 of OpenAI's revenue. Enterprise contracts make up the rest make up 25%. And then for anthropic, it's flipped. Consumer subscriptions make up 15% of their revenue. Enterprise subscriptions make up 85%. And I think this is sort of a general business question that I find very interesting, which is is it better to go for the consumer or is it better to go for the enterprise? And my view on this has traditionally been and in fact, one of my predictions from a couple years ago is that we would see ChatGPT kind of decline in relevance because I expected that OpenAI was going to invest heavily into the API, heavily into the enterprise business and then just sort of let ChatGPT kind of continue existing. I was completely wrong. They've gone the opposite direction. Massively investing in consumer, massively doubling down on the consumer, and they are presumably losing some enterprise business to companies like Anthropic. And that's why Anthropic's been on such a tear recently. And it does bring up this question. It's like, what is the better strategy? If we're looking at the commoditization of AI and you can choose to go for big business contracts or you can try to get as many individual users as possible. What is better? What is a better business in your view?
- [43:00]
A
Well, I have a bias here because I've always started B2B businesses. I mean, I started a B2C business called Red Envelope and some E commerce companies and I found B2C was much more difficult because it's sexier and attracts more people, more human and more financial capital. And 2/3 of our economy is consumer. But the consumers are much more price sensitive and much more willing to shop around. Whereas my B2B companies had a strategy firm at a business school Profit and then an analytics company or business intelligence firm, L2. And what I found is if you establish a good relationship with a P and G or an lvmh that they were less price sensitive, they just wanted really good work and that, I mean there's huge. I was just trying to think who are the most valuable companies in the world? Nvidia, that's probably B2B, that's processing power. Microsoft, that arguably is both B2B and B2C but probably more B2B because it's corporate relationships around software. Apple, Consumer. If you go down the list of the most valuable companies, you would argue. I know it's tough to say, I have a tendency to go B2B just because that's my background, but you're right, ChatGPT seems to be seeding ground. The stat that Mia pulled, and you may have already read it, was it In November of 2022, 47% of messages on ChatGPT work related. Now that number's just 27%. So it feels like it's definitely doubling down on the consumer. And I don't want to say seeding ground to anthropic on B2B but that seems to be where Anthropic has figured out. Their focus is Greg Chauv, who's the CEO of Section, the Company that upskills helps corporations deploy AI. He came on office hours and he said that there's been this curve where essentially all these businesses bought or purchased site licenses from one or both of these organizations. And he said, all of a sudden, he said kind of six months in, nine months in these things have not been deployed. In other words, their workers aren't using them. And so now they're hiring Greg and section to come in and say how do we get this to permeate into the company and get people using it? So there's definitely been. And that MIT study just came out saying that a lot of companies are reporting they're not getting the ROI. If you said, Scott, try and predict in six months the NASDAQ's been cut by 30%. What happened? Was it attack drones going into NATO countries and inspiring article 5 and we end up in a hot war, a near hot war with Russia and NATO or there's some sort of more civil unrest in the U.S. i don't think that would be the most likely cause of it. Now 40% of the s and P is based on kind of the hopes of AI and that if there's real evidence, you know, the MIT was sort of a warning. It felt like, it felt like it was a bit of a, I don't know, a crow showing up and cawing or whatever it is they do. But if in fact we find that okay, AI is fun and companies spend all this money on it, but they aren't really deploying it, you could see a serious unwind in these valuations. But we're starting to see evidence on the front lines that at least in B2B companies are having trouble getting this absorbed or adopted into the company at the rate they had hoped. I mean, I think a lot of people, a people are, you know, older people have trouble adopting to new technology or they know how to do their jobs. They're also not in a real hurry to sharpen the sword that cuts their own head off. Hey, I found out you don't really need me. Just type in these prompts.
- [46:41]
B
We'll be right back after the break. If you're enjoying the show so far, be sure to give profit you markets a follow wherever you get your podcasts.
- [46:58]
A
Support for the show comes from Anthropic, the team behind Claude. When analyzing complex market movements or policy implications, the differences between surface level commentary and real insight comes down to asking better questions about the data cloud is for AI for minds that don't stop at good enough. It's a collaborator that actually understands your entire workflow and thinks with you, not for you. Whether you're strategizing your next business move or diving deep into economic analysis, Cloud extends your thinking to tackle the problems that matter for finance professionals exploring earnings reports or economic policy ripple effects. Cloud Cloud works through complexity rather than rushing to conclusions. It helps spot connections across multiple sources, challenge assumptions, and develop insights that go beyond the obvious. Try Cloud for free at Claude AI Prophet GMarkets and see why the world's best problem solvers choose Claude as their thinking partner. Support for the show comes from Workday, the to do list of a small business leader. Close the books, get your people paid and bring on new hires. Look, running a small or mid sized business can be exciting, but it can also be chaotic. That's where Workday comes in. Workday Go makes simplifying your business a whole lot simpler. Imagine this, the important aspects of your company, HR and finance all on one AI platform. No more juggling multiple systems, no more worrying about growing too fast. Just the full power of Workday helping small to mid sized businesses like yours run more smoothly. And Workday Go activates quickly. You can be up and running in the 30 to 60 business days, so simplify your business. Go for growth. Go with Workday Go. Visit workday.com go to learn more Avoiding your unfinished home projects because you're not sure where to start? Thumbtack knows homes so you don't have to don't know the difference between matte paint, finish and satin or what that clunking sound from your dryer is. With Thumbtack, you don't have to be a home pro, you just have to hire one. You can hire top rated pros, see price estimates and read reviews all on the app download. Today.
- [49:07]
B
We'Re back with Profg Markets. Just to tiebo on the enterprise point, I think to your point, there is more revenue in consumer, but there is so much more margin in enterprise. And that's what we see. I mean you look at Amazon as an example where yes, they're making a lot, generating a lot of revenue from selling products to consumers. But I think it's like around like 2/3 of their profits are from AWS. And a lot of that dynamic often plays out across many of the biggest companies, including Microsoft as an example. And we're seeing that with Anthropic versus OpenAI. Anthropic's got 60% gross margins. OpenAI is at 50% gross margins. So it's just expensive to get your product into the hands of consumers and to get them to keep using it. Now, to your point about the clouds forming, what I find so interesting about this study is the whole bull case on AI is it's going to transform the way we work. There's this massive emphasis on how we work. Companies are going to adopt AI. It's going to make us so much more efficient. As you say, it's either a trillion dollars in revenues or it's a trillion dollars in cost cutting. And that's been the case. That's been the idea. But what we're kind of learning with this is it's not really affecting your work life. It's mostly just affecting your personal life. It basically just means that you're not. Maybe you're canceling your subscription to New York Times cooking as an example. Maybe you're not spending as much money hiring a workout trainer. It's really all of the creative destruction is happening in the personal life, which makes you wonder, is this going to be this gigantic cash cow that we thought it was? And I think that's sort of the doubts that this sort of casts over the AI landscape. I don't think, by the way, I'm not an AI bear at all. I think we are going to see massive adoption eventually. I think we're probably just early to the game. But this definitely calls into question how much money there actually is right now in AI. One other point I'd just like to make here in terms of how OpenAI is doing. So 12 months ago, ChatGPT had 87% market share in the large language model market. Today it's at 76%. And the big reason for this decline is because the number two is now Gemini with 11% market share, up from 7, right? Yes.
- [51:58]
A
Yeah, that's really interesting.
- [52:00]
B
So Gemini is emerging as really the big. I mean, I think we used to think anthropic versus OpenAI. It's becoming clear this is actually Google versus OpenAI and just some interesting stats as well. You know, everyone thought, oh, OpenAI is going to destroy Google search. Actually, Google search impressions are up 49% year over year. It's got 96 times the traffic of ChatGPT. I guess we already knew that Google's already big. But the most interesting stat to me, Google searches with over eight words are up seven times in the past year.
- [52:37]
A
Why do you think that is? Because they have the AI answer at the top now.
- [52:40]
B
Exactly. Google is now integrating AI into the Google search product and people are using it like they would use ChatGPT. They're not just what was our big.
- [52:50]
A
Tech stock pick at Google in November of last year.
- [52:53]
B
Bang. And by the way, Google Gemini, now the top spot in the App Store right now, it just ousted ChatGPT.
- [53:00]
A
This is such great data from me and Dan and their team, and it's shocking. We keep talking about Cloud. Cloud's market share has gone from 1.7 to 1.9. So you're right, the market leader has given up approximately 11 points a share as markets mature. And there's more competitors. That's not. That's natural. But still, 76% share is still dominant. The big winner here are really two people or two entities. Gemini, which as you pointed out, it's gone from 711 and also a new player, has grabbed 4%. And that's deep seek. But right now, Grok, according to this data, has a greater percentage, has more share than Claude at 2.2 versus 1.9, which just blew my mind. And Copilot is kind of a pimple on the elephant. It's gone from 0.9 to 1.2. But the players here now are. I mean, it just kind of reminds me some other data that Mia pulled. She looked at the curve of Netscape and then laid it over the curve of OpenAI, and it looked very, very similar. And her point was actually, it looks like OpenAI, even at 500 billion, has a lot more juice in it. Because it looks like it's where Netscape kind of was in 96, 97, and that it still had a lot of juice to run from there at 70. What is it now? 76.5% at a $500 billion valuation. The question is this similar. The curve is the following. These guys go way up, new technology, there's a ton of excitement. They get out over their skis and then wham, there's a huge correction. And then these companies come back. We haven't had the huge correction part. And in 1997, the economists called the dot com bubble bursting, but they called it a 97. And there was another like 60% of gains until 99 before the market crashed. But these share gains, I would say the real difference in the last year is Gemini. And I wonder if the analogy here is Internet Explorer. Everyone said Netscape was a better product. It was the first. It was out there. And then, you know, Bill Gates and Ballmer said, we're going to use our custody of the consumer and our interface and our custody and relationships with corporations to basically say, hey, we're going to bundle in Internet Explorer for free. And by the way, if you keep using Netscape, we don't like you, and we're going to punish you and we're going to withhold contracts or not give you Microsoft Word or whatever. And before you knew it, Internet Explorer was what everybody was using. So I wonder if that's the same thing here. I just, again, I think Gemini, I think Alphabet is the way I would describe it from Media Terms is the empire strikes back 100%.
- [55:47]
B
And if we look at the, I mean, we've seen this huge run up in Google, up around 30% year to date. I mean this was, we were bang on the money here, but still 8 times sales or 8 times expected sales. And then you compare it with OpenAI at 38 times and Anthropic at 37 times. I mean, this is basically as, ascendant, really growing faster than ChatGPT at this point. And again, it's still valued as kind of an old sluggish company. I mean, the multiple's gone up a little bit this year, but still not a tremendous amount. So I still think Google is a good pick right now. Just one final bull case on OpenAI just to, I mean, we've been a little bit doomer on OpenAI in this segment, but one thing that we have to remember, they haven't turned on the advertising. If they want to make money, they just flip the switch, turn on the ads. And my favorite stat here, you always talk about the white rhino of advertising, which is young people. 46% of OpenAI users are between the ages of 18 and 25. That's as well. So that's half of their user base are young people.
- [57:09]
A
It's just another reason why men that age won't actually go out and ask a woman out. They're just going to sit around and.
- [57:13]
B
Yeah, exactly.
- [57:14]
A
What's the best OnlyFans account?
- [57:16]
B
Yeah, exactly. Okay, let's take a look at the week ahead. We'll see new and existing home sales for August. We'll also see the Personal Consumption Expenditures Index for August, which is the Fed's preferred inflation gauge. Scott, any predictions?
- [57:30]
A
You know, the honest answer, Ed, is I'm, I'm in sort of a. I want to ping it back to you because I'm grasping at straws now. I'm a little bit in my head a little too much. I don't think I'm thinking clearly. Sitting here in Nashville watching some parking lot be destroyed by huge cranes is somewhat a metaphor for what's going on in the US I'm going to flip it back to you. Do you have any predictions?
- [57:50]
B
I don't. You need to give me some time to prepare these. Perhaps you have a prediction on what's happened here with Nvidia buying this stake in Intel. I mean, I wonder if we've seen a massive explosion in intel stock. I wonder if that is again a case of the government getting involved. I mean, the government takes a stake in intel and then suddenly Nvidia's investing. I mean, we are seeing the rise.
- [58:19]
A
Okay, so I'm going to bail you out here. You're flaming so. But you did inspire me.
- [58:26]
B
That was the idea. I succeeded.
- [58:29]
A
The next six months of the year, we're going to see M and A Lollapalooza. We're about to see all of these companies. They have so much cheap capital, they can't support it with their current business models. So they're going to go hunting, big game hunting and Intel's a great example of that. If they can just pick up some IP, some good talent, some good management, some B2B relationships, supplier relationships, and it's the sweat off of the brow of Nvidia. All of these companies are going to go big game hunting. We're going to see. Bankers are going to make a shit ton of money. Some of the biggest deals in M and A in the last 10 years are going to happen in the next six months.
- [59:07]
B
This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Our research associates are Isabel Kinsel, Dash Line and Kristen o'. Donoghue. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof. G Markets from Prof. G Media. Tune in tomorrow for a fresh take on the markets.
- [59:45]
A
And kind reunion as the world turn. And Doug Limu and I always tell you to customize your car insurance and save hundreds with Liberty Mutual. But now we want you to feel it. Cue the emu music. Limu. Save yourself money today. Increase your wealth. Customize and save. We say that may have been too much feeling. Only pay for what you need@libertymutual.com Liberty Liberty. Liberty. Liberty Savings. Very unwritten by Liberty Mutual Insurance Company affiliates. Excludes Massachusetts.