Support for the show comes from Schwab. With Schwab investing themes, it's easy to invest in ideas you believe in, like online music and videos, artificial intelligence, electric vehicles, and more. Schwab's research process uncovers emerging trends, then their technology creates relevant stocks into themes. Choose from over 40 themes by all the stocks in a theme as is, or customize to better fit your investing goals, all in a few clicks. Schwab investing themes is not intended to be investment in the world.
It's a device or a recommendation of any stock or investment strategy. Learn more at Schwab.com slash thematic investing. If you want to see what an industry leading 5.1% APY can access an industry leading 5.1% APY with a high yield cash account, zero fees, and no subscriptions required. Plus, you can get unlimited transfers and withdrawals and it's FDIC insured up to $5 million.
If you want to see what an industry leading 5.1% APY will look like, you can check out public.com. This is a paid endorsement for public investing. 5.1% APY is of March 26, 2024 and is subject to change. A high yield cash account is a secondary beverage account with public investing, member FINRA, SIPC, funds from this account are automatically deposited in a partner bank where they earn a variable interest rate on an eligible for FDIC insurance.
Neither public investing nor any of its affiliates is a bank. US only learn more at public.com slash disclosures slash high-yield-account. Today's number 19. That's a percentage of employers who claim to have had a recent college graduate bring a, get this, parent to a job interview. Ed True Story. I figured out that my parents favored my twin brother when they asked me to blow up balloons for his surprise birthday party.
Hold me, Ed. Little twin humor. Little twin neglected dog humor. That's right. We're trying to clean it up. Still PG-13. Welcome to PropG Markets. Today we're discussing the Texas Stock Exchange and the Dime Breed of the Short Cellar. Here with the news is PropG Media Analyst Ed Ellison. Ed, what is the good word?
It's pretty shocked by that start. 19% makes no fucking sense. It makes no way. Do you think that's right? I don't know. Surely it's something wrong with the survey there. Unless I'm just completely out of touch. Unbelievable. Yeah, no. I asked my parents if I was an accident and they said no, it's really more of a tragedy. That could have been our opening joke too. Yeah, there you go. You were in Scotland yesterday. How was that?
It was great. Went up there for the night to place called the Five Arms and Aberdeen. By the way, one of my favorite things to do is when I look at your schedule, I will look at your, the hotels you're staying at and Google them and look at all of the photos.
So I've already seen the Five Arms website. I know what all the amenities are. It looks quite nice. Yeah, what do you think? What should we have done? We pretty much just drank whiskey and had a long dinner. We didn't even take a walk. We're going to go outside.
Also, I don't know if I told you this, but actually speaking of parents, my parents treat me like a god and that is they don't believe in me. They don't believe in me. Back to the Five Arms. Do you have like a joke's website pulled up in front of you right now? Where are these coming from? 100% So what place am I going to that you're most excited about? I love that you're stalking me. I love doing that. I don't know. I first off, where are you guys going? Where's the team going?
We're going to St. Bolts. That's right. That's what happens when you work for the dog. That's right. He sends you the same bar. It's I tell you once I walked in on my parents having sex. Seriously, I'd seriously, I'm not joking. It was the worst 45 minutes of my life. You've told that one before, but yeah, never get old and just a reminder just a reminder just a reminder to go listen to the profgy markets feed profgy markets. Go subscribe. I get to the news.
I'd start with our weavers of your market vitals. The S&P 500 hit a new record. The dollar declined Bitcoin top $70,000 and the yield on 10 year
treasuries fell shifting to the headlines Spotify is increasing the cost of its premium subscription plans, including the family duo and student plans. That's its second price hike in a year. Meanwhile, Warner Brothers Discovery also announced a price hike for Max Morgan Stanley's trading platform E trade is considering banning Keith Gil also known as roaring kitty over concerns of potential stock manipulation.
The company is concerned that Gil's influence can enable him to pump up stocks like GameStop for his own game. And finally in video became the first computer chip company ever to reach a market cap of wait for it $3 trillion. As of Wednesday's close, the company's supposed Apple as the second most valuable company in the S&P 500 also in the world behind only Microsoft. Scott your thoughts.
I think that the subscription space is such a fascinating lesson and economics and markets and essentially what you had is everyone figured out that the future is in streaming and it's also consistent revenue is not ad revenue is where if there's a recession everyone stops advertising even there was recession people using canceled their Netflix or their Spotify.
And so the market got drunk on it. This is the future and gave these companies an enormous valuations and then the ones with the biggest market cap specifically Netflix started reinvesting that capital to take an Amazon like strategy of just using capital as a weapon and pull away from everyone else and Netflix got up to $17 billion a year and spend on content which no one could match.
And then the markets got less excited about the space because it didn't appear anyone was very profitable and that the space had been over invested because everyone was trying to catch up with Netflix. So it was a great time to be a gaffer was a great time to be in the business of production. But at some point the music was going to end and it ended about I think about two years ago when Netflix crashed.
And all of a sudden became clear that things like Paramount plus just might not survive and the market has done two things it's consolidated and it's also based on the consolidation given some players specifically Netflix the cloud cover to raise prices.
And this cloud cover and the consolidation because there's fewer and fewer options at the very high levels has given this pricing power back to the organizations and Spotify has increased prices. I think it's going to be twice now and Spotify for the first time. I think in a while their stock is performing really well.
The individual dual and family subscriptions will increase one two and three dollars respectively the stock pop five percent on the news. It's performance today has been underwhelming and it's 25 quarters as a public company it's only been profitable eight of them but things are looking up the stocks has doubled in the last 12 months.
And you're also saying max is increasing its prices on ad free plan so the company is to come out the other end of this will be the consolidate or so suppose the consolidate ease. I think I'll do well and that's one of the reasons are three stock picks for 25 again invest in index runs but it's fun to follow stocks are alphabet which is up I think 25 or 26 percent on the air.
And then Warner Brothers and Disney and Warner Brothers has been a lagger Disney's done okay because I think that the pricing power that they will register at Disney plus and at H.P.I. respectively. We'll start to give the markets a reason to look at them again but this is this is just a case study in over investment and then a crash and then consolidation and then pricing power coming back any thoughts.
I just can't believe the stock performance of Spotify it's up 110 percent in the past year it's doubled. It's pretty fascinating to me I mean we discussed their earnings from last quarter on this podcast which was also pretty phenomenal 20 percent revenue growth they had this massive reduction in spending and now they're doing what.
Great companies get to do which is raise prices so I will see how that will affect the user ship in the next earnings it's got its next earnings call a month from now but I have a feeling that it's not really going to hurt may use that much I feel like price hikes are always less damaging than people predict and that's certainly been the case for netflix as you pointed out.
But some key skill and trade so I thought this was really interesting when we first talked about it in the editorial meeting I thought this is bullshit you know it's the SEC's job to decide with market manipulation is not e trade and then a don't on me.
E trade is full of shit this is what's going on what I think is going on each trade is worried about what happened to robinhood and that is when the meme stock phenomenon went just literally parabolic the ability to pair trades on these highly risky highly volatile stocks meant that the trading or the clearing firms asked them to have a certain amount of capital reserved in case the stock accelerated before they paired it with another trade.
And I think each trade is worried that they might get caught with their pants down because if you remember what happened robinhood they effectively said to people you cannot buy. Game stop or I forget which equity it is and it to a certain extent they probably should have gone out of business when they did that.
And I think each trade looks at what's happening and says someone in their compliance with the risk department comes back and goes if this chicets real again and it starts going fucking crazy we could potentially find ourselves in a robinhood like position where the people who clear our trades demands so much equity that we don't have it but this notion somehow that they have decided they're the arbiters of market manipulation makes absolutely no sense to me what are your thoughts.
Yeah I found it really interesting the debate that's going on at Morgan Stanley as to as you pointed out you know why they should ban him but also why they shouldn't ban him because it actually isn't a question of legality for them because their tons of conditions very clear they can
basically restrict whoever they want that's what you sign up for when you sign up with their platform but their concern is that if they do ban him that they're going to make enemies with the reddit army and that by antagonizing him it's going to start this chain reaction and all of his hundreds of thousands of fans are going to leave and follow him to a different platform.
And I just find it so interesting that this issue is kind of becoming a theme for every platform in the first obvious example that comes to mind is Trump but it's sort of like you know if you're a platform if you have users you have to develop a strategy for dealing with these larger than life characters with these huge followings who misbehave because even if you rightly punish them you risk losing millions of users and eventually probably millions in revenue.
So it's interesting to me that a stock trading platform could be dealing with the same issues that we've seen over and over again on the social media platforms like Twitter and Facebook. And I just think that you know every platform no matter what industry you're in should have a game plan for situations like this because it feels like it's happening more and more frequently.
Your analysis is the right one and but the folks of Morgan Stanley are really smart and they sat down and said okay what are the risks of a Robinhood like moment for us that is a terrible scenario for us. What are the risks we're going to lose a bunch of meme stock traders they probably looked at there I would imagine their trading base and said it's not a big part of our business.
I think they would have rather not done this all things being equal but I think they decided the risk the kind of tail risk or the black swan risk of an event where the stock goes to you know one of these meme stocks goes absolutely parabolic and there's just you know 30, 50, 100,
100 x increase in volume and all of a sudden the people clearing their trades freak out and say you need 30, 40 x the capital reserves here they thought okay dash is not a scenario where we all want to be looking up at 2 a.m. and try to figure out how to get more liquidity.
Okay so we piss off roaring kitty and his followers or some people on Reddit they probably did some analysis and tried to figure out what percentage of our trading volume is these individuals and they said no we'd rather piss off this small group of people and not be subject to this to this tail risk. So what's on Nvidia to 3 trillion dollars in market cap I just never been a company this successful if you define success by the ability to add that type of value in a short period of time.
It's at 1.8 trillion dollars year to date it added 3.4 trillion dollars in May so it's now larger than the entire stock markets of Canada and South Korea. It's market cap is larger than the GDP's of all but 6 countries I mean we're talking about bill coming about paramount we're talking about 5 billion is worth 15 billion you know this company loses that in a trading hour gains it.
And it just it's absolutely striking and I we're going to see all sorts of stories here about thousands of employees in the Bay Area who are now worth 10 50 100 million dollars the numbers here people can even wrap their head around that you know what the numbers here are and then one of the things that me that I just hold up that just fascinates me is I believe that the SMP is up about 13 to 14% year to date but half of that gain is in video.
So the SMP outside of Nvidia is basically up a little bit more than inflation so essentially if you have money in the SMP you're kind of flat if you don't own Nvidia but if you own Nvidia or you're part of an index fund and this is why you should be in an index fund because
you're balanced across based on a weighted adjusted ratio of the market cap you're up 14% but if you're buying individual stocks most likely you're probably not doing that well unless one of those stocks was in video and it goes back to I think it's I think it's a lesson in the power of index investing because what I found having been through a lot of ups and downs financially is that the pain of losing a lot of money is much greater than the joy of making a lot of money.
And so diversification and index funds and getting that 14% feels really good now it doesn't feel as awesome is getting 300% but we're really fucking sucks is being the guy that's that's not beating inflation or is lost money.
So this thing is an absolute phenomena you know Josh Brown had a really interesting point I said this is Cisco all over again he said yeah there's a key distinction though and that is as the market cap is accelerated the P E has actually come down which means that their earnings growth has been greater than this exponential market capitalization growth I think this is a bubble I think it's a matter of when not if but I think it's going to happen when a company a big company who's a big.
Purchaser announces they have their own ship and that it's pretty good or when you know Mary bar from General Motors says we're dramatically decreasing our spending AI while it's still important to us we've realized that it's not going to revolutionize everything we've done that's when I think you see the bubble pop here but this is as of today this is the most successful company in history as registered by an acceleration in value what are your thoughts I just love seeing the stole power that gents and Juan
has accumulated in the past year to awesome examples of that one that viral photo of gents and signing a woman's shirt who comes and a cost and while he's walking out of an interview if you haven't seen it yet you you should go check it out he literally looks like a rock star I mean he's he's wearing the leather jacket but it's sort of like it's Cristiano Ronaldo like Justin Bieber level fame and the second thing I found also pretty interesting is what he did to be a very good guy
also pretty interesting is what he did to some song stock and that is some song rose 4% in one day after gents and said in an interview not that he was partnering with some song that he was even conducting any sort of business with some song all he said is that he has been looking
at the chips that Samsung has been producing and through that comment alone he was able to create 15 billion dollars in market value and increase the stock 4% here's a question for you do you think gents and Juan is at this point the most powerful non politician in the world it's a really interesting question I think some people would argue that it's
Mark Zuckerberg or such in a dollar because of their control over such huge swaths huge businesses and also their ability to sway elections or not sway elections or depressed teens or whatever it is they do but what gents and in my opinion sort of indicates is the financialization of everything as a society becomes more capitalist what it offers is different gradients of life what I mean by that
when I was younger my dad would have people over who work for him and then we would occasionally go over to his boss's house his boss had the nicest house on the block but it was still the same neighborhood and we were all still members of the same country club and he had a catalac
right instead of a thunder birdie out of catalac my dad had a grand terino but his boss had a catalac but now the guy who runs a company flies private and stays a series of hotels that people just most 99% of people could just never even afford the fight owns yeah well or not even that I mean what you can do with money now that wasn't even an option back in the 70s and 80s like money bought you some stuff but it didn't buy you what it buys you today and so I think the reason we're more
from doing different species is one mostly because of loneliness but to the financialization of everything is created different criteria what I mean by that the sex symbols used to be military your ability to protect the tribe made people attracted to you now the people were most attracted to
are the people who can offer a better life to the entire tribe and that is if you're very wealthy you have power a ton of power you can offer such an extraordinarily different life to not only your media family but the people around you your employees that these people have become the new generals the new athletes the new movie stars they are the sex symbols they are the new heroes in a species that is evolved also because they're in the technology field of the closest thing we have to a god because we
don't understand this shit similar to the way we don't understand religion but I feel like we're evolving to a different species with different criteria and different heroes and Jensen Huang is an example of that and here's our strategy I did get that picture with him and can he came up I told you the story said I like your videos and I like
you want to picture I thought it was a fan took a picture we walked away I'm going to find that picture and I'm going to announce the property has entered into an exclusive relationship with Nvidia and we're going to back we're going to
back hell yeah I love that we're going to smack I'm going to get I'm going to get Shemoth as an investor happen to go on CNBC every other fucking day and they're going to pretend what what he says is gold so they can fill up 18 hours of opioid induced constipation network and they'll bring on any carnival barker to talk up any
chicken shed I love that we'll be right back off the break with a look at the Texas stock exchange support for this episode of Proph G comes from mint mobile there are two types of people in this world monthly budget people and people are
surprised and terrified to see how much they spend every month if you're in that second group I get it avoiding less uncomfortable truth is a really great strategy until it's not if you have an uncomfortable gut feeling that you're spending too much money every month cutting down your cell phone bill is a great way to tighten the belt and with mint mobile you don't have to sacrifice anything to get a more affordable plan.
Mint mobile offers wireless plans for just 15 bucks a month when you purchase a three month plan all of their plans come with high speed data and unlimited talk and text delivered on the nation's largest 5G network you can make the switch and keep the
phone and number you have right now along with all of your existing contacts you can get this new customer offer and a new three month unlimited wireless plan for just 15 bucks a month by going to minmobile.com slash prop G that's mint mobile.com slash prop G
cut your wireless bill to 15 bucks a month of minmobile.com slash prop G $45 upfront payment required equivalent of $15 a month new customers on first three month plan only speeds slower above 40 gigabytes on unlimited plan additional taxes fees and restrictions apply cement mobile for details.
Support for property comes from LinkedIn jobs at this point we're all familiar with LinkedIn maybe use it to network with some folks with different industry or to stand touch with old colleagues but all of that just scratches the surface of what LinkedIn can accomplish if you're hiring for your small business LinkedIn jobs can help connect you with the right professionals for your team fast.
We recently posted on LinkedIn jobs and we get great candidates we love LinkedIn more than anything I like to have civil LinkedIn is when I go on and post content on LinkedIn people are friendly people are substantive and I just think it's a nicer community it's where you want to raise your kids there was a neighborhood in social media it's where you want to move to anyways LinkedIn is not your average job board you can connect with qualified professionals you won't find anywhere
else including people who aren't actively searching for a new gig and according to LinkedIn users 86% of small businesses find a qualified candidate within 24 hours of posting so if you're not looking for your next time LinkedIn you might be looking in the wrong place higher professionals like a professional on LinkedIn post your job for free at LinkedIn.com slash prof that's LinkedIn.com slash prof to post your job for free terms and conditions apply
support for property comes from masterclass if you've been wanting to develop some new hobbies or habits for your personal professional growth and let this summer be the time you stop procrastinating you can start with masterclass masterclass is a
streaming platform you can learn from more than 200 of the world's best to help you become your best you can learn how to prioritize like a boss with multimedia icon Elaine well to Roth or build a billion dollar company with self made billionaire Mark Cuban
the masterclass I tried myself was I tuned in to mark I think he's an interesting guy a good inside and I think I really like about mark I think it's real empathy anyways for just $10 a month in annual membership with masterclass gets you unlimited access to every instructor and you can access masterclass on your phone computer smart TV or even an audio mode masterclass says 88% of members feel masterclass has made a positive impact on their lives there's a chance it might for you to and
there's only one way to find out right now our listeners can get an additional 15% off any annual membership at masterclass.com slash prop g that's 15% off at masterclass.com slash prop g masterclass.com slash prop g we're back with profty markets a new national stock exchange is preparing to set up shop in Texas a group of investors including black rock and citadel have raised
$120 million to establish an alternative to the new stock exchange and the NASDAQ those exchanges according to the group are too regulated the Texas stock exchange plans to file with the SEC later this year and it wants to start trading in 2025 Scott the NYC and the NASDAQ have had this duopoly on the US stock market for years now
how do you think the Texas stock exchange could affect the financial markets well I like this in the sense that I think we need more competition I just think it's a good idea to have more than two options in what is the largest equity market in the world the US market trade more than 360 billion in value each day and that's more than four times the liquidity of all European markets combined so they are it really is at this point a bit of a duopoly
and then what you see is because that the criteria and the risk disclosure that the SEC mandates to trade on these exchanges results in a series of companies that have a halo of prestige that if you're a publicly traded company on the NYC or NASDAQ it says something of value it's like going to Princeton for example it says that you're smart you're probably mentally fit and probably an entitled douche bag but still
but still despite this the average P in London the is 13 the average P in the Shanghai index is 13 also and New York City it's 26x that's the combined or the average P affirms on the NYC or the NASDAQ so these companies offer an incredible brand halo and they also get paid for it so the minimum fee to the exchange for listed companies in London is 14,000 and Frankfurt at 17
and here's a duopoly gets their pricing power the NASDAQ and the NYC are 5280,000 respectively so I like competition the thing I don't like about this is of course this is the politicization of everything this has very much a red state feel and they're trying to say NYC and NASDAQ or blue state and I thought God I never thought of them as blue I just thought of them as financial
but it feels like everything is being politicized right just as we were talking about the financialization of everything we have the politicization of everything and I would bet I would bet that the person behind all of this who said I'll be your anchor tenant is Elon Musk I think is so pissed off about what's happened with the SEC and his pay package I bet he can't wait
to move all of his shit and trade on the Texas whatever it's going to call the yeha stock exchange or the Texas stock exchange so it started discouraging that my guess is intentionally or not they're going to position it as red state versus blue state what do you thought?
I think it's interesting to go over what the complaints about the NASDAQ and the NYC stock exchange are actually all so there have been complaints about costs particularly costs around trading data access and financial data but that's mostly an investor complaint it's less of an issue for a company listing itself and you know there's obviously the listing fees and the annual fees but those numbers are pretty small
there's also been complaints around regulatory overreach just that there are too many rules and too many regulations for both exchanges if you want a list but the most common complaint that I'm seeing and this is what I find so interesting about this story is that both exchanges are too
to work like every written opinion on this topic there's this one fact that they love to talk about which is that the NASDAQ has these rules around board diversity and the rules are that one your board has to have at least one female director and two your board must have at least one non white or LGBTQ plus director I think those rules are ridiculous personally
but I also find it pretty ridiculous that you would go out and create an entirely new exchange basically just to spite these other exchanges that you think have become too work so I agree with you I'm not I think it's important to have a board that looks
the at least as somewhat representative of your customer based employee base but the exchanges mandating and I just don't think they should be in that business I don't know and charge the NYSC or NASDAQ with social engineering or solving the world's you know diversity problems I don't think that's the business that are in I think it's a lot of virtue signaling and I think investors can make up their own minds
so they have kind of created an opportunity or wide space but they'll also have lower or less stringent disclosure or filing mandates this will be more like we're a market maker and we're in the business we're going to be more they're going to they're not going after investors they're going after investors on the woke shit which is you know I know what a fine but who they're really going after is companies by saying that we're going to make it less expensive and less
generous for you to list on this exchange and then they'll say to consumers I just smell muskier yeah smell muskier yeah I think Tesla and space acts and I think that in Twitter or acts whatever it's called are going to end up on this exchange and then some of the politicians in Texas will urge companies to relist on this exchange it'll be a state thing like Texas and the York we hate each other will
stop sending money to New York yeah I mean you mentioned like fees you that fee that you mentioned before 80,000 dollars to for annual fee to be on the New York Stock Exchange like that's nothing I can't I just can't see the value proposition here being anything but screw the woke liberals yeah but the as someone who has I didn't run a public company but I found it a public company I think that I think it was like I think we figured out to be public cost 2 to 3 million bucks a year
in terms of the accounts you've got to hire the audit requirements the the filings that you know it's it's real it's real cabbage and my guess is they're going to try and say to businesses were much lower cost not only on the fee yeah the regulation you know they're just they're going to try and position themselves is more business friendly
on the supply side and on the demand side to consumers you know where Texas I think the story also plays into a larger economic story about Texas and that is businesses just love Texas right now just some stats on that it's one of the leading states in terms of business relocation
and Texas is now tied with New York for having a second highest number of S&P 500 companies in the state they're both just behind California great start includes old companies like X on an AT&T also new players like Tesla and Oracle
GDP growth was 5.7% last year that's the second highest in the nation and then of course there's this Texas versus Delaware story that's playing out where Elon wants to reincorporate Tesla in Texas instead of Delaware he's encouraging all these other companies to do the same
what are your thoughts on Texas and just the possibility that it could lead the U.S. in terms of business activity I think Texas is fantastic I think it's done a great job I can't stand it when people create a stereotype around Texas is being this kind of Republican
back I mean Austin's an amazing city and it's attracting a ton of business and it's really it's a progressive place Houston's a decent city Dallas I mean Dallas one of the things I was just so moved by is that I have a friend whose daughter is is a severely disabled and they move to Dallas because Dallas has developed an enormous infrastructure of nonprofits and health care companies and public infrastructure that is specifically focused on kids with severe disabilities
and you just immediately go like fuck yeah I mean right on Texas right and that it's so strong and I have such a reputation for this that a lot of people with kids who are struggling move to Dallas and also I you know all the stereotypes about being just a bunch of white good old boys and cowboy hats there's a huge Indian population
it's a it's a wonderful state I love that they're offering zero taxes which forces other cities to take a really close look at at least their state taxes a lot of people arguing in terms of consumption taxes it's actually a middle to upper tax state that's a different talk show
actually Texas effective tax rate on businesses is 5.4% that's a 14th highest nationally but their headline news is zero state income tax will proffcee moves to Texas I don't think I will ever live in Texas because I don't need to I get to live in New York and London which so it's like yeah I mean you know that works for you that's a good idea for you Ed I will not be moving to Texas let's move on to a second story
come on I thought you're a closet Republican I thought you were like tax now you love saying that about me I don't know I love New York I'm having a great time here I just have the feeling that Texas is overrated and people go because they don't want to pay taxes and that just doesn't sound that appealing to me but I don't know I haven't I actually went for South by Southwest but we were there for maybe 24 hours I didn't really get to experience it properly so I'm not really giving it a fair review I can't really get to that I don't know what I'm doing right now I'm not really giving it a fair review
I can totally see you in Austin you can totally see at the proper hotel at the bar getting like totally rejected by every every recent UT grad why does that make me happy why does that make me happy I'm a podcaster I am a podcaster you may have heard of me yeah
we'll be right back off the break with a look at the decline of short selling support for this episode of Prophets comes from Indochino summer is wedding season the schmaltz you save the dates the mason jar center pieces the tears warranted and unwarranted a wedding is the time for the brighter the world at the Warum Max정을 at the beauty spirit's
finish, pick your lapels, lining monograms, pocket flaps and more. Set up your measurement profile on Indochino's website and choose customizations without even leaving the house. And if you're looking for a premium experience, you can book an appointment at one of their showrooms and Indochino style guide. We'll walk you through every step. Look your best this wedding season at the table or on the dance floor when you wear Indochino. Go to
indochino.com and use ProveG to get 10% off any purchase of $399 or more. That's IND O-C-H-I-N-O.com promo code ProveG. Support for ProveG comes from Adlessian. Adlessian software including Gira, Confluence and Trello help power the collaboration for teams to accomplish what would otherwise be impossible
along. Because individually we're great, but together we're so much better. That's why millions of teams around the world, including 75% of the Fortune 500, trust Adlessian software for everything from space exploration and green energy to the delivering pizzas and podcasts. With your team of two, two hundred or two million, over your team is around the corner or on another continent altogether. Adlessian software is built to help keep you
all in the same page from start to finish. That way, every one of your teams from engineering and IT to marketing HR and legal can stay connected and moving together as one towards shared company wide goals. Learn how to unleash the potential of your team at Adlessian.com. That's ATL-A-W-S-I-A-N.com Adlessian. At the Coca-Cola Company, Cureg Dr. Pepper and PepsiCo, our bottles might still look the same, but some of them can be remade in a whole new way. Using 100% recycled plastic,
new bottles made using no new plastic except the caps and labels. You'll be seeing more of these new bottles in more places and that's thanks to you because when we get more bottles back, we can use less new plastic. Learn how our bottles are made to be remade at madetoberemade.org. We're back with Proxy Markets. It appears that short sellers may be a dying breed. For the average S&P 500 company, short interest in its stock is at its lowest
level in more than 20 years. Activists were sluggish in 2022 taking up short positions at the slowest pace in a decade and 2023 was barely an improvement. Even the most famous in the game have bowed out. Jim Chanos, who's known for calling BS on Enron, gave up on shorting last year. Our sets in his short selling hedge fund had created from more than $6
billion in 2008 to less than $200 million in 2023. Now, as a reminder, short selling is a strategy where you borrow a stock, sell it, and then buy it back at a lower price through essentially betting on the stock going down. But Scott, why do you think this strategy is dying off today? Well, I would argue this is cyclical not structural because since 2009, the S&P increased 655%. If the market had lost 90% of its value, it would have been awesome
to be in the short business. If you were short of running extended period of time in the last 15 years, you've gotten your ass handed to you. It's been hard to raise money and finally, you've probably thrown in the towel. Typically, when people start throwing in the towels, is usually the time. Julian Robertson, arguably one of the greatest investors in history, Tiger, saw just these crazy stocks going up and up in the internet and through in the
towel, I think, in 99 and then they crashed. I think this is just purely cyclical. Now, I would argue that short sellers play in a really important part of the market. They are very good at giving the other side of the narrative. When everyone barks up the same tree, you get stupid. When you watch CNBC, you get stupid because I think the vast majority of the people there are basically just pumping and their advertisers are kind of long. They're exchanges and trade-like
chuck has proprietary algorithm. If you just ordered this investment strategy on laser disk, which gives you a hint of just how sophisticated it is or on Betamax or VHS, you can spend more time with your family. They're going to have a long bias. Most of the people that are talking about pumping up stocks, it's really important that people come on and say this is why this stock is overvalued. Also, there's a lot of whistleblowers in this, which I think is probably helpful.
They call bullshit on companies. Also, in cases where firms misrepresent their financial statements, short selling is associated with a faster discovery of the fraud. It also diminishes share price inflation that occurs when firms misstate their earnings. This is important. It's also short selling is used by large institutions as a means of hedging their long exposure. It's sure you
give up some on the upside. If things go to shit, your widows and your orphans don't, the reason I go short sometimes, or at least the way I justified in addition to the crack cocaine dope ahead I have to gambling, is that I think while I'm so long, especially having a tech because that's what we do, it's not a bad idea every once in a while to just have a bit of a short position. Headphones are supposed to be 60-40. 60 percent long is the natural trajectory of the
markets is usually up, but also to go short. What's ended up happening over the last 15 years, is hedge funds really aren't hedge funds, what they are is levered long funds. It's absolutely an important part of the market. The people fomenting this bullshit are CEOs and people who get angry at short sellers who happen to show up on earnings calls and say, you're not a bill company, not a software company, and you're trading like an AI company.
They don't like those people, they want all longs, such that they can have a, you know, basically a series of sick of fans and stenographers asking them questions and writing about them. So I think it's really important, and the fact that short selling has gotten so out of oak and so many of these funds have been crushed, I think that means one thing, and I want to ask you young padworn, what does that likely mean, Ed?
Ed, sorry, Jesus Christ. Go back to your slide saber training, you're clearly not ready for the beauty and repeat the question. Well, okay, let me put it this way. Do you think short funds are going to beat or, or, or miss or underperform the market over the next five years, based on what you have learned on this podcast? Well, I think we probably have a different view. That's it. You are banned, a tattooing. You are seriously. Have you fucking learned nothing?
I said, I think we're going to have a different view. I think they probably underperform, but I think you're going to say that it's cyclical and that they're going to overperform. Well, the fact that you have people getting out of this business means that there's less people trying to borrow money, which means the interest costs on, on borrowing stock will go down,
which means on a risk of just a basis, there's going to be more upside to shorting stock. So I would argue that this is exactly the time to think about a hedge fund or a diversified index fund that has, does occasionally short some companies. And I would suspect that the few short funds that survive this or go into this or run into the fire are going to overperform the market because, as Jamie Dimon said, a recession is something that happens every seven years. It hasn't happened
in 15 years. And we are due. Haven't we been due for the past? I mean, as you just said, we've been due for the past eight years, 100% and we keep using your credit card to juice the markets, but at some point, what you just said is scary. I remember in 1999, the Wall Street Journal put out an article saying, maybe we have moved to a new economic model because of technology that is deflationary and productivity has gotten so crazy that there's no reason that the markets
aren't in a new era where they have sustained increases. And then we saw what happened in 2000. The only thing I have 100% certain of is the market is absolutely going to throw up and even crash. I just don't know when, but that is part of the animal spirits and the beauty of the market. And that hasn't happened in 15 years, which leads me to believe when it happens, it's only going to be more severe.
I mean, the other side to this is that there's just a lot less, I'm getting away from the markets themselves, just focusing on shorting. There's a lot less upside to going short, even if you're right. I mean, that's statistically true because when you sell short, your maximum return is 100%, because the stock can only go to zero. Meanwhile, your downside is unlimited because the stock
can keep rising into perpetuity. But here's one start that I found very surprising, which is that Hindenburg Research, which we've talked a lot about on this podcast, kind of the gold standard of short selling firms today, it actually doesn't make that much money. And you might remember this short seller report that they released on a Donnie group, which we covered, and that was this industrial company in India that's owned and operated by
this guy, Gautam Adani, like the Indian billionaire, Rich Sky in India. So when they released that short seller report, it wiped out $70 billion in market value just through their actions. According to Bloomberg, apparently they only made $50 million off of that trade, which just feels like peanuts to me. And the firm itself, I think, only has like 12 to 20 employees, some really small number. And it just feels like there's not actually that much money in the short selling game, even if you're
right. I mean, you've gone short in the past. Have you ever made like a meaningful amount of money on a short position? Yeah. So I write covered calls when I have a stock that's gone way up, I'll write covered calls way out of the money as a means of taking some money off the table and hedging a little bit. So yeah, I've made meaningful money, but I do it a little bit differently. I don't like to write naked calls because the loss is infinite. It's like collecting dimes in
front of a bulldozer. It's a lot of fun until, you know, it can't until it's not the writing covered calls where you write, essentially you sell a call at a higher price and kind of collect rent against your stock. And if the stock skyrocket, it's a net wash. You give up some upside. The technically it's a wash because the stock goes up. But yeah, I have made, I think I told you
this in 21. I made a ton of money, 22. I made decent money, 23. I lost a ton of money. And so far this year, I just haven't done as much of it because I'm trying to just sort of, I don't want to be staring at my phone all fucking day. But the way I see it is, I don't think, I don't think if it is an investment strategy on its own. I think of shorting as a great way to hedge. I can sort of understand that market. I do think the ultimate strategy for a young person who has the benefit of time is
just to go into, you know, SPUI or to dollar cost into an index fund. But shorting is a valuable part of the market. And especially if you find your portfolio for whatever reason is highly concentrated in a specific sector and you don't want to sell because you don't want to encourage short-term capital gains. I think that I like the idea. It's worth it to take a little bit off the table in terms of upside to reduce some of the downside. I think that's a way to live a
more kind of emotionally balanced life, if you will. There have been a lot of arguments in the past and today that it's, short selling is harmful to companies, it's harmful to investors, it's sort of, it's a predatory practice where you're profiting off of people's losses. And a lot of people have argued that it should be banned. And in some cases, by the way, we have banned it. For example, in 2008, during the financial crisis, the SEC made it illegal
to short financial stocks. And that was all, you know, part of an effort to sort of stem the decline and restore faith in the market. My assumption is you just flat out disagree, but where do you stand on short selling regulation? Do you think there's any, do you think those guys have a point? I would imagine that they saw kind of systemic risks of the entire markets and the economy. And so from the short term, they said, look, we just can't have short sellers. We can't have a run
on the bank that might crash a global economy. Fine. I get it. In general, I don't see why anyone would have any less license to go short as far versus go long it. And it can reduce risk for people. It creates a different level of scrutiny, which is really good. It creates more transparency. And you have to have, it's really important to have a deliberative body where we have Democrats, and Republicans giving each side of the issue such that we shape through evidence and debate
better solutions. What CEOs are saying, who's who's economic well-being has tied to the company long, are saying is we don't want a debate. We don't want anyone looking over my shoulder. We don't want a counter narrative. I want all of you to bark up the same fucking tree so I can vest my options and have my Gulfstream before this this pile of shit crashes. You need these people. You need these people out saying this is why this company is overvalued. That's an important.
The shit I get on hands down the most shit I've ever gotten on Twitter is when I say a stock is overvalued because the entire venture capital industrial complex is like how dare you call my dog walking app not worth two billion dollars. And it's important that investors have both sides of the story that plays a hugely important role. All right let's take a look at the week ahead. We'll see earnings from Oracle and Adobe and we'll also see the consumer price and producer price
indices for May. Do you have any predictions? Well I can't help but I've been watching the game stop saga again and it's up. I don't know if you saw this. It's up 30% today. It's a 40 bucks as we record this. My prediction is I don't know where it's going to be next week. I don't know where it's going to be the week after but my prediction is within 90 days. It's below 20 bucks. My thesis all along has been that when Michael Jordan jumps into the air it looks as if he's never going to
come down but gravity is underlying valuation. It's fundamentals and this is a company that on any reasonable it's trading at a p of 1,830 right now. And at some point the people in the stock are going to go okay this is fun we're gambling but at some point we need to cash in our chips. And I think it'll be as violent coming down and to say it's an okay company is really generous and this company will be below 20 bucks a share within. This isn't financial advice because this
thing could be a 60 or more tomorrow but in 90 days I think it's below 20 bucks. I think it's cut in half if not more. Gravity. Gravity Ed. This episode was produced by Clamiller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss our executive producers are Jason Stavis and Catherine Dillon. Measel Vario is our research lead and Drew Burrers is our technical director. Thank you for listening to Prof. G. Markets from the Vox Media Podcast Network.
Join us on Thursday for a conversation with Morgan Housel only on Prof. G. Markets. Do we want to bang the the new feed drum again? I don't know what does it look like? Oh, I'm sorry. That's good.