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Prof G Markets: Adidas’ Crisis Management, Google and Meta Earnings, and Market Moving Fed Speeches — Transcript

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0:00this week's number four California set
0:03to overtake Germany as the fourth
0:04largest economy in the world the state's
0:06GDP is already ahead of Brazil France
0:08and the UK California's nicknames the
0:11Golden State the land of milk and honey
0:13the grape State supposedly Elon Musk is
0:16taking Tesla to Texas I would never
0:19trust a man with six kids who claims
0:21he's pulling out
0:23wait I have another joke
0:25supposedly there's so many wildfires in
0:27California that the air has become toxic
0:29probably means there's a decent chance
0:31I'm going to marry California
0:34hmm
0:35that's good too
0:40[Applause]
0:41[Music]
0:47welcome to property markets
0:49today we're discussing Adidas and its
0:52competitors Googling matter earnings and
0:54then unpack on what to listen for during
0:56Fed chair Jerome Powell's speech later
0:58this week
0:59here with the news is property media
1:01analyst Ed Elson Ed what is going on
1:05not much Scott I have a I have a
1:07compliment for you do you want to hear
1:08it I'd like to hear it too or do it
1:11twice I only have the one so I was
1:13looking at your YouTube this morning
1:16um your interview with Evan speak on and
1:17I'm going to read this comment out loud
1:19is it just me or does Prof Scott
1:22Galloway look quite similar to Ryan
1:24Reynolds in Deadpool
1:27yeah I get that actually a lot but what
1:29I usually get is some sort of addendum
1:31that like I look like the older Ryan
1:33Reynolds or his his uncle that didn't
1:36get the good genes I get I get Ryan
1:38Reynolds a lot but it's usually
1:39qualified yeah I think that makes more
1:41sense I'm actually thinking of going I'm
1:42in LA to go to Aldi's arrested
1:45adolescents Halloween parties and I'm
1:47thinking of going as Deadpool I'm just a
1:49little bit intimidated by the costume
1:51because it's very tight Ed it's very
1:52tight oh yeah when are you supposed to
1:54be Deadpool last year I was and my
1:56assistant keeps ordering it and it keeps
1:58showing up on November the 1st uh but
2:01tonight might be my night although I
2:02might go as a World Cup soccer player
2:04that might be nice representing who are
2:06you going to be anyways enough start
2:08making start earning a living what's in
2:10the news
2:11well let's start with our weekly review
2:13of Market vitals
2:16the S P 500 posted gains early in the
2:18week before disappointing Tech earnings
2:21weighed it down
2:22the dollar fell to a three-week low
2:25Bitcoin spiked Rising above 20 000 again
2:28and the yield curve inverted I.E the
2:32yield on 10-year treasuries dipped below
2:33the yield on three-month treasuries and
2:36That's a classic recessionary signal
2:38because it means that investors are
2:39placing more faith in short-term bonds
2:41versus long-term bonds
2:44shifting to the headlines
2:47the Elon Twitter deal has closed musk
2:49finally acquired the company for 44
2:51billion dollars at 5420 per share
2:55the U.S economy grew 0.6 percent in the
2:58third quarter after Contracting through
2:59the first half of the Year meanwhile
3:01growth in consumer spending slowed so
3:04that's a sign that the fed's interest
3:05rate hikes are cooling demand
3:08VC investing hit a two-year low in
3:11September startups received 40 billion
3:14dollars in funding that's down 31 from
3:16the previous quarter
3:18and finally the UK and finally UK
3:21companies will likely receive an extra
3:23six billion pounds in dividends this
3:25year thanks to the weakness of the pound
3:28the pound hit a record low against the
3:30dollar last month and then rebounded
3:32after Rishi sunak became the new prime
3:34minister
3:35um Scott I'd like your reactions to all
3:37of this but first could you explain how
3:39a weak pound could mean greater
3:42dividends for a UK company that seems
3:44strange so the ftse 100 is the 100
3:48largest publicly traded companies
3:49headquartered in the United Kingdom and
3:5175 percent of their revenue is generated
3:54abroad right it just makes sense if
3:56you're a Unilever or Rolls-Royce you're
3:59going to get uh by the way I'm talking
4:01about the aircraft division not the car
4:02company you're going to get the majority
4:03of your revenues outside the UK
4:06two-fifths of UK listed companies to
4:08nominate their dividends in dollars and
4:11with the Pound Down 14 against the
4:13dollar so if you're a Unilever and you
4:15sell 100 million dollars worth of dub
4:16products in the United States you get to
4:18repatriate those hundred million dollars
4:20uh at a weaker pound meaning you're
4:22going to get more pounds which means
4:23you're going to report higher earnings
4:24or have more capital for a higher
4:26dividend and some it's great to get get
4:29money from abroad when your own currency
4:31is weak you know sometimes though it's
4:33better to be lucky than good and if
4:35you're what's interesting is UK economy
4:37is you know is questionable the the it
4:40looks like recessions on the horizon but
4:42the biggest companies uh who tend to
4:43have a lot of business abroad
4:46are actually doing benefiting from a
4:48weak pound
4:51and thoughts on Elon Twitter what do you
4:54think now
4:56well here he is right and it closed this
5:00morning overnight it's or on close it's
5:02the second worst acquisition in history
5:04You could argue that aol's acquisition
5:07of Time Warner I think was like 165
5:09billion dollars almost right away it was
5:10probably worth less than a hundred
5:12but this overnight I mean I don't know
5:15if you saw what happened to meta and
5:17Google the natural level of Twitter
5:18stock price right now is probably around
5:2010 bucks he's paid 54.20
5:23uh so you're talking about 30 or 35
5:25billion dollars that just went up in
5:27smoke
5:28uh so this is it's going to be very
5:30interesting he uh memo got linked a few
5:32weeks ago or a week ago saying it was
5:34going to last 75 of the employees
5:37um what might be interesting is just to
5:39see how many people stick around just to
5:40see what's up my advice are the learning
5:42here to young people when you find
5:43yourself in a situation where this
5:45tumult as it won sometimes dislocation
5:47sometimes dislocation in a tumultuous
5:50environment creates a lot of opportunity
5:51if the three people running your
5:53department leave they might look around
5:55and decide that you're the person that
5:56should run the department and two uh I
5:59don't think you ever want to leave a job
6:00until you have another one it's just
6:02much easier to find another job when you
6:04have one and also if you're at Twitter
6:06and you're one of those 75 percent of
6:08employees that get laid off if in fact
6:10that memo or that leaked information was
6:12true you're going to get Severance so I
6:16always say to people one
6:18um never quit without speaking to people
6:21who don't work at the company who you
6:23trust and have a vested interest in your
6:25success you never want to quit out of
6:28emotion you always want to have another
6:29job unless you're planning to take some
6:31time off and in great periods of
6:34disruption there's always enormous
6:36opportunity now having said that I think
6:38the company's going to be a total [ __ ]
6:40show I can't imagine they're not
6:41incurring the same macro headwinds is
6:43every other digital marketing company
6:45right now if meta and Google are are are
6:48throwing up
6:50I can't imagine I I just can't imagine
6:52any Advertiser thinking I know let's
6:54let's advertise on Twitter right now so
6:57this is going to be a very interesting
6:5890 days what do we know though this is
7:00already the second worst acquisition in
7:02history
7:03do you think it's a good idea to lay off
7:05three courses of the stuff
7:07just from a business perspective
7:09um I think layoffs are probably
7:11warranted I've never understood why this
7:13company needs 7 500 people uh Pinterest
7:16Twitter and snap I'll get about six
7:18hundred thousand dollars in Revenue per
7:20employee meta and Google get about 1.6
7:23million and also I've been meeting with
7:26a group of entrepreneurs who are doing
7:28startups or thinking about startups in
7:30the social space and all of them have
7:32said something really interesting and
7:33that is what used to take 10 engineers
7:36in six months because of uh advances in
7:40Cloud Technologies and uh I don't even
7:43call them but modules are things you can
7:45just turn on what used to take 10
7:47engineers in six months oftentimes now
7:49takes one engineer in six days that the
7:52progress you can make on a programming
7:54front and a feature functionality from
7:56because of advances in the cloud it's
7:58just so extraordinary that you can do a
8:01lot more with less so I wouldn't be
8:02surprised
8:03you have Twitter I think the plan is to
8:05try and hold on to 80 plus percent of
8:07the revenue with potentially
8:09dramatically fewer people in a company
8:11like that the majority of its SG a is uh
8:14the people who are paid very well and
8:16there's a lot of them so uh you're gonna
8:18see and I said this on pivot
8:21uh what happened when Elon Musk
8:23announced potentially or a quote-unquote
8:26memo leak that he was thinking about
8:27laying off 75 employees a lot of
8:30employees in Pinterest and snap probably
8:32lost their jobs they just don't know it
8:33yet
8:35do you think they're just going to
8:36follow what he's doing because
8:40why why would they follow what he's
8:42doing well everyone thinks he's a genius
8:45and I think also there's some there's
8:47some Merit to the fact that these
8:49companies saw themselves as growth
8:51companies that's what the motor and my
8:54colleague at Stern says the companies
8:55refuse to ever believe they're no longer
8:57teenagers these are no longer growth
8:59companies yeah the revenue is flat to
9:01down and yet they keep hiring like crazy
9:03when you're stuffing calories
9:05down an organism's throat and that is a
9:08company that everybody thinks should be
9:10fed like a growth company but it's no
9:12longer growing
9:13pockets of fat build up yeah uh so I you
9:17know easy for me to say because I'm not
9:18there and I've even heard from some
9:19Twitter employees that said you don't
9:21understand that we're more efficient
9:22than you think yeah I have a difficult
9:24time understanding why you need more
9:25than 2 000 people to run a micro
9:26blogging platform you know it's not like
9:28they have Maps or
9:30uh you know they're they have a video
9:32platform the product really hasn't
9:34changed a hell of a lot yeah and they
9:37have fewer advertisers
9:39I'm sorry there's just an edit button
9:41that's the only that's the only
9:42Innovation I've seen in the past what
9:43four or five years you can now edit your
9:46tweets on Twitter blue yeah yeah maybe a
9:48blue track I mean it really there's not
9:50it doesn't appear like there's a lot of
9:51technological Wizardry there so I think
9:54but we've said before this recession
9:56recessions are either called a white
9:58collar or blue collar recession we think
10:00this is going to be the Patagonia vested
10:01recession and that is a lot of the
10:03people who've been hired into a growth
10:05economy who live in Brooklyn and take
10:07their dogs for long walks and expect pet
10:09bereavement leave are in for a rough
10:12ride here for the next 12 to 24 months I
10:14think it sounds like laughs yeah yeah
10:16yeah you're in trouble by the way we
10:19need to speak we need to speak
10:21um well as usual we got derailed by Elon
10:23but let's move on to the first story
10:25here which is Adidas
10:27Adidas is ending its partnership with
10:29Kanye West after he made a series of
10:31anti-Semitic comments online the company
10:34will stop producing all Yeezy branded
10:36products which will have a significant
10:38impact on the business the easy line
10:40made up eight percent of Adidas's sales
10:42and roughly half of its profits and as a
10:45result the company expects to see a 250
10:48million dollar hit to earnings next
10:49quarter
10:51Adidas stock is down 16 since October
10:546th when the Kanye controversy began and
10:57year to date it's down more than 60
10:59percent
11:00so Scott this is clearly a big economic
11:04blow to the company with that in mind do
11:07you think Adidas made the right decision
11:10a hundred percent and this really wasn't
11:11a decision they had to do this and
11:15they've gotten a lot of grief because I
11:17think it took them 10 days to officially
11:19announce it and I was one of those
11:20people giving them grief basically
11:21saying you're gonna separate from them
11:24so why wouldn't you do it sooner rather
11:25than later and the longer you wait the
11:26less credit you get but having reflected
11:29on it hearing about just what a big
11:31business it was
11:32it's difficult to shut down a business
11:34like that responsibly you got to
11:36communicate with your Retail Partners
11:37you got to communicate with your supply
11:39chain there's probably a couple thousand
11:41people just working on this business you
11:43got to communicate to them what's going
11:44to happen you got to figure out you got
11:46to communicate to your retailers this is
11:47what's going to happen to the inventory
11:49you got to figure out an investor
11:50relation strategy around what this means
11:53in terms of projections and
11:55forward-looking statements so the fact
11:57that they announced this 10 days after
12:00Kanye made these statements probably
12:02means they made the decision about 10
12:04minutes after and I think they deserve
12:07real credit and something I'm trying to
12:09do is rather than constantly threatening
12:12to boycott products I want to reward
12:15companies to do the right thing and I
12:17put out a tweet saying I was going to
12:19wear my Adidas Superstars hello eighth
12:21grade with the seashell toe cap hello
12:24that's how you lose your virginity in 19
12:27Ed anyways
12:28do I think they did the right thing here
12:30and
12:31crisis management is always difficult
12:33you have to acknowledge the problem the
12:35top Gare gal has to take responsibility
12:37for the decision and you need to
12:39over correct but my favorite thing was
12:42that supposedly Kanye was escorted from
12:44these Skechers
12:46after showing up on announce so rock
12:49Mead bottom when you're kicked out of
12:50Skechers HQ I mean that's you know
12:53that's pretty tough that's pretty tough
12:55pretty soon he's going to be a backup
12:56singer in the Taylor Swift band I just
12:59this guy's career is not it's not going
13:01well Ed it's not going well
13:03how much of this do you think was also a
13:07financial decision by Adidas because
13:09there's obviously there's the moral side
13:11which is we don't want to partner with
13:12an anti-semite someone who just puts a
13:15lot of hate out there but also they
13:17might have been thinking
13:19you know if we keep partnering with this
13:20guy people aren't going to buy our
13:22products they're going to boycott us so
13:24do you think that
13:26what do you think of that was that a
13:27financial decision as well do you think
13:29yeah this was a capitalist decision and
13:32that doesn't necessarily mean that that
13:34they shouldn't get credit for it but
13:35yeah people were gonna they were just
13:37gonna get a they were just gonna get
13:39literally a torrential downpour of [ __ ]
13:42for the next several months if they
13:44refused
13:45you are going to see people burning
13:47their their Yeezys on I mean it would
13:49just it would have never stopped they
13:50had no choice or unfortunately it comes
13:52at an especially
13:53inopportune time for Adidas who is like
13:57a lot of consumer companies showing
13:59weakness and even relative to their peer
14:00group
14:02um they are they've been struggling
14:04their stock is way uh down as you
14:08referenced and
14:10um also
14:11um the stock actually even looks I would
14:12argue looks cheap and I think that's
14:14kind of a a learning here is that
14:17there's there's usually opportunity in
14:19bad news and that is there's just a just
14:23a perfect storm of bad things right now
14:24at Adidas there's loss of this hugely
14:26lucrative partnership their Core
14:29Business is weak so as a result
14:31as a result you have a company with a
14:33market cap now of about 18 billion
14:36dollars and one of the things I like to
14:38do is I like to look at market
14:39capitalization relative to Brand Equity
14:42as a you know a brand strategist we even
14:44have a session on this in my course I
14:46think 18 billion dollars for an iconic
14:48century-old brand that has real
14:51aspirational value and it's probably
14:52it's a maybe a distant number two but
14:55it's a solid number two to Nike I would
14:58argue that that feels cheap to me and
15:01then if you look at the numbers you do
15:03in fact see that relatively speaking the
15:05stock looks cheap and keep in mind
15:07stocks the pendulum is never exactly at
15:09the bottom I would argue stocks are
15:11almost always undervalued or overvalued
15:13because we live in sort of a the
15:15Market's a sort of bipolar they love you
15:16or they hate you and right now they hate
15:19Adidas but it's ebitda it's about three
15:21billion so it's trading at about six
15:23times ebitda whereas Nike in contrast
15:27is trading at about 20 times ebitda so
15:31um Adidas says 24 billion uh so it's uh
15:34multiple or it's uh revenues uh its
15:37revenues to market cap is about 0.8
15:40whereas uh Nike does 47 billion and has
15:43145 billion dollar market cap so it's
15:45it's um uh Market Capital revenues is
15:49about three so you have Nike on a
15:51relative basis is trading at about 3x
15:54the valuation of Adidas what this
15:57probably says is that Nike is either
15:59overvalued or Adidas is undervalued and
16:02then another interesting comparison is
16:04on running which are the shoes I've been
16:05wearing because you know midlife crisis
16:07arrested adolescence and on running has
16:09sort of captured this lightning in a
16:11bottle it's a very cool little hip brand
16:13it does get this one billion in revenue
16:18and it has a market cap of 12 billion so
16:21it's market cap to sales is 12.
16:24um and it's but it's um it's growing
16:26really fast it's a hot brand and all
16:29that and then I think kind of the
16:30laggard in the space
16:32is I'm not going to talk about all birds
16:34that's a retailer and I think all birds
16:35could literally go away but under armor
16:38which was once kind of a hot brand has
16:39sort of fallen from grace to six billion
16:41in Revenue
16:42and it has a market capitalization of
16:45three and a half billion so that trades
16:46at like point six
16:49market cap to revenue so you have you
16:53kind of have the whole Spectrum here you
16:54have the hot brand that's trading at 12
16:58times uh revenues you have the iconic
17:01leader
17:02trading at about three times revenues
17:05and then you have the semi icon who's
17:07had some real hits trading at 0.8 time
17:11Revenue so I would argue that the
17:12opportunity here from an investment
17:14standpoint is actually with Adidas
17:17yeah when we discussed this this week
17:19you you use the word dislocation that
17:22there's dislocation happening to Adidas
17:25because of all of this news can you
17:28explain what you mean by that
17:31well Kanye has admitted that he's been
17:33diagnosed with bipolar disorder and I
17:36would argue that the markets are bipolar
17:37so bipolar is manic or manic depressive
17:41right if someone experiences Mania
17:45um which is sort of hard to describe I
17:48don't want to be disparaging if people
17:49suffering from mental illness people
17:50understand what depression is but Mania
17:53is this feeling this this highly alive
17:57awake very you know everything's good
18:00kind of irrepressible amount of energy
18:02very kind of promiscuous with your ideas
18:05and this sort of irrepressible energy
18:07over the top that's usually followed by
18:10a crash into depression and I think it's
18:13a really interesting way to describe or
18:14an Aptoide to describe the markets yeah
18:16and that is good news everything's great
18:18we're Unstoppable the stock is
18:21Unstoppable it's to the Moon let's take
18:23it up to 12 times revenues and then
18:26there's depression oh no they lost Kanye
18:28oh no the Brand's not doing well I hate
18:30this saying the world is black yeah this
18:33stock is black let's take it down to 0.7
18:36times revenues so I think the markets
18:38could be diagnosed as what I'd call
18:40having mild uh bipolar syndrome but this
18:44is when you have when you have bad news
18:47and you have dislocation you have tumult
18:49no obvious answers a lot of unknowns a
18:54lot of volatility which is what Adidas
18:57is experiencing right now that usually
19:00spells opportunity yeah and that is when
19:03everybody hates something that's a
19:05decent time to to go into it when
19:08everybody hated Florida real estate in
19:102010 that was absolutely the right time
19:12to get into it now that everyone loves
19:14Miami real estate and rents have
19:16skyrocketed and hope home prices have
19:18skyrocketed in Florida I would argue
19:20it's probably not a great time to invest
19:22so I I in some run into the fire where's
19:26the fire right now Adidas yeah Google
19:29and meta posted earnings last week and
19:31both were a disappointment
19:34Google reported slowing Revenue growth
19:36for the fifth straight quarter and
19:37YouTube Revenue dropped for the first
19:39time on record
19:40meanwhile Metta posted its second
19:43consecutive actual Revenue decline
19:45quarterly Revenue came in at 28 billion
19:48which is down four percent from a year
19:50ago and shares in both companies
19:53declined significantly Google Shares
19:55fell more than six percent on the news
19:57that stock is down around 35 percent
19:59year-to-date and metashares fell get
20:03this 20
20:05metastock is now cheaper than it was
20:07five years ago
20:10this is just this is just the mother of
20:13all kind of dog bites man I can't get
20:15over this do you realize I had that bite
20:17dance the company that owns Tick Tock is
20:19now worth more than meta I mean it's
20:22that's just incredible and meta has lost
20:24six years or five or six years of stock
20:28market gains
20:30um it's just it's an it's incredible and
20:32then when you look at everybody when you
20:33look at snap throwing up on themselves
20:35when you look at meta's weak numbers
20:38flat uh flat to down when you look at
20:40Google slowing down YouTube was the
20:42growth engine that slowed down
20:45it's reminiscent for me of what's
20:46happened the last 20 years in retail
20:48yeah and that is I don't care what
20:50retailer you were talking about whether
20:52it was Macy's whether it was Walmart
20:54whether it was Urban Outfitters a
20:57company I served on the board of we'd
20:59have some signs of Hope every once in a
21:01while a good quarter and then we have an
21:02okay quarter and then we have an awful
21:04quarter and it just felt like everything
21:07was hard everything was getting a little
21:10bit harder and the reason why was
21:12because it was getting harder
21:14specifically every day
21:17Amazon took more and more money out of
21:19the ecosystem and what do you have
21:20Happening Here
21:22Tick Tock I think went from 4 billion to
21:2412 billion in Revenue last year it'll
21:26easily go from 12 billion to 24 billion
21:28so you have 12 billion dollars in
21:31incremental Revenue going to tick tock
21:33now in addition you have everyone from
21:36Hulu to Apple TV to Netflix announcing
21:40that they're going to have commercials
21:42so say they find 10 billion dollars in
21:44advertising Revenue that's 22 billion
21:46dollars in incremental advertising
21:48Revenue that's coming from a zero sum Pi
21:51what do I mean by that advertising as a
21:54share of GDP or the total amount of
21:56money the brand spent on Advertising has
21:58been flat for five decades and guess
22:00what it's not going up as a matter of
22:01fact we use economic headwinds it's
22:03probably going to come down so the
22:05existing players with your Google
22:06whether you're meta
22:08whether uh Your Time Warner you now
22:13you're 24 to 30 billion dollars is going
22:16to be taken out of the ecosystem and go
22:18to these new players and to tick tock so
22:21just as Amazon was sucking the oxygen
22:24out of the room day by day for all of
22:27retail you have Tick Tock and then these
22:29new streamers sucking the oxygen out of
22:32the room for the ad supported ecosystem
22:34including meta and Google it's really
22:37extraordinary these companies are no
22:39longer growth companies yeah yeah the
22:42other thing we were talking about this
22:43week is Apple and Apple's privacy change
22:47um which happened earlier this year it
22:49basically meant that users have to say
22:51yes to being tracked and I saw this stat
22:54yesterday users agreed to be tracked
22:56only 16 percent of the time which means
22:59that meta and Google and all these
23:01digital ad supported platforms don't
23:02have access to that data that they were
23:05getting on iPhones and on Macs and iPads
23:07and it seems like that has just crushed
23:10the digital ad business so do you feel
23:13like that's also an important thing to
23:15be thinking about
23:16so the two kind of elephants in the room
23:19here are Tick Tock which is this
23:22ascendant Growth Company and apple which
23:25is throwing its weight around yeah apple
23:27controls the interface and said I know
23:28privacy is cool to our brand I hate Mike
23:31Zuckerberg said Tim Cook every night
23:34before he goes to sleep and said I know
23:36I'll give people the opportunity to opt
23:38out of tracking and overnight I kind of
23:40kneecapped
23:42um mata's ability to collect first party
23:44data and some knock-on effects here I'm
23:47in the online education business
23:48acquiring new consumers uh became 40
23:51more expensive overnight it's really had
23:54a lot of knock-on effects even small
23:56businesses their cost of customer
23:57acquisition of Ghana and speaking of
24:00being bold and confident and throwing
24:02your weight around Apple has just
24:03announced if I understand it correctly
24:06that if you boost your advertising for a
24:09piece of content in the Facebook app
24:11they're going to try and take their 30
24:13fee on that boost or I don't know if
24:15it's 30 percent but they're saying that
24:18they're entitled to a commission on
24:20increased expenditures in advertising to
24:23boost content if it's done through an
24:25app on iOS I mean that is really
24:27throwing their weight around but what
24:29you have with meta you have a company
24:30one
24:32that is flat it was minus four percent
24:34year on year it was two percent up two
24:36percent on a constant currency basis and
24:39what you also have though is you have a
24:41company that increased its spending
24:43uh dramatically you have a company was
24:45flat but I think it's it's costs were up
24:47something like 20 all of that leads to a
24:50massive decline in earnings yeah when
24:53your revenues are flat but you hit plan
24:55in terms of costs what do you end up
24:57with you end up with a decline in
24:59earnings of 52 percent year on year
25:01which is what uh happened with meta so
25:04right now if I understand if I'm looking
25:05at the right numbers here on meta it's
25:09trading at a price earnings multiple of
25:12get this I think around seven or eight
25:15you know this is what old economy
25:18manufacturing companies trade at yeah
25:21the p e right now is eight because
25:23people see all right you got a guy who
25:25can't be controlled he's just he
25:27controls the company he's all in on the
25:29metaverse he's gonna
25:31he's already rich he doesn't care about
25:33money so his attitude is I'll show you
25:36I'm going to prove everyone wrong and
25:38keep going all in and spending tens of
25:39billions of dollars on the metaverse and
25:41shareholders are in the back seat you
25:44know buckled in and they can't get out
25:46and the doors are locked on this this
25:48crazy nauseating ride called the the
25:50metaverse yeah yeah it feels like he
25:52just used the mess of us as some sort of
25:54shortcut to say yeah we're a growth
25:56company we deserve massive multiples and
25:58then Evan just said
26:02yeah I want to um bring up a letter that
26:07Brad gerstner of Altima to Capital wrote
26:09to meta and The Meta board
26:13um so he said he asked for a bunch of
26:16major changes well three major changes
26:18he said one reduce head count expense by
26:21at least 20 percent to reduce annual
26:25capex from 30 billion dollars to 25
26:28billion dollars at least and three limit
26:31investment in the metaverse slash
26:33reality Labs that's their metaverse unit
26:35limit that investment to no more than
26:37five billion dollars a year
26:39do you agree
26:41well let me be clear
26:43um there's a big difference between
26:44being right and being effective and Brad
26:47is right and he will be totally
26:48ineffective
26:49all you're doing when you buy shares in
26:53a dual class shareholder company and
26:54then telling them what to do
26:56is uh pretending that the company or
26:59deluding yourself into believing that
27:01the company will be rational and that
27:02your force of character and logic will
27:04win over someone who controls the
27:06company could you explain dual class
27:07shares briefly it's Kremlin politics
27:10it's okay you get shares the class A
27:14shares or the voting shares and Mark
27:16Zuckerberg has to call it 51 plus of the
27:20voting shares meaning that he
27:22effectively you know when [ __ ] gets real
27:24when there's anything that's important
27:25he gets to make the decision and dual
27:28class shareholder companies were
27:29initially
27:30structured by media companies that
27:32didn't want to be subject to the
27:33short-term whims of shareholders so they
27:35could have an independent Newsroom blah
27:36blah blah and then everything changed
27:38when Google
27:39structured their company's dual class
27:41shareholder and now a lot of companies
27:42do it because you have Founders who say
27:44well I'd like to sell most of my shares
27:46but I'd still really like to control the
27:47company yeah and this is where it it
27:50comes back and haunts you and that is if
27:53this was a single class share company
27:54When Brad wrote that letter a bunch of
27:57shareholders would would call Mark and
28:00say Brad's right and if you don't stop
28:03this we're going to replace the board
28:04and then the board will replace you but
28:07instead a board of directors no
28:09dual-class shareholder company isn't
28:10really a board of directors it's a board
28:12of advisors because at the end of the
28:14day Mark can do whatever the [ __ ] he
28:15wants and all they can do is just advise
28:18them and show up every three months for
28:20a free dinner and cash their 200 000 a
28:23year board checks but you have
28:24absolutely no power in a dual class
28:28shareholder company when you're the
28:29class B shares the salzburger family now
28:32only owns around two or three percent of
28:34the New York Times company but they
28:35control the company the Ford family
28:37controls single digit percentage of Ford
28:40but they control it and in general it is
28:44bad to separate economic risk from
28:46accountability and control because if
28:49you're Evan Spiegel at snap who by the
28:50way I think is a really thoughtful young
28:52man I think is a great operator
28:54but he he's already a billionaire what's
28:57his motivation to sell the company no he
29:01wants to prove them wrong and he
29:03controls the company so these companies
29:05are what I call usually fairly investor
29:09unfriendly they go they go do a class
29:12early in their career when they're
29:13really hot and investors will put up
29:15with it and everything's fine as long as
29:17it's up into the right yeah
29:18yeah no it feels like the perfect case
29:21study in the dangers of dual class
29:23shares um but we were talking about
29:25dislocation earlier this doesn't really
29:28fit in because it's actual fundamentals
29:30are down but do you feel like because
29:32Mata is down so much it's at it's where
29:35it was in 2016 2017. do you feel like
29:39this is maybe a buying opportunity
29:43yeah so I want to be clear I think meta
29:45is a net negative I think big Tech is a
29:47net positive which isn't to say we
29:48shouldn't hold them accountable we it
29:50isn't to say we shouldn't look
29:52thoughtfully at them and potentially
29:53break them up which isn't to say that
29:55they shouldn't be subject to the same
29:56scrutiny as other companies but if you
29:58had a button and you could press it and
30:00all a big Tech would go away you
30:01wouldn't want to press the button we're
30:03net gainers from Big Tech I think we're
30:05not losers from meta I think meta has
30:07done so much damage to our elections our
30:09discourse into teens that if you had
30:12that button you might consider pressing
30:14it having said that when you have a
30:17company that has a core business that is
30:20a cash volcano
30:23and it's trading at a price earnings
30:25multiple of seven
30:27uh I'm not gonna buy it because I don't
30:30want to support uh the company I don't
30:32want to help Finance it
30:34um but you do not in my view you want to
30:37be very careful about shorting this
30:39stock because the stock could double
30:41from here just in and have a multiple
30:45that wouldn't look like an expensive
30:46multiple by all traditional metrics this
30:50company looks cheap what they're paying
30:52or what's happening here is there's a
30:54what I'll call a Mark Zuckerberg crazy
30:56[ __ ] metaverse discount here but this
31:00feels this feels cheap this company now
31:03feels almost like a distressed asset
31:07okay we'll be right back after a quick
31:09break with an unpack on the peculiar
31:11history of fed share comments moving the
31:13market and how to interpret Jerome
31:16Powell's speech this week
31:20okay I was a [ __ ] Junior sir that was
31:23just extraordinary
31:25I was just extraordinary
31:28you're welcome
31:32you're welcome
31:33you're welcome
31:36God hello gun shows in town where's that
31:39Navy
31:41where's that naked guy
31:43all right she was wearing another arm or
31:45underwear who the [ __ ] stays at the
31:47Beverly hotel and buys Under Armor
31:49underwear is he at the Beverly Hills
31:51he's in the same Hotel I am I'm at the
31:53hotel seriously that's the I won't show
31:55him to you and I probably get sued for
31:58that
31:59oh he subjected us to nude men
32:02yeah I'm gonna report you for that I'm
32:04gonna meet him for drinks later
32:06it's like a Ron I think his name is Ron
32:09I get the sense his name is Ron hmm
32:12okay
32:15I'm sorry anyways I'm back
32:21[Music]
32:28markets news is often about the numbers
32:31it's the domain of stock prices
32:32statistics and ratios
32:35but sometimes a few words can be more
32:37powerful than any number
32:39especially when those words are uttered
32:41by the chairman of the Federal Reserve
32:43for decades Traders have been hanging on
32:45the sometimes cryptic statements of the
32:47Fed chair this Wednesday current Fed
32:50chair Jerome Powell is scheduled to hold
32:52his bi-monthly press conference and the
32:54financial world will once again be
32:56reading the Tea Leaves of his comments
32:58for more on this tradition here's Prof G
33:01media's editor-in-chief Jason stabbers
33:03with this week's edition of the unpack
33:07Ed chairman of the FED must be a little
33:10like being Aladdin with your lamp your
33:13words are suddenly imbued with great
33:15power but you find out pretty quickly
33:17that you have to be very careful what
33:19you say the genie of the market can be
33:21tricky so the modern history of Fed
33:24chair statements moving markets begins
33:27on October 6 1979. Paul volcker had been
33:30fed chair for just two months and on a
33:33Saturday afternoon he summoned the press
33:35to the fed's DC headquarters ostensibly
33:37to announce a technical change in how
33:39the FED would be implementing monetary
33:41policy but everyone present understood
33:44that behind the technical change he
33:46announced that day a revolution had
33:49taken place within the FED a new
33:51intellectual regime was in place one
33:53that would aggressively raise interest
33:54rates choking off the supply of easy
33:56capital for Corporate America over the
33:58next week the Dow Jones Industrial index
34:01had some of its worst days of the decade
34:03and it lost nearly seven percent
34:05Bonds were also crushed by January the
34:08economy was in recession
34:10careful what you wish for to an extent
34:13yeah volcker surely knew that his words
34:15would suppress valuations but no Central
34:18Bank chair wants to watch the country's
34:20debt and Equity markets just sink day
34:22after day and volcker himself repeatedly
34:25said that market volatility was a
34:27problem he wanted to avoid
34:30and how did that turn out
34:33well whether it was volcker's interest
34:35rate increases or just the natural turn
34:37of the business cycle inflation was
34:39eventually taped but volcker wasn't the
34:41last Fed chair to Spook the markets the
34:43most famous example belongs to Ali
34:45Greenspan who ran the FED for nearly 20
34:48years from 1987 to 2006. Greenspan was
34:52famously cautious in his public
34:53pronouncements he relied on vague
34:56language and he hedged everything he
34:58said he gave no radio or television
35:00interviews during his tenure and even
35:02had his PhD dissertation removed from
35:04the NYU archives when he became Fed
35:06chair but if he was hoping that this
35:09would reduce the impact his words had on
35:11markets he had to have been disappointed
35:13because the opposite happened
35:14deciphering green spans every word
35:16became an obsession academics even wrote
35:19papers analyzing how he used language
35:23in 1996 he gave a speech at the American
35:26Enterprise Institute stock markets at
35:28the time were in a prolonged bull market
35:30driven in part by highly valued tech
35:32stocks so Greenspan in this speech posed
35:36a rhetorical question he said quote but
35:38how do we know when a rational
35:40exuberance has a duly escalated asset
35:43values that phrase irrational exuberance
35:47probably became the two most expensive
35:50words ever uttered the Japanese stock
35:52market was the first to open after
35:54Greenspan speech promptly lost three
35:56percent of its value the Dow fell two
35:58percent in the first hour of trading and
36:00the New York Times headline the next day
36:01read stocks worldwide dive as Greenspan
36:05questions euphoria
36:12one person's comments can cost investors
36:15billions of dollars in fact it seems
36:17like a terrible system is that right
36:19yeah it doesn't seem that great does it
36:21so Greenspan successor or Ben Bernanke
36:24was pretty concerned about this and so
36:26he tried sort of the opposite approach
36:28from Greenspan rather than speak rarely
36:31and as obscurely as possible he
36:33implemented regular press conferences he
36:36hoped that he could sort of smooth out
36:37the impact of his statements basically
36:40by making more of them did it work
36:42well to a degree Bernanke himself kind
36:46of sabotaged the system on occasion so
36:48for example in 2006 he was at the White
36:50House Correspondents Dinner sitting next
36:52to a CNBC anchor and he made an offhand
36:55comment about the fed's plans with
36:57regard to interest rates she reported
36:59that comment on her show the next
37:00afternoon at 3 15 in the afternoon and
37:03by 4 the stock market had gone red
37:05so overall though more communication
37:08from the Fed chair has somewhat
37:10formalized the process in that we know
37:12when the Fed chair is going to speak and
37:14a kind of informal code has developed
37:16between the chair and the market
37:19okay so Jerome Powell is holding his
37:22press conference this week what do you
37:24think we should be expecting
37:26well this history of Fed chair
37:28statements is interesting in part
37:30because we haven't really tested the
37:32system in a while until this year it had
37:34been a decade since the market was
37:36hypersensitive to the fed's moves we've
37:38been in a consistently low interest rate
37:40environment with no real expectation
37:42that would change that's not true
37:44anymore as the FED has been raising
37:46rates to fight inflation and so fed
37:48Watchers are dusting off their Fed chair
37:50translators and once again hanging on
37:52the chairs every word we are taking
37:55forceful and Rapid steps to moderate
37:57demand so that come it comes into better
38:00alignment with Supply and to keep
38:01inflation expectations anchored
38:04we will keep at it until we're confident
38:06the job is done
38:08so in anticipation of Powell's speech
38:10this week we spoke with Bob iaccino he's
38:12a Trader Chief strategist at path
38:14trading partners Bob explained what
38:17Traders will be listening for when
38:18Powell takes the mic on Wednesday
38:21essentially you first look at the
38:24statement okay and the statement will
38:26have key phrases in it those are the
38:28places where you would look for it to
38:29change up so for example inflation
38:32remains elevated they might change that
38:34to inflation has moderated two or three
38:37meetings ago in the statement they said
38:39we're looking for substantial progress
38:42on the rate of inflation they might say
38:45we're seeing marginal progress it's
38:47those little keywords that directly
38:50affect the actions they might take in
38:53the future not what they just took but
38:55what they might take in the future that
38:58you're looking for changes in and that's
39:00the key to all this fed watching the
39:02markets have already digested what the
39:04FED has done they want to know what it's
39:06going to do and the best way to figure
39:08that out is to listen to the Fed chair
39:10Jerome Powell speaks on Wednesday
39:13November 2nd at 2 30 Eastern Time
39:16thanks Jason
39:17Scott
39:18do you listen to the Fed chair do you
39:21pay attention to what he says and if so
39:23how do you interpret his words
39:25I don't but I'd hate to be a
39:28speechwriter I'd hate to be the person
39:29responsible for trying to assemble these
39:32words recognizing that anything could be
39:35taken out of context and create a
39:36cartoon and then it's irrational
39:38exuberance or
39:39you know this guy really does move
39:41markets if you wanted to move the
39:43markets up probably 2 000 points in 15
39:47minutes if Jerome Powell said something
39:50to the effect of our efforts appear to
39:53be paying off with respect to the
39:55reduction in inflation that would send a
39:58very strong signal that they were about
40:00to do kind of the pivot to a more dovish
40:03or stop raising interest rates and you
40:06would see the market scream I'm not
40:08saying that's that'd be the right thing
40:09to do because if inflation does in fact
40:12he's got to get his arms around
40:14inflation his hero is Paul volcker I
40:16think he's absolutely doing the right
40:17thing some people are some people are
40:19faulting him for not doing the right
40:20thing soon enough
40:22but
40:23um you know there is even some evidence
40:25out today that the economy grew and
40:28inflation didn't grow at the same pace
40:31so growth minus or grow growth up
40:35inflation sideways are down is a really
40:38good print that's a really good number
40:40but no one has their words parsed like
40:44chairman Powell and I would argue most
40:46of the time there's not a there there
40:49that they've got to finish the sentence
40:50they've got to put words there and
40:52they're going to respond differently but
40:54I it's a very strange situation around
40:58how markets absorb a language and then
41:01and then act on it's almost become a
41:03game yeah do you think it's a bad system
41:06I mean I don't know what the
41:08alternatives are but it just seems
41:10so rudimentary that our entire economy
41:13is based around whatever this guy says
41:17yeah I think it was either you or Jason
41:18brought up an excellent point in our
41:20editorial meeting that in China they
41:24just stopped giving guidance
41:25and that people don't trust the numbers
41:29that come out of their system and key to
41:31economic growth is Trust
41:33and so I think the chairman
41:34communicating or over communicating is
41:37really a powerful
41:39positive or A positive sign for our
41:42economy and our democracy and you try to
41:44be as transparent as possible the
41:45learning here for young people
41:47is in relationships and in your personal
41:50life and your professional life
41:52when things aren't going well or it's a
41:54tense time in a relationship or a
41:56business you want to over communicate
41:58yeah and that is the market and your
42:02spouse and your parents and your friends
42:04they don't like bad news but they can
42:06tolerate it what ruins relationships is
42:10surprises yeah wait you knew this was
42:13going on and you didn't tell me and now
42:15it's worse so the fact that we
42:19consistently published minutes of the
42:21FED meeting the fact that he will come
42:22on during very tense times and tell
42:25people the hard truth the fact that our
42:27inflation and GDP numbers have more
42:30veracity than the numbers that the CCP
42:32releases
42:33uh is really a positive four linking
42:35indicator in our economy and it's the
42:37reason why the dollar is the reserve
42:39currency it's the reason why people want
42:41to own American stocks so I think it's a
42:43good thing this game or this
42:45gamification of parsing his words you
42:48know that's a bit of a sideshow but
42:50constant communication with accurate
42:52data that is honest is is a is a feature
42:56of of a working capitalist Society I
43:00love that only you could turn Jerome
43:02Powell's speech into relationship advice
43:04There You Go comedy Esther plurality
43:07economy
43:09that's good actually hello okay well
43:12let's take a look at the week ahead you
43:13can recover from an affair and now think
43:15of your life moving forward
43:17yeah that's right that's right okay
43:21let's take a look at the week ahead
43:23we'll be watching for that next interest
43:25rate hike decision from the FED on
43:26Wednesday and we've also got earnings
43:28from Airbnb from Uber and from CBS
43:33do you have any predictions on this or
43:34on anything else uh my prediction is in
43:37the next six months ten thousand people
43:39are going to be laid off from uh ad
43:42supported big Tech Twitter snap meta
43:46and Google
43:47um these companies have just gotten too
43:49big you stuff so many calories down
43:51someone's throat they build up pockets
43:53of fat and here comes Jenny Craig or I
43:57don't know what the right analogy is but
43:58you know the liposuction the anyways
44:03anyways I think you're going to see
44:05massive layoffs across uh across big
44:08Tech and the growthy part of the economy
44:09maybe even I mean it's going to be it's
44:11going to be big it's going to be big
44:12head all right that's all for this
44:14episode our producers are Claire Miller
44:16and Jason staver special thanks to
44:17Catherine Dylan at Elson and the
44:19production media team if you like what
44:20you heard please follow download And
44:22subscribe thank you for listening to
44:23property markets from the VOX media
44:25podcast Network we will catch you next
44:27week
44:28foreign
44:30[Music]

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