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From the Goldman Sachs trading floor in 10 minutes or less. Investors and analysts share timely analysis on the week's market activity. The markets podcast from Goldman Sachs. Listen now. Monday.com AI agents took over my work
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and I absolutely love it.
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Chasing deadlines, writing status reports, updating stakeholders. Agents handle the daily grind. Now I stay in the loop only when it matters. Create your own AI agent in minutes
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on Monday.com excuses are easy. An epic movie night. We don't have enough snacks. Dinner party with the girls. We'd have to decorate. Surprise date night. Nothing to wear but Amazon's prime same day delivery lets you say yes before the moment slips away. Try that new popcorn maker. Order those cheeky drink glasses. Get that new perfume and turn that I wish we could into an I'm sorry. So glad we did. Visit Amazon.comprime to find millions of items delivered fast. Same day delivery. It's on Prime. Available in select areas. Terms apply.
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Welcome to Prof. G Markets. Scott is off today, but we have got a very, very special guest filling in. Someone who a lot of you guys have been very excited about. The one and only Patrick Boyle is joining us. Patrick, great to see you.
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A
Hello. Thank you for having me on as the fill in bald guy for the channel.
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B
It's funny, last time we had Robert Armstrong, who is the Financial Times commandeer, also bald, also very smart, also very insightful. So clearly there's a theme going on here, but, but, but we love it. Good to see you. How are you?
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A
Great, thanks. How are you?
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B
I'm doing very well. I'm very glad. I'm very glad you're here. You know, we're recording this before the England game for the World cup, which I'm very excited about. But are you supporting anyone in the World Cup? I mean, your, your, your accent is Irish, so I have to assume that, that maybe you wouldn't want England to win. Like, where do you stand on this?
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A
The way it works in Ireland is that we don't acknowledge sports that we're not good at. So if we were in and doing well, it would be huge. But we just view it as a foreign sport. That's, you know, it's not worth watching.
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B
So what are the sports then? It's basically just rugby.
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A
Rugby's acceptable, but then there's also, you know, GAA football, which is better. We've got hurling, you know, we've got all of our own sports. We don't. Your sports, you know, you've got your
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B
own things going on. Don't need to participate in all of the all of the popular sports, the sports that matter. But I won't continue down that path. Just for everyone who doesn't know, Patrick is a professor at King's College London and a portfolio manager with more than 20 years of experience. Many of you probably know him from his YouTube channel, Patrick Boyle on Finance. Patrick breaks down these very complex topics in a very simple, understandable way. And we just love his insights. And he became our favorite person to discuss SpaceX. And we will be discussing it again today. Just before we get into the show. Patrick, I think a lot of people are, like, dying to know your origin story, how you ended up becoming this superstar YouTuber, but also professor of finance. Like, how did you get into this stuff?
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A
You know, a lot of it. I was just asked to teach at originally Queen Mary and then King's College, and, you know, I teach the master's in finance students. And then I sort of always liked cameras and things like that. And so I started, you know, students will come to you with questions. They'll say, you know, can you explain that again? And often I just thought it would be easier to record it and be able to send that to the students. Wow. And that then turned into a whole YouTube thing.
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B
So that's very interesting. Yes. Scott often says that being his history of being a professor was kind of a cheat code because he got to test out his material on his students. And then if the students like it, then he'll take it to the public, then he'll take it to the big leagues and talk about it on tv. Clearly it works. Clearly it's a good system. So let's get into this. Today. We've got three very interesting stories. We're going to be talking about SpaceX. We'll be talking about what's happening in the crypto markets, something that a lot of people are now calling the Great Rotation. We will be explaining exactly what that means. And then we will be ending with a little breakdown on what is happening in the housing markets. News flash. Prices are not going down. So let's start with SpaceX. Now is the time to buy.
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A
I hope you have plenty of the world.
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B
Last week, SpaceX officially joined the NASDAQ 100. It qualified under the new fast track listing rules, which reduced the the required trading history to just 15 days. And it also eliminated the minimum public float requirement. That same day, the stock received an overwhelming vote of confidence from Wall street, with 18 out of 19 analysts publishing a buy rating and only one publishing a hold rating, which was honestly, quite surprising to me. I mean, As I think a lot of people know, I think that the stock is way overvalued. I know other people think that too. I believe Patrick believes that as well. But we'll get his official views in just a moment. Despite all of that positive momentum, both those ratings from Wall street and also its inclusion in the Nasdaq, which essentially meant billions of dollars of passive investment, which should prop up the stock price. Despite that, SpaceX shares fell nearly 6%. And at the time of this recording, the stock is now down 13% over the past week and 34% from its peak. So despite all of that positive influence things that should really be raising the stock price, the stock continues to fall and it's now trading below where it was on its opening day when it first IPO'd. So, Patrick, I guess let's just start with your reactions to how the stock has traded over the past week. Two weeks, it hasn't been great. What do you make of what's happening here?
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A
I mean, the truth is it's above the IPO price. If you put in for the IPO, you got it at 135, you're pretty happy with the return. And it's sort of in line with what you get from IPOs. I forget the name of the researcher, but there's a, I can't think of it now, but there's a guy who's an expert on this and he's done all the research and it shows that typically IPOs jump about 18%, which was right in line with what SpaceX did. Now, the thing is, if you bought it on the day of the release, you were buying Post Pop, right? I think it hit the market maybe at some like 165 or something like that. So most people who didn't get a fill and bought it at the market open, they'll be down on it. But the truth is it's trading at a very high value valuation. And if you invested in it, you can't really claim to be too surprised, and you've probably done all right out of that.
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B
Just to break down the dynamics here, as you say, the IPO price was 135, and the IPO price was the price that was allocated to the insiders, people who had access to that ipo. But if you are a retail investor, if you were just buying it on Robin Hood or whatever your trading platform is, the, the lowest price you could have gotten in at was what it was when it immediately went out, which was 150. And we're, we're down from that price point. In other words, as we kind of predicted, everyone who bought this as a retail investor has thus far lost money. They're all down. And the guys who bought it when it was going close to 200, those guys are really down at this point, which was kind of what we all sort of expected. And it's certainly what you talked about as well. So just looking at the valuation now, they did a little over $19 billion in revenue in the past 12 months. So they're trading at 101 times sales, which is already quite absurd, and you've pointed that out. But then we get the price targets from Wall street and I'm just going to read out these price targets and I want you to react to them. So Goldman Sachs's price target for SpaceX, this is what they think the stock should be trading at. Their price target is $205 a share. So that is a $2.7 trillion market cap. That implies a 139x price to sales multiple. JP Morgan 225. That implies a $2.9 trillion market cap trading at more than 150. Deutsche bank says $255. That's more than $3 trillion in market cap. One hundred and seventy three times sales. Morgan Stanley, $300, nearly $4 trillion market cap, more than 200 times sales. Here's the best one though, Raymond James. Their price target is $800 a share, a $10.4 trillion market cap and implied price to sales multiple of 542. What the hell?
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A
I mean, you have to wonder if they built spreadsheets to justify this or they just pulled out the numbers. Because to people at home who aren't familiar necessarily with these ratios, Nothing trades at 100 times sales. It doesn't happen. And the kind of thing that even could potentially trade at a very high price to sales ratio would be maybe like a software company where sales basically convert straight into profits, where there's no real costs. There's massive, massive costs here. There's the cost of the rockets, but that's not really what SpaceX claims to do anymore. It's an AI company. So it's the cost of all of those Nvidia GPUs and whatever they're burning. I think about 5 billion a quarter. So I mean, it's not just losing money, it's losing a shocking amount of money. And you're really paying up as if. Well, it would be hard to justify paying 100 times because if you think about if all of the sales Passed straight through as profit. You're still do you want to pay a hundred times 100 years worth of profits for the next year's profit? You have to wait 100 years to get your money back. It doesn't make sense 300 years to get your money back. It's getting wilder. And then of course to the listeners who are going, oh, but what about growth? Because of course the revenues should be growing and hopefully will eventually become profitable. It's not really growing that much either. I think it's SpaceX has a growth rate of around 15% which compares to when Google went public at I think 10 times sales. Maybe it was less. Google was growing about 200% a year. It's sort of an ex growth company that's putting itself forth as an AI, primarily an AI and in fact enterprise AI business when they're not really much of an AI company. I think they've got a 3.5% market share. It's just hype based and in truth even why did it fall once it hit the NASDAQ index? Inclusion. Well, a lot of people were buying for that pop. And so to a certain extent the thing everyone is waiting for has happened. Now what's the next hype? What's going to be so exciting? Something's going to have to dramatically increase growth or you have to have another massive forced buyer out there.
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B
So hearing all of that and I appreciate you putting into context what it actually means to trade at 100 times sales. Like yeah, what we're basically saying is that you got to make your money back on the earnings. We're not even talking about earnings, we're talking about the top line. So we're just ignoring the costs here. Which kind of begs the question like how on earth are these Wall street analysts justifiably setting these price targets? And I just want to get into some of the details that we got from the Raymond James research report on SpaceX. This is the one that their analyst Brian Gaswale, who set the price target at $800. I'm just going to give you some of the data points or his projections that how he justifies that valuation. So he estimates that SpaceX revenue will rise from $19 billion last year to $5.2 trillion by 2035. That's his estimate. He says that 94% of that revenue will come from AI. In other words, he thinks that SpaceX is going to generate $4.9 trillion in AI revenue in 2035. He says, quote, we see the company as one of the defining industrial infrastructure companies of the 21st century. Just as railroads, electric grids and the Internet reshaped Prior, we believe SpaceX is building the foundational platform for the next generation of industrial capacity. So he's comparing it to railroads, electric grid, Internet chips.
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A
Essentially a bunch of things that were bubbles that all blew up like you know, to talk about to be like, oh, it's a lot like investing in railway a couple of hundred years ago. It's like, and how did that work out? Or the dot com bubble, isn't that what they call the dot com bubble? So it's a lot like many bubbles in the past in that the price could go up before it finds, you know, before gravity has its effect.
- [14:34]
B
That's a very good point. I was going to make the point that if you look at all of those industries and the biggest companies at their peaks, you look at US Steel at its peak it was worth 6% of US GDP. For Cisco it was worth 5 and a half percent of US GDP. You make a good point. They've since come way down. If SpaceX were to hit a $10 trillion valuation, which is what he believes this company company is worth, it would be equal to a third of the entire GDP of America, which to me doesn't really make much sense at all.
- [15:07]
A
But if you think through what would the other AI companies be worth? Because this is the smallest one, this is three and a half percent market share like the other, you don't want to own space. You know, the reason they have to say that it's an AI company is just that the, you know, the only thing that's kind of sort of profitable is the satellites. The satellite intern that can only grow so much, it's only ever going to get so big. So you can't justify its current trillion plus dollar valuation on satellite Internet, the rocket launch business. It's worth noting that that loses money and that most of the launches are launching their own satellites. So when people even point out that the satellites are profitable and the launches are unprofitable, that's sort of like McDonald's saying well we're profitable on the hamburgers, but we're losing money on the bu. Aren't they tied together?
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B
That is a very, very good analogy.
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A
Like maybe they should up the price they charge their biggest customer, then the whole thing would be profitable.
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B
Just going through some more of these analyst notes because to be clear, Raymond James isn't alone. This is basically the entirety of Wall street that is in agreement on this. Deutsche bank said that SpaceX is quote, the apex of civilizational ambition. They said the company is, quote, bending the arc of history. J.P. morgan said his, quote, potential impact on humanity is bigger than any companies we've ever seen. Morgan Stanley called it the final frontier of AI.
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A
I think the report was called the apex of civilizational ambition. You know, which I looked at like other Morgan Stanley reports like the one on ExxonMobil or the one on, you know, many of the other companies that we think about, they never, they never add such drama, you know, like they put the guy with the Hawaiian shirt analyzing this and he comes out with a title like that, you know, and I think the only other real company covers his Tesla. It's worth noting.
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B
Yeah, exactly. Which is crazy. And by the way, just when we look at that, that price target, I was looking into that Morgan Stanley report. So their price target that they have set is $300. So again, that's like double where we are now. They say that the bull case on the high end, their target is $600.
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A
Yeah, I guess there's a standard deviation around that. Right, right.
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B
But then on the other side of it, they say that the bear case is $75.
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A
So it's quite a skewed distribution.
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B
Exactly. It could fall 50%, but it could also rise 300%. So you're basically not telling us anything.
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A
I mean, it's a call option, basically. Right? Like it's.
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B
Yeah, exactly. So you, when we were talking about this offline, you made a really interesting comparison to something that happened in the dot com bubble with this guy named Henry Blodgett. Could you just explain what the story is there and how it might have parallels to today?
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A
This is quite a famous story. It wasn't just Henry Blodgett, but he was sort of the biggest example. He was the Internet analyst at Merrill lynch at the time. And basically, you know, after the dot com bubble burst, you know, there were a few investigations and they found that many of the analysts were privately sending emails describing companies as pos, which we'll work out what that means while publicly going on TV and really bullying them up and saying that they were the greatest companies ever. And so Henry Blodgett, I think he was hit with a $4 million fine. He was, he was banned from the securities industry. He since went on. He's now, I think he founded Business Insider, so he's gone on to be a success. But then what was in 2002, Sarabanes Oxley was passed and there were regulations put in place because they basically Said that what was happening at the banks was that the banks were making a lot of money ipoing all of these Internet companies and it was sort of tied. Into which bank will I let lead the other ipo? Well, the one with the analyst who'll say the most good things about the company. We need to get the price up. And I think even back then ibd, the investment banking division got to put in as to how much of a bonus the analysts would get. So that was all separated. Investment banking couldn't influence research reports after that, or at least that was the idea. But it's worth noting that space which they raised. How much did they raise in the IPO? Was it 85, 85 billion? There's a research report out from a guy called, he's got a substack called Cape Fear Capital. And he dug through that the IPO prospectus and very carefully added up all the uses of funds. Because normally in an IPO prospectus there's sort of sources and uses of funds like why are you raising this money? What do you need it for? And it was all spread out and not very clear at all. But he added it all up and I think he worked out that they need $235 billion in spend between now and 2030, so four and a half years. That actually means if you're working at Goldman Sachs, Morgan Stanley, any of the big investment banks that Elon will be deciding they need to raise capital, they'll be asking the banks to, to raise that capital. Banks charge about a 1% fee. I think they charged less for SpaceX because it was so big. But there's big fees in the pipeline. And if your analyst says that this is a pos, you might not get that call from Elon. So it could be expensive to say the wrong thing. Now we believe that the banks are not supposed to be doing that anymore and it's reasonable. Maybe they just pick the biggest Elon fans boys to analyze his stocks because otherwise I don't know that I would get a job as the Tesla analyst, for example, should this go badly, which it's reasonable to think it could. I imagine that many of these people, if you're on the Index Inclusion Committee at Nasdaq, or if you're at one of the bankers who claimed it's going to be trading at a astronomical level, the likes no company ever has before, you may get a nice day out in Washington while you attend some sort of congressional investigation into your work. I would say hold onto your spreadsheets. You know and don't delete or no, do delete some emails maybe.
- [22:17]
B
I mean, I think it's such an important point because I mean, what we saw with the dot com bubble and what we learned is that there is structurally a conflict of interest embedded into equity research. And that is if you say something bad about a company, if you say that a company is a sell rating, then it's unlikely that the company will be interested in working with you to underwrite your IPO through which you would receive your 1%. And if they're going to be raising $230 billion over the next four years, that's more than $20 billion in fees. And it is literally the bank's job, job to figure out how to make sure that they can go out, pursue that deal, underwrite these equity offerings, maybe underwrite some debt offerings, maybe underwrite some M and A transactions and pick up those fees. And so Elon is naturally going to choose whichever bank is nice to him. And we literally saw this exact same thing play out when there was the dot com crash. So there was, as you say, Henry Blodgett, Merrill Lynch. He writes this exceedingly positive research on all of these different Internet companies. He private calls Those same stocks, POS's pieces of shit junk to his colleagues in private emails. And it ended up being that that was sort of what got him. Because it's illegal to publish research that isn't your genuine opinion. That's how they got him.
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A
And deeply unethical as well. Like, even if we, even if we step outside, you know, the legality, I mean, what are you doing? You know, like this is, I don't know, to me, it's, it's just such awful behavior.
- [23:58]
B
100%. And we saw. But he was not the only guy. I was a problem across the industry. There was another example of an analyst at Salomon Smith Bonney. He said this company was a buy. He had privately had called it a pig in an email to colleagues. And then there was another internal email that was sent by a Merrill lynch employee. He said, quote, this guy had come to his senses clearly. He said, quote, we are losing people money and I don't like it. John and Mary Smith are losing their retirement. And just because we don't want an investment banking client to be mad at us. So this is like a thing in the industry. It's a problem. And as a result, we saw this regulation that was designed to prevent this stuff from happening. There was Sarbanes Oxley and there was also the global research analyst Settlement, which I've been digging into since you brought a lot of this to my attention. And this was basically this agreement that the SEC came up with in 2003 that was designed to completely separate the research side side of, of the investment banks from the investment banking divisions whose job is to go out and get those underwriting fees. And they literally said, you cannot communicate with each other unless you have like a chaperone who's going to sort of oversee all of this stuff and make sure that you guys aren't kind of meddling with each other. We're going to make sure that the research guys have zero compensation tied to whatever happens in the investment banking divisions. So I'm looking into this. I'm, you know, learning about this Global Research Analyst settlement. Something I learned last night is that seven months ago that law was terminated by the sec.
- [25:38]
A
I was not aware of that, but that, that is interesting. Yeah.
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B
This is the headline, the press release, SEC Agrees to Terminate Global Research Analyst Settlement. And right after that happened, Arthur Levitt, who's the former SEC chair, he wrote an article in the Wall Street Journal titled qu the SEC May Make Wall Street Analysts Corrupt Again. And he warned about the dangers of getting rid of this stuff. The argument that they have proposed as to why it's okay to get rid of this is because they say that we have new regulations that already do the job of what that old regulation did. But if you actually look into those regulations, what you learn is that it kind of does the job, but way weaker, way more flexible. The communications restrictions are, you know, kind of loosey goosey. The requirements on third party research, independent verification, those are virtually gone. And the former SEC chair said, quote, don't be fooled by the promise that other regulations provide this separation. Financial regulators are floating the removal of quiet periods restricting when analysts can publish research on their own banks transactions. This is the natural pattern of regulatory surrender. So this I'm sort of learning about this one. Go. I feel like this might be an explanation to what's happening. Not accusing anyone of anything, but it seems striking.
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A
No, it's pretty wild. It's funny because even without this rule being changed, there's sort of just a general issue that if you work at one of the top investment banks that's really hoping to bring in billions of dollars in IPO fees, that it would be a career limiting move to put out a sell reporter to say anything bad about these businesses. So there's sort of corrupting influence in there anyhow. And when you look at the list of analysts I'm not familiar with that many of them, but you kind of look at the CVs online, it looks to me like some of the banks went recruiting at the Circus rather than at Harvard Business School in order to hire some of these people in.
- [27:45]
B
Well, just looking at the underwriters of the SpaceX IPO is basically every. Everyone, I mean, Goldman Sachs, Morgan Stanley, JP Morgan, Deutsche Bank, Raymond James, like everyone who is putting a buy on this thing, they all had a financial incentive within the bank. So it seems hard to assume it's anything other than that. And just going back to like the dot com bubble, when you look at mid 2000 and you look at all the recommendations on the stock research, 74% of stocks had a buy recommendation, only 2% had sell. Which it kind of makes me think that if there's ever some IPO boom, which there is happening now, it automatically, or if ever there is more deal making on the table, it incentivizes the entirety of Wall street to suddenly sell, say these stocks are great. And if they all say these stocks are great at the same time, then we start getting into bubble territory. No?
- [28:50]
A
Yeah. Well, it's funny because the IPO business was huge in the late 1990s. Then the dot com bubble burst and stock issuance really dried up. There'd been a bunch of articles about almost where have all the stocks gone? Right? Because you had companies been taken private, you had these unicorns that were worth billions of dollars in. And there was an argument that the public are not getting stocks to invest in. There's a smaller and smaller group. And so now we flipped, suddenly IPOs are back. But it's rather interesting to see the other echo of the past as well, which is questionable recommendations coming out of research at banks that are probably hoping to get IBD business.
- [29:42]
B
Yes, it's fewer IPOs than we saw before, but the size of the IPOs are gigantic. And what do you know, the ones where the size of the IPO is gigantic, those are the ones where all of Wall street is unanimous in his view that this is a buy and
- [29:59]
A
not just IPOs also like secondary offerings. Right. Because even I think Google issued a huge amount of stock recently, raising more capital than SpaceX raised in their IPO. So there's a bunch of big technology firms at the moment that it's probably wise to keep happy if you're hoping to participate in those flows.
- [30:21]
B
To what extent do you worry that this is causing a real systemic risk in terms of overvaluations across the stock market in Other words, that it is causing a bubble.
- [30:33]
A
It's an interesting thing because I think that while there's a lot of crazy stuff, I also think there's a lot of people talking about it. I don't know any sophisticated investor I speak to. They're not really suckered into thinking that these things have been issued at bargain basement prices. And the FT and the Wall Street Journal are filled with opinion pieces of people worrying about concentration in technology and high prices. And what if all of this stuff goes wrong? So I'm tor like, I do think there's possibly a retail audience who haven't sort of been through this already and they don't recognize what a really hot market sometimes looks like. But I'm torn. I do think, and especially nowadays where people get their information, like back in the 90s, those analysts were all over CNBC all day long. And also everyone, like the dot com bubble had everyone involved. Like you'd be down at your dentist's office and they'd be talking about stocks. It's not really the same today. And I think also the analysts don't have the power they used to have. So to a certain extent I view it as embarrassing. I always think for these guys, maybe you get big enough bonuses that who cares? But I just sort of think, gosh, wouldn't it be embarrassing like in years time you're at parties and people are like, you're the guy who said 300, is that what you said?
- [32:13]
B
It's a really interesting change where it's like they're saying the same things that they said back in 99, but this time around people are informed enough to say, well that's a fucking joke. That doesn't make any sense. I do wonder if maybe we're seeing almost like a bifurcation of the suckers versus the non suckers. Maybe there's one part of the market where the bubble's really working because people are actually listening to the $800 price target and they're really believing it. And maybe there's another part, the market who listens to Patrick Bole and watches Patrick Boyle's YouTube videos, they see those price targets and they say that doesn't make any sense. And that itself is an entirely different ecosystem. And it's a good point. Maybe that is sort of the downside protection in this bubble. Maybe you're single handedly preventing the bubble.
- [33:05]
A
Well, I don't know. I also think that people kind of do what they're going to do anyhow. Like you can tell people something's about financial you know, you can hang big signs outside a casino telling people, you know you'll lose all of your money here. And they kind of go, oh, that's other people, not me. You know, I feel lucky today. So
- [33:28]
B
we'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts.
- [33:46]
D
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- [34:46]
B
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D
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- [37:27]
B
We're back with Prof. G Markets. There is an interesting trend that we have been monitoring and which I wrote about a couple of weeks ago in my newsletter. Simply put, we are starting to see a rotation out of crypto Crypto which has been hit very hard over the past year. Ethereum is down 33%, Bitcoin's down 42% and some of the people driving that rotation are the crypto bros themselves. Meanwhile, AI has become the new frontier. It is the technology people are most excited about and it has captured the same sense of disruption and possibility that crypto once represented. And it has been on a tear. The Roundhill Generative AI ETF is up 48%, yet it's date. The Philadelphia Semiconductor ETF is up 75% year to date. So here's the thesis. The same investors who once chased crypto as the groundbreaking technology are now moving towards AI as the next big thing. And perhaps that may explain why crypto is performing so badly. Patrick, I mentioned Ethereum and Bitcoin which are not doing well. Bitcoin's been cut in half since its peak. Also the meme coins are way down. I should just point out Dogecoin, which was all the RA right past Covid. It's down 47% in the past year. Trump coin is of course down 81% in the past year. It's down I think almost 99% from its highs. What do you make of how crypto is performing the once very hot asset class which is now looking not so hot?
- [39:01]
A
Well, it's my opinion that the only, you know, there's no analysis you can do on crypto, right. You can't sort of sit down and build any sort of pricing model on it because it just sort of has a price price driven by what people will pay for it. And basically its only selling point is that the line is going up. And basically what gets people excited, people want to buy crypto because they know someone who bought it for a dollar and now it's worth 50 or $60,000 and they sort of say that will happen again. But for me, and so it's really just a very trend based asset asset. Now you look at it and over the last few years an index tracker that your grandfather invests in is outperforming bitcoin. It's no longer exciting because even I think some of these investments are things that people want to talk about when they're at a bar or at a party. Oh, I bought this thing and it's up huge. Well, now you say you own bitcoin, you're not really exciting. It's also, it was like an anti establishment thing. It's not anti establishment. We've got politicians all involved in it. SEC guy is a crypto bro. You know, that's, what's his name, Howard Lutnick is a crypto bro. Like, I mean, you know, this is not all of Epstein island were involved, you know, so it's just not, it's not exciting to see you're doing this, you know. And so, you know, I don't know if you want to be exciting. You're now probably saying that you're making exciting bets on Polymarket, on, you know, what's when the Strait of Hormuz will reopen or whatever. But it's, it's, you know, to say that you're a crypto investor today is going to put people to sleep. And so I wonder if there just is, you know, I think a few people have been calling it the great rotation, you know, where if you're a crypto bro, you're moving into AI, into prediction markets, into just something that kind of seems exciting to you.
- [41:02]
B
Yeah, I think the anti establishment point is a very important Point, because, I mean, crypto was the cool kid. It was the cool kid in town. And part of why it was cool was because one, its price was going up, so everyone wanted it, so it felt exciting. Two, it had sort of like a technological, like, financially forward feel to it. And three, it was anti establishment, it was punk rock, it was sort of sticking it to the man. Now it's the teacher's pet because President Trump loves it and President Trump is the crypto president. So all of that punk rock feel has evaporated. And at the same time, if you have no fundamentals, the only thing that makes it cool, and I think cool is the right word here, is the price. And so now it's lost the one thing that made it cool, which was the line going up. It also lost the anti establishment thing. And if you have no fundamentals, if you have no underlying cash flows, then there is no floor of value.
- [42:11]
A
Yeah. And all the claims of use cases have evaporated as well. Like, it just, you know, no one is really telling me that I'm going to throw, you know, Chamath a few years ago was saying that Visa was going to go to zero because of crypto. And it's like, well, I think Visa has done just fine. You know, crypto has performed like one of Chamat spacs.
- [42:32]
B
Unfortunately, just looking at, like, what's actually happened. So I went through the bitcoin numbers. Bitcoin ETFs have seen $8 billion in outflows in the past eight weeks alone. Crypto since its peak has lost $2.3 trillion in market value. The entire crypto industry has essentially been cut in half. And it does seem like the new hot thing now, if you're a crypto bro, if you're looking for those crazy lines going up, is is AI specifically kind of these more niche AI names, these semiconductor names. Western Digital, Bloom energy, up almost 200% year to date. Seagate, Sandisk. These are sort of the sexy new trades. And in addition, what we are starting to see is a huge amount of leverage being taken on to buy these stocks. And we're seeing a massive uptick.
- [43:27]
A
Yeah, the levered ETFs. Exactly.
- [43:29]
B
Yeah, the levered ETF ETFs, which are becoming very, very hot right now. More than 200 lever ETFs have been launched over the past six months now worth more than $150 billion. I mean, this has a perfect analogy to Bitcoin, because of course, we also know about bitcoin, that almost 70% of the bitcoin trading volume last year were these perpetual futures, these kind of levered up options, contract contracts. It seems like now they've just switched over to the other side, I guess. What does that say about the investment community? That we're basically just yoloing into these stocks without I assume really looking at what they're even doing or what the fundamentals even are.
- [44:15]
A
I guess this is always life though, is that people are always excited about whatever. The average investor hugely underperforms the stock market and this is well known because they always buy the wrong stuff at the top, they liquidate at the bottom. It's the switches that kind of kill them. But this is just like your emotions as an investor are your enemy. The more emotion, the more strongly you feel. Whether it's fear or excitement, these are emotions that are leading you in the wrong direction. But this is just the oldest story in markets is just that that most investors, it's not just that they underperform, but that they lose more money than is even naturally explainable by the returns in the market.
- [45:07]
B
You were mentioning when we were speaking offline this term, I forget who came up with it, but this term financial nihilism that is becoming kind of pervasive.
- [45:17]
A
Oh yes, that's Dimitri Kofinas is the guy who came up with that idea. He's a very interesting guy.
- [45:23]
B
Yeah. What does that mean?
- [45:25]
A
Well, it's based around this idea that there's a lot of young disillusioned people and they sort of feel they can't afford a house. They are not getting the kind of jobs they wanted a list of difficulties and they basically want to reach escape velocity. They're on Instagram and whatever and they see these people who've made masses of money through basically an all in gamble on something, be it meme stocks, be it crypto, be it Nvidia, doesn't matter what it it is, but it's just this yellow idea where they've decided that nothing matters. All the numbers are made up, it's all a con and you just have to look after yourself. You have to make a big bet on something, hopefully make a massive, massive amount of money and then you're out. That's kind of the idea. And I think that is an idea that has been building really over the last decade or so and I think really picked up during the COVID period when people were locked at home. It's sort of an interesting thing because I think it really took off then as well because a lot of people, they had no money to Spend on stuff. Some people were getting stimulus checks and so on. So they had a couple of thousand dollars. Many people, if you're sort of working at Walmart or something like that, you probably never had as much savings as you had at that point. And you're sitting there looking at this thousand dollars check and you kind of think, well, you know what? Well, I do buy clothes with it or go all in on something and try and turn $1,000 into a million dollars. And that's sort of the financial nihilism mindset.
- [47:04]
B
It seems like this awful combination of economic opportunity for young people in America at least, has really never been lower, at least relative to other generations. Just look at housing prices today as an example and we'll get into this. But housing prices relative to income have never been higher. Housing prices have 7x over the past 50 years. They've way outpaced wage growth. Costs of college have tripled since 1980. That's adjusted for inflation. Combined with, I think, as you say, social media and the fact that we're constantly on our phones looking at all of these rich people who supposedly made their money, money on Dogecoin, on Trump, Coin, Pepe, Coin comerocket, you name it. Andrew Tate is out there, you know, driving his 7 either rented or not, Lamborghinis that he supposedly got because he went all in on crypto. I mean, this culture of levering up, borrowing money, trading options trading, crypto, getting into gambling, and then the illusion that that is actually going to lead to a place of financial success and well being really seems pervasive. And it seems like it is having a substantial impact on the structure of equity markets. I mean, and all you can assume is that we're going to see crypto over and over again in different types of asset classes. It goes up, everyone gets excited, then it just boom, goes down as soon as the excitement fades. Which makes me think we got to see the same thing again in some of these AI names and these semiconductor names. Perhaps we're already seeing it. We have already seen that at the past week, it's been pretty bad for the semiconductor stocks. At least there are some cash flows there and at least there's actually a thesis fundamentally behind those trades. But you have to think this is just going to keep going over and over again. No?
- [49:07]
A
Well, the only thing is, once people get, in fact, the worst thing about this bubble bus cycle is that a lot of people, their introduction to investing is sort of putting their money into some crazy thing that their friend told them was a good idea. It gets totally wiped out. And then they're sort of scared for. And there were a lot of people I knew because I sort of, I was in my 20s during the dot com bubble and so many people I know were really, really excited about all these Internet names piled into them. They wiped out. And then, you know, I'll talk to these guys, you know, 30 years later or 25 years later and they all say, no, no, I never invest. It's all a con. And the thing is, had you put your money in the s and P500 or even actually held onto the NASDAQ or whatever from back then, you would have done quite well. While you put your money all in government bonds, you'll have looked smart for about three years because stock market fell for three years after the bubble burst. But then in the long run you don't. And so the problem is financial education, it's that people don't understand sort of what normal expected returns are. It's not like 300% return in a year or what that can happen. You can buy a thing and that can happen. But you should recognize that you were probably lucky and you didn't necessarily predict it. And that in the long run, if you're 20 years old right now and you're going to retire in 40, 45 years time, you should hopefully just harvest the general market return because for every lucky win you'll have, you'll probably have another unlucky loss. And it probably balances out to giving you about the return of the S and P, assuming you don't go too crazy and like lever up at the wrong time or you know, cut all of your losses at the bottom or whatever.
- [51:07]
B
So yeah, it seems as though the financial education point is basically the entire fix to this thing. Because I mean, it's not just that these essentially gambling products are out there, it's the fact that we're kind of convinced, convincing people that those gambling products are not gambling products, that they are investment products. I mean, if you look at the way we talk about zero day options and how that has exploded among young people, and perpetual futures, these options contracts that have basically no leverage cap, no expiration date, it's just a bet on whether it goes up or down. I mean the prediction markets, what you're buying is called an events contract and it's regulated by the cfo, ftc, as if it isn't gambling, as if you're actually trading, not even trading, investing in an actual commodity. When you bet on whether the New York Knicks are going to Win, that's
- [52:08]
A
even the thing is that the whole argument behind, if you listen to people defend prediction markets, they say, well what's happening here is that it's providing information, it's kind of real economic events been bet on. But I believe something like 90% of the gambling is just on sports. Like it's just sports betting, you know, and it's wild. The idea that the CFTC is now a sports regulator of sorts
- [52:37]
B
regulating sports betting in states where sports betting is illegal, I mean it has to crumble at some point. My view is I like the events contracts on the financial and economic events. I find it interesting and useful to look at that data, but then to make the argument that that should also be venue to be betting on the outcome of sports games and World cup games, that's just taking everything a step too far.
- [53:00]
A
But even one of the problems even about using it to bet on events, like if you want to bet on a smaller election or something like that, is it possibly becomes worthwhile for a marginal candidate to sort of put their, you know, to put a bit of money behind it. And suddenly the journalists all get on the air and kind of go like, oh, and this guy is really coming up from behind. No one expected this, but the prediction markets say that he's now the leading candidate. It's like, or did he just drop a million bucks on a contract? You know, yes.
- [53:34]
B
If the insider trading on those platforms isn't addressed then the entire thing is compromised. The entire thing has no place. So that's again more reason for strong regulation related to what we talked about with the SEC and how the regulation preventing the equity research and the investment banking guys from collaborating, that's evaporated. The SEC has essentially been gutted over the past year. I mean you look at the amount of enforcement actions, it was an all time low, at least for a transition year. 15% of the workforce has left. I mean the reason you need all these things is so that people can believe in markets and not become financially nihilistic because that's where we're headed.
- [54:17]
A
It's worth noting there's a requirement for balance. Like I felt a few years ago there was, I think the, what was it? The FTC blocked a merger between two handbag brands by claiming that there would be sort of a monopoly and mid priced, I don't know, I forget it was Coach and Michael Kors or something like that and they said no, this would be a monopoly. And it's like, I'm sorry but there's no such thing. As a monopoly in the fashion industry. Like there's always someone willing to make a bag at a different price point. So there's arguments, the regulation thing I'm always on the fence about because there can be too much regulation and there can be not enough. And the problem is that both of these things can be harmful.
- [55:06]
B
We'll be right back. And for even more markets content, Sign up for our newsletter@prof.gmarkets.com. Support for the show comes from Granola. It feels good to walk away from a meeting that actually felt productive, but our brains can only hold so much info. You might look back and realize you either a got caught up in your notes and missed some important stuff or b you couldn't even take notes and now you're trying to reconstruct it all from memory. If that's your dilemma, Granola can help solve it. Granola is an AI powered notepad built for the way real people actually meet. You can take rough notes like you normally would in the background while Granola securely transcribes the meeting. Then after you wrap up, it turns everything into clean, structured, actually useful notes. You can walk away knowing exactly what was decided, who's involved, and what comes next. If meetings are are eating up your day, Granola is a no brainer. You can try it totally free for three months. Just head to Granola AI Markets. That's Granola AI Markets. To get your time back, get three months free at Granola AI Markets.
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- [57:32]
B
We're back with Price Crafty Markets. The US Housing market is showing new signs of strain. Last month, the median price of a home in the US hit a record high at $408,838. And the median US housing payment saw its first year over year increase since October. This is part of a broader trend we've been tracking on the show. Homeownership is becoming increasingly out of reach for the average American. In fact, 75% of homes currently on the market are unaffordable for the typical household. Patrick, you've been talking about this, researching the housing market, explaining it over on your channel. It's always something that's just befuddling to me, like how it continues to go up every year. Despite the previous year being a crazy record, it still keeps happening. What's the deal with housing? Why does it keep going up?
- [58:31]
A
Yeah, I mean, it's a big problem in big parts of the western world. It's interesting because there's certain parts of the United States, like if you look in Texas, there's not really the same problem as you'll see in New York City and Massachusetts and whatever. And it's because it's just easy to build in Texas. And essentially a home, there's price is more tied to the cost of building materials and interest rates than anything else. While everywhere else you go, it's often it's sort of the land value is the core value. And some of it it's things like growing populations which are starting now to reverse. But it's an interest rates coming down will have made houses more expensive because people typically buy with borrowed money. But in the very long run, if you look at a very long history of housing prices, there's reason to think they should go up. But it's become sort of an investment class years ago. If you speak to your grandparents, they'll never talk about the concept of real estate investing. They bought a home that they needed to live in once it became an investment. And we'll say in places like the UK where it is by far the biggest investment, like it's what people do with their savings is sort of either buy their own home or buy to let a property. You end up with this situation where the government have incentivized people to buy homes. They want prices to go up or at least stay steady. And so in an election year or whatever, are you going to permit a load of new building that'll hit house prices? Are you going to allow changes that would make it affordable to young people? And for the last 20, 25 years, the answer has been no. And so we've seen price go up and up. And you know, the political motives are all there. And you see politicians saying, you know, we want, you know, affordable housing for young people, but we don't want to hit the, you know, the home values of retirees who are relying on it. And it's like, well, you get one or the other.
- [60:54]
B
Yes, you, you said in your video, I think this quote really sums it up. You said, quote, once a country decides its houses are supposed to make everyone rich, it has to keep prices rising forever. Means restricting supply, blocking development, and quietly pricing out each new generation, which works until it doesn't. And I think what I appreciate about that view, and I think is right, is the fact that it is a choice. I mean, it is an intentional policy decision to decide that if you're starting from a place of people expect the value of their home to go up, then we have to do whatever we can to make that happen. And I think this was really crystallized for me earlier this year when the president, who had sort of said that he wanted. It, wanted housing to become affordable. I thought we had all agreed that that was something we all wanted to figure out. He said the following, and we'll just play this clip and get your reaction.
- [61:55]
A
There's so much talk about, oh, we're going to drive housing prices down. I don't want to drive housing. Housing prices down. I want to drive housing prices up for people that own their homes and they can be assured that's what's going to happen.
- [62:07]
B
This is the problem.
- [62:07]
A
Right, because that's who votes, right? Like that's who votes. You know, homeowners, the elderly vote, young people don't vote, so they don't get a say.
- [62:15]
B
Something you were saying is that
- [62:19]
A
we
- [62:20]
B
shouldn't necessarily expect the price of a house to go up. That's not a gift given, which I thought was an interesting comment because I've been trained to think that it should. Why do you believe that?
- [62:31]
A
Well, if we just look at a regular home, you know, the example I was saying to you yesterday was if we look at a home near a hospital that a doctor lives in, right? And we've got to assume that when the doctor bought that home, it was affordable for someone on a doctor's salary. If we move forward 50 years, the hospital is still there. That home should probably be filled by another doctor. It's not going to be a Russian oligarch, a crypto, crypto billionaire or whatever. It's going to be a regular person who works at the hospital. And thus it must be priced such that a doctor can afford it. And the rate at which wages go up is roughly in line with the rate of inflation. So to believe that house prices should go up significantly more than inflation in the long run doesn't really make much sense. We can't live in a world there's a lot of scaremongering even where you see people out there and they say, well, no one will ever own homes again. They'll all be owned by bill billionaires and blah blah, blah. And it's like, well, even if billionaires own them, they have to rent them out and they have to rent them out at a price that we can afford. And if they overpaid for them and are renting them out at a low price, they're losing money on that. So if you're buying an asset at an all time high and it seems really unaffordable to a regular person like you, it might mean that that's not a great investment.
- [63:54]
B
We seem to take it as a given, especially in America, that if you buy, buy a home, it's going to go up. Like it, it is an investment that is the way people see it. And it's sort of like have your cake and eat it too. I get to live in this home, I get to have a roof over my head. And at the same time I am making like a financially responsible decision that's going to pay out over the long term. And I guess it doesn't. You, you've made it clear to me that there's no reason we should assume that or why anyone should assume that. Like the only reason you should assume that, that your house is more valuable five years from now than it is today is if you invest in renovation and make it nicer. Or if you believe that the specific locale that you have bought your house in, the neighborhood is going to become a hot neighborhood and everyone's going to want to live there. To me, those are the only two reasons.
- [64:50]
A
Yeah, if it suddenly boomed because a very profitable business opened down the road or something like that. But yeah, there's no reason to think that a regular person's house should explode value, that it should go up like the stock market does. The stock market is companies who are making and selling goods at a markup. Your home is just sitting there and in fact it needs a roof repair every once in a while, a new siding and the kitchen wears out. Also, if you just look at a long term return on housing versus the stock market, housing grossly underperforms the stock market. It's not the best. I understand the emotional urge to own the place. You Live. But an emotional urge is different to an investment decision. And the investment decision is, is this going to go up at a higher rate or with a lower risk than other assets I can invest in?
- [65:48]
B
It almost has parallels to our conversation about the crypto, where the reason the price of crypto is staying up or was staying up was because people just fundamentally believed that it would keep going up. And that was the proposition. And when I look at the price of housing today, I would imagine that a large reason why. I mean, of course there's the supply problem, which we have obviously have to get fixed. But I think it may be, in addition, there is the fundamental belief among Americans and current non homeowners that the price will go up. And if you believe that, then there's more incentive to go out and buy a home as opposed to investing in anything else. And I wonder if your point, if we were to philosophically change that mindset in America and in the Western world, and it does seem to be kind of a Western world thing, this doesn't really exist in Singapore, as an example, doesn't really exist in Japan. They don't think of these houses as investments per se. If we were to eliminate that mindset and treat it as this is a place where I live and it's a cost, and if I want to invest, then I go and I invest in stocks and I invest in businesses, I invest in the S and P, perhaps that would solve the problem. Maybe that would shift things. I mean, what would it take to get prices at a reasonable place?
- [67:10]
A
It's so interesting though, because even, you know, we've seen in New Zealand there's been a fall in house prices and what ends up. And even in the United States, home affordability has collapsed in recent years even though house prices haven't gone up that much. But because, you know, a few years ago you could borrow at, you know, under 3% to buy a home. And then when it goes up to 7% or something like that to buy the same home, the same cash flow does not buy that home at that price. It's almost like the house price is up 60, 70% or at least the cost of funding the purchase is up a lot. Now you would say, well, who are all the people who can suddenly afford to pay this much more? They haven't had pay raises or anything. And the answer is they don't exist. But the sellers are not willing to mark down their homes. They've locked in at a low mortgage. So you see in the United States, just transactions have collapsed. Sellers aren't willing to mark it down and take a massive loss and it's totally unaffordable to buyers. So you just end up with this frozen housing market. In other parts of the world, in England, where your interest rate is usually variable, you can only lock it for a few years, you actually feel the pain. Like when interest rates go up, your mortgage bill goes up and you have to ask yourself, can I afford to keep paying this? And so you're more likely to see a squeeze on homeowners in places with variable interest rate mortgages. But in the United States, you just see the market freeze up and that also it's worth noting, it's kind of lucky, but it's not always because, for example, if you had, I don't know, a great job and you're offered a promotion, but you have to move across the country, you think, well, gosh, if I sell my house now and I get $500,000 and I buy a home in this other place for 500,000, the mortgage, the cash flow, I can't do that. I'd have to buy a $300,000 home in order to finance it with the same cash flow. And so I won't take that job promotion. And so it sort of harms people, worker mobility and careers and things like that. All just sort of clinging on to this investment.
- [69:30]
B
Let's take a look at the week ahead. Next week we'll see inflation data from the consumer and producer price indices for June earnings season will kick off with the big banks reporting. We'll hear from JP Morgan, bank of America, Goldman Sachs, Wells Fargo, Citigroup and Morgan Stanley. We'll also see earnings from ASML, TSMC, Johnson Johnson, United Airlines, United States, United Health and Netflix. Pretty big earnings week. This is the part of the show, Patrick, where I usually ask Scott for a prediction. So if you have one, I will ask you, do you have a prediction for us for the week ahead or for otherwise?
- [70:07]
A
Well, mine is a controversial prediction. I'm predicting that that Count Ben Face is going to win the by election in the UK against Nigel Farage. You know, it's sort of Nigel Farage kind of brought about this by election. He was hoping to sort of be able to run as someone running against elites, but the only person running against him is a man who claims to be from space and he wears a trash can on his head and he's running on, I think one of the best election proposals I've ever heard, which is to reduce your taxes but raise them for everyone else.
- [70:50]
B
I love that prediction and our UK listeners, I'm sure will love it too. My prediction goes back to the SpaceX story. I think we're going to uncover something very ugly with these Wall street analyst reports. I'm not saying I'm not indicting anyone or accusing anyone of anything, but if I had to make a prediction, I think it would be that we will see a situation similar to what we saw with the Henry Blodgett case. I think we're going to uncover that some very funky stuff has been happening with these price targets specifically for SpaceX. Patrick, this was wonderful. Thank you so much. Really appreciate your time. Patrick is a professor at King's College London and a portfolio manager with more than 20 years of experience at hedge fund investment banks and private wealth management firms. He is also the author of several books on finance and hosts the podcast Patrick Boyle on Finance, which I highly recommend. You should all go check it out. We really appreciate your time Patrick.
- [71:52]
A
Thank you for having me on.
- [71:56]
B
This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Karti. Our Research Director team is dan Shalon, Kristen O' Donoghue and Mia Silverio. Jake McPherson is our social producer, Drew Burrows is our Technical Director, and Catherine Dillon is our Executive Producer. Thank you for listening to Prof. G Markets from Prof. G Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.
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- [74:22]
B
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