What the 2024 Rate Cutting Cycle Could Mean For Investors — ft. Lyn Alden

Scott and Ed open the show by discussing a judge’s decision to allow bets on Congressional elections, Apple’s newest iPhone, and the fight to change the dual-class share structure at News Corp. Then Lyn Alden, independent analyst and author of “Broken Money,” joins the show to discuss the upcoming rate-cutting cycle. She explains why she’s still long-term bullish on Bitcoin and why now could be a good time to invest in emerging markets. Finally, she gives advice for new investors on how to build your portfolio. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:29Scott Galloway?

  Today's number 93. James Earl Jones died this week at 93 years old. True story, when Luke Skywalker found out that Princess Leia was his sister, he became best friends with Han Solo.

• 1:51Scott Galloway?

  Ed, what is the good word? What is going on? Well, wait, we got to talk about what we're talking about today. We're talking about... Oh, I don't know what we're talking about. Fuck, where am I? I have so many podcasts, I don't know where I am. This is the problem. Reheat my soup. Take me for a walk. Turn on murder, she wrote. I have no idea. So many podcasts. Have you heard about the new podcast, Ed?

• 2:11Ed Elson?

  I have heard about it.

• 2:12Scott Galloway?

  Raging moderates launched today with co-host Jessica Tarlov, who is the, in my opinion, the most impressive person of the five. They should call it for the nine because she's better than the other four. So they should call it the nine because she gets five. And my favorite joke about Jessica is that they rant on with their crazy shit, the four of them, and then she shows up with facts and data. And whenever she speaks right afterwards, they all look as if they've been just caught masturbating. They have absolutely no idea how to respond or what to say. Anyways, raging moderates.

• 2:47Ed Elson?

  I really like the comments on your Instagram. Most of the comments are Scott Galloway is a moderate?

• 2:52Scott Galloway?

  Yeah, I don't get it, though. Do you not see me as a moderate? Where would you put me on the political spectrum? Let's bring this back to me.

• 2:57Ed Elson?

  I do see you as a moderate, but I think a lot of people see you as a raging liberal.

• 3:01Scott Galloway?

  Claire, where am I on the political spectrum?

• 3:03Speaker 06

  I don't know where to place you on the dot plot, but like, I think just-

• 3:07Ed Elson?

  I'm an enigma.

• 3:08Speaker 06

  The raging part of it is what distracts people. I think you have such strong opinions that they can't picture you in the middle.

• 3:15Scott Galloway?

  Hmm.

• 3:16Ed Elson?

  Yeah, that's right.

• 3:17Scott Galloway?

  There you go. Okay. All right, Ed. This has been fascinating. Get to the headlines.

• 3:25Scott Galloway?

  Now is the time to buy. I hope you have plenty of the wherewithal.

• 3:32Ed Elson?

  Americans may soon be able to place bets on congressional races if a federal judge decided that prediction market startup Kalshi can list contracts for those elections. As we discussed back in April, Kalshi has gained popularity as a platform for betting on event outcomes. If the judge's ruling is upheld, it could open the door for betting on the presidential election. Apple unveiled the iPhone 16 Pro and the iPhone 16 Pro Max in addition to new Apple Watches and AirPods at its Glow Time event. The iPhone 16 is designed for Apple Intelligence, which will enable more natural conversations with Siri and feature AI writing tools that help draft emails and texts. And finally, hedge fund Starboard Value submitted a non-binding shareholder proposal asking News Corp. to collapse its

• 4:16Ed Elson?

  dual-class share structure that gives the Murdoch family voting control of the company. Starboard aims to eliminate the structure to prevent Rupert Murdoch from passing voting control of the company to his family. Scott, any thoughts?

• 4:31Scott Galloway?

  So betting on elections. First of all, I don't know if you can get in the way of this. I think people should be allowed to lose money if they want. The question I would have is that if you're RFK Junior, and granted, his likelihood of being, the odds on him becoming president had gone way down, but you would still get, say you bet a dollar against him, you would get a buck oh five, maybe, a dollar five back, or I don't know. And you knew you were going to eventually drop out. Say back when his, his prospects were at their highs, he was in the high teens, and you would get, say, a dollar twenty for, for betting a dollar. And he knew, if he knew personally, he was going to drop out at some point, is it okay for

• 5:14Scott Galloway?

  him to bet? In other words, are there any sort of insider trading laws? I wonder if, when you have asymmetry of information, and it's not illegal, what ends up happening is the people who don't have asymmetric information, over the long term, just lose money.

• 5:29Ed Elson?

  Yeah, it's a really good point. I mean, insider trading laws, it seems, this is going to be a huge problem. And as you say that, I sort of realized that it also, it kind of just accrues more power to famous people, who I believe are already kind of the most powerful they've ever been. Because if there's a lot of attention and a lot of focus on RFK Junior, for example, that's going to attract more liquidity, more inflows into an events contract, based on whether he's going to, you know, drop out of the election or stay in the election, whatever it is. And then you can start gaming that and sort of using that public momentum and public interest to start profiting off of it. So it seems like, yeah, if they don't establish some sort of insider trading laws

• 6:11Ed Elson?

  around this soon, then we're going to see a lot of famous people ripping off regular people even more. One other thing that I've been thinking about with this, just to start, 25% of Gen Z think that gambling is a form of investing. So a lot of kids are gambling and thinking that, you know, this, this is a good thing to do with my money. I'm, you know, there's a potential upside here. And as we know, gambling is, generally speaking, pretty bad from a financial Perspective, ninety percent of gamblers lose money. It's responsible for one in ten bankruptcies in America. And I think if I were the CFTC and if I were regulating Calci, I agree with you that this should be probably be allowed to exist.

• 6:56Ed Elson?

  But I think one issue that I would have is sort of the way that Calci is branding itself. And that is, if you look at the website, it really feels like an investing app. It does not feel like gambling. They don't call it a casino. It's called a prediction market. You don't place bets. You buy events contracts. It's got this very marketsy feel to it. And I can imagine that if you're a user of that platform, you could start sort of rationalizing your gambling addiction as some sort of smart form of investing or trading. It feels almost a bit more sophisticated than gambling.

• 7:31Scott Galloway?

  Yeah, but the kind of the retort is I satisfy my gambling addiction by buying stocks. I mean, it's been proven that buying individual stocks over the long term is just not a great idea. That stock picking is almost useless for ninety nine percent of us. But you get a doper rush and effectively that's one person basically betting that I know more about Apple's prospects than the person on the other side of the trade. That's effectively speculation and gambling. This is an odd one. Let's talk about Apple. I love that Glow Time event. I got to give it to Apple. My son came home and said, we got to watch the Apple event.

• 8:06Ed Elson?

  Really?

• 8:07Scott Galloway?

  And the thing, yeah, that he's really, he was really excited about it. And the thing that strikes me is that you're probably too young to remember this, but there used to be the the sector that owned tech launches or product launches was the automobile sector. And it was a big deal. They had these big unveilings of the new, you know, nineteen eighty four Chrysler Le Baron. And Ricardo Montalban would be there with some hot girl in a Rockettes outfit. And Lea Coco would be there talking about how the new K car was a breakthrough technology and was going to bring Detroit back.

• 8:40Ed Elson?

  Sounds a lot better than Tim Cook and Allbirds.

• 8:43Scott Galloway?

  There you go. Actually, it was much worse. And basically, Apple has kind of co-opted the event launch. And what they've done is they've taken a page out of the luxury sector's handbook. And that is they're highly curated, they're visually arresting, they usually have very good looking people on stage. And it's like a, it's basically kind of a modern day fashion show for people who aren't into Hermes or Gucci. They watch these, these kind of event rollouts. The thing that struck me is that I'm just, I can't get over, I think Apple, I don't know who's in charge of strategy at Apple. I think the strategy at Apple has always been, over the last 10 years, other than a mixed, mixed reality headset, Joey Bagadon, it's a stupid idea.

• 9:28Scott Galloway?

  I think they are strategically just incredibly cogent. And I love, I just love what they've done here with AI. And that is they've said, okay, here's AI that helps you sort through your photos. If I, I can't say, I don't know why you do this. One of the, I get so frustrated on my iPhone because I've taken thousands of photos and I think, where's the picture of my son at the Arsenal game? And my understanding is that this new version or these AI applications will be able to do that. So, yeah, it didn't strike me as anything breakthrough in terms of product. But this, this, you know, they're hoping, or analysts who are basically sycophants and stenographers, of which there are a bunch following Apple, believe that the AI phone could jumpstart the biggest upgrade cycle in Apple history.

• 10:13Scott Galloway?

  And just the idea of a quote unquote AI phone is very exciting. They're expected to sell a quarter of a billion phones next year, a 12% increase year on year. Anyways, any thoughts?

• 10:24Ed Elson?

  Yeah, I had a kind of a different read on this. I found this event extremely underwhelming. I mean, those AI updates are incredibly incremental. I mean, you know, better interaction with Siri, that doesn't sound like a massive upgrade, helping you find photos. I mean, there have always been AI components in the iPhone that have sort of incrementally improved over time. And let's just go through some of the updates for the new iPhone. This is, this is what makes the new iPhone really different from the other one, from the previous one. Bigger screen, smaller bezel.

• 11:00Ed Elson?

  Okay, updated rear view camera, more powerful mic, comes in titanium. So to me, those are the updates that you make when you don't have any ideas. And this whole event is kind of reminding me of our conversation, our antitrust conversation with Professor Allensworth, where she was making this point that it's very hard to quantify the lack of competition in tech, because we haven't really been able to see any other innovations or any great products from any companies other than the big tech companies that we already know.

• 11:41Ed Elson?

  And so I look at this event, and this sort of feels like Exhibit A in the FTC antitrust case, because if you look at the new iPhone that they just released this week, and you compare it to the iPhone from 10 years ago, from 2014, you will find it is almost identical to the iPhone that we're seeing today. And then you go look and you search up, you know, cellphone 2004, and you look at the difference between a mobile phone in 2004 versus a 2014 iPhone. That is a completely different device. So it almost feels as if the past decade of innovation at Apple, when you compare it to the decade of innovation in tech before that, it's been incredibly, incredibly underwhelming.

• 12:24Ed Elson?

  And I'm just sort of starting to think, you know, what if Apple and what if Google and Facebook were truly forced to innovate? What would this Apple event look like in that scenario? Because what I saw at that event was a company that's mostly getting quite lazy.

• 12:42Scott Galloway?

  I've changed my mind, the events sucked. I like your narrative more. Yeah, I mean, you're right. The new iPhone, I think this is great marketing. I think them adopting software and kind of branding it the AI-enabled phone, I think that's genius, and I do think they'll make it more. You know, more consumable or AI, they'll bring AI to the masses or at least awareness of what AI can do. But you're right, it's not. I didn't see anything I wanted to run out and buy. Should we talk about Starboard? Yes, I'd like to get your take on that. So the Murdochs own a 14% stake in News Corp, but control 41% of the votes and Starboard owns 3.7% of non-voting shares and 4.6% of the voting shares. First up,

• 13:25Scott Galloway?

  a dual-class shareholder company is you have 100 shares, but there's a minority of shares that have more voting power. It makes no fucking sense. And initially, the rationalization for dual-class shareholder companies was media companies did it. Now, why did they do it? They said, okay, we're the New York Times, and we're so important in terms of defending democracy and having a newsroom that, you know, speaks truth to power, neither carries favor, whatever, you know, that we're honest brokers of truth and play an important role in society. So we can't be subject to the short-term pressures of shareholders. So we need a dual-class shareholder structure such that the family that cares more about American journalism will always be in control. And this generally leads to a company that

• 14:10Scott Galloway?

  underperforms because they don't want to make hard decisions, they have different priorities, and basically, all other shareholders are sort of second-class citizens, or they pretend to listen to you. I've been on the board of dual-class shareholder companies, and essentially, you're an advisory board, because at the end of the day, when shit gets real about big decisions, the decisions are made over Thanksgiving at the Solzberger or the Ford Family House. So I don't like these things. This itself is purely performative. This is Starboard saying, this is a good idea, and trying to put pressure on them, and they're just gonna nod and then stick up the middle finger at the shareholder meeting and vote. You know, this is, this is gonna result in absolutely no change, because at a shareholder

• 14:52Scott Galloway?

  meeting, which is like Election Day, you have a vote, and typically, somewhere between, typically around 80% of the shares show up. There's a lot of shares that don't vote. The average turnout is 77%. Which means if you control 40, you've won. As a matter of fact, when I was an activist investor and would go into a company and So Gateway Computer, I bought 17% of the company and demanded two board seats. And I knew I'd won. And the reason I knew I'd won is that if 80% shows up and it's a single class of shares, then if you have 17%, really all you're jonesing for is if you can get just of the remaining 63 that are showing up, you just need to get 23.

• 15:36Scott Galloway?

  A single class shareholder company is technically always in play.

• 15:39Ed Elson?

  Yeah, I mean, if they want to get this through, they're going to need 90% of the remaining shareholders to vote yes, and they'll also need 100% turnout.

• 15:50Scott Galloway?

  Not going to happen.

• 15:51Ed Elson?

  Yeah, not going to happen.

• 15:52Scott Galloway?

  It's not going to happen.

• 15:53Ed Elson?

  But one thing that Starboard mentioned, they wrote, quote, "If the board refuses to listen, we can then take further action." So apparently they have a plan B. You are a former activist investor. One, do you believe them? And two, if you do, what could that plan B be?

• 16:14Scott Galloway?

  I don't know. Hire a Tony Soprano? I could take further action. Well, I'm scared now. I don't think the Murdochs, I don't think Rupert Murdoch scares very easily.

• 16:30Ed Elson?

  We'll be right back after the break for our conversation with Lynn Olden. If you're enjoying the show so far and you haven't subscribed, be sure to give Prof G Market a follow wherever you get your podcasts.

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• 18:23Ed Elson?

  Welcome back. Here's our conversation with Lynn Alden, independent analyst, full-time investor, and the author of Broken Money. Lynn, thank you for joining us again on Prof G Markets.

• 18:33Speaker 08

  Thanks for having me back. Happy to be here.

• 18:37Ed Elson?

  So the Fed is meeting again this month. They're going to make their next interest rate decision. Widely expected to see rate cuts, which will bring an end to this rate hiking cycle, which we've been experiencing over the past couple of years. And it will usher in the rate cutting cycle. So we'd love to start out with just your opinions on what that will mean for investors. What are you focused on as we enter this next era of rate cuts?

• 19:04Speaker 08

  Yeah, it's a good set of questions and I'm focusing on basically a couple of different areas, some of which I think most investors are overstating and some that I think investors might be understating. So the interesting thing about this cycle is that during the rate hiking cycle, the economy was was more resilient to the rate hikes than many people thought. And that was because a lot of the private debt was locked in at low, long-term fixed rates. And ironically, a lot of the government debt wasn't. And so basically, the raising rates increased the deficit more than it increased private sector interest expense that's locked in. Obviously, if you're entering the home buying market right now, that's a very different story. But when you look at the aggregate private debt out there, investment-grade debt,

• 19:48Speaker 08

  a lot of it was unimpacted by these rate hikes. And only slowly, quarter after quarter, does some of it get refinanced at these higher rates. And I think we're going to have a similar effect on the downside, which is, you know, cutting by 25 or 50, or even up, you know, after a couple of cuts, even 100 basis points, is still above, you know, a lot of the rates that people have locked in. Now, obviously, the long end moves differently than the short end. But overall, until they kind of hit some threshold, I wouldn't expect a very large amount of refinancing, which you normally see during those rate-cutting cycles. Because people use the opportunity to get out of their higher-priced mortgages into lower-priced mortgages.

• 20:32Speaker 08

  They unlock more consumer spending. And there's just not a lot of that ready to be financed. There were very low mortgage originations over the past couple of years in this higher-rate environment. So the opportunity for refinancing is fairly low. The area that I'm more wondering about on the optimistic side is foreign equities. Basically, you know, there's been huge, long period of US outperformance, strong dollar environment, strong US equities. Some of that's fundamental, some of that's valuation, a lot of it's capital flows. And one of the few periods where you get a chance for rotation into international markets is during rate-cutting cycles. And

• 21:16Speaker 08

  Really, you need two variables to be in place. So one, you need to have a situation where a lot of capital is already stuffed into US markets. And so, for example, in the year 2000, there was a lot of global capital stuffed into US markets. The 90s were a big period of US outperformance. And so, the rate cutting cycle that followed that was very good for international markets as some of that capital dispersed back elsewhere. So those two variables are present. In 2008, the rate cutting cycle happened, but there was not a lot of global capital stuffed into US markets. The whole 2000s decade after that dot com bubble was all at the BRICS decade. So global capital is already kind of dispersed. And so, rate cutting cycle in the US did not really feed that.

• 22:01Speaker 08

  The next rate cutting cycle was the 2019 rate cutting cycle. And that was a situation, again, where it was more like 2000 in the sense that a lot of global capital was stuffed into US markets. And so, that was an opportunity for potentially some of that capital dispersing. But then, when you had COVID lockdowns, you know, all the stuff we experienced, that kind of disrupted what could have maybe otherwise happened. We don't really know the counterfactual. Plus, it was the continued outperformance of the handful of top tech stocks. So I would say that this upcoming rate cycle is the first major one in at least five years where you have both variables present, a rate cutting cycle at a time and a lot of

• 22:45Speaker 08

  global capital is stuffed into US equity markets. And so, the rate cuts could be fairly beneficial for, you know, some degree of international equities.

• 22:55Scott Galloway?

  It's good to see you, Lynn. So I felt as if the rate hiking cycle was a little bit of the land of unintended consequences. And that is, I don't think any economist predicted that housing prices were going to keep going up as interest rates skyrocketed, at least I didn't see that coming. And also, that the additional capital that people made on their cash more than compensated for the additional interest costs. So the economy was more resilient. If you take the opposite of that, are we potentially looking at a pretty serious drawdown in home values, which are at all time highs with respect to some ratios? And could we be seeing? A pretty significant decline in stock prices, given that the markets on a P level

• 23:40Scott Galloway?

  aren't crazy, but they're definitely, definitely rich. It almost feels like these things have almost the entirely opposite intended effect.

• 23:48Speaker 08

  I think that's an outcome of fiscal dominance. And so this was kind of the first rate hiking cycle that happened in fiscal dominance, which is to say that we're running unusually large deficits as a share of GDP outside of a recession. And we have very high accumulated public debts. And so when interest rates go up a lot, the interest expense goes up quite a bit. You know, when you raise rates at 30% public debt to GDP, it's a very different environment than raising rates at, you know, 120% debt to GDP. And so we got into this kind of unique situation where rate hikes don't necessarily have the effect that they're supposed to. When we think of what rate hikes are supposed to do, there's

• 24:33Speaker 08

  kind of two main things. One is they make your currency more attractive to foreign holders or even domestic holders, so they don't, they don't go elsewhere. So you're getting a better, you know, rate on your money to strengthen it, which can clamp down on inflation. And the other one is basically to slow down bank lending. So for example, when Volcker raised rates, you know, throughout the seventies, there was very high rates of bank lending. The baby boomers were entering their home buying years, very high rates of bank lending and money creation from that source. And so raising rates can, you know, put strain on borrowers and slow that down. In the current environment, the deficits are bigger than net new bank loans per year. And in many years, even bigger than bank loans plus new corporate

• 25:16Speaker 08

  bond issuance. And so the effect is, you know, maybe not quite as powerful. I don't really see it as bearish for housing when rates come down. I would be a little more concerned about equities because a lot of the global capital that's stuffed into the US is in our equity market. That's one thing that kind of makes the US somewhat different than other jurisdictions. A lot of other jurisdictions, capital goes into their housing market, right? So for example, foreigners will buy houses in Canada or Australia. Whereas when capital goes to the US, a lot of it goes into the equity market in particular. And that's, that's, that's the capital. You know, capital flows that I'd be more concerned about in terms of impacting investment performance.

• 26:01Scott Galloway?

  You had talked a little bit about emerging markets. Is this kind of, are things shaping up to be 2024, they're kind of time in the sun again?

• 26:07Speaker 08

  I think the conditions are there for it. It's kind of like the phrase, like you can lead a horse to water where you can't make a drink. It's kind of like you can identify when the conditions are present, which would increase the probability of it occurring. And so, for example, I would say in 2019, there were some of the conditions for it, but it didn't happen for a lot, you know, for any number of reasons that came after it, it didn't happen. This 2024 setup is yet another environment where the conditions are pretty right. That combination of lots of global capital stuffed into US market with a rate cycle, a rate cutting cycle coming up. That's basically dry tinder that emerging markets potentially could, could take the baton from. The vicious or virtuous cycle that happens there is that a lot of emerging markets, kind

• 26:50Speaker 08

  of what defines them is they have a lot of dollars dominated debt. And it's not even mostly owed to the US. It's owed to China, it's owed to European lenders, it's some of it's owed to the US. It's owed to all these different entities that lend in dollars.

• 27:04Speaker 08

  And whenever the dollar strengthens relative to their local currencies and cash flows, it's kind of like if you took out a mortgage in Swiss francs and then the Swiss franc doubled relative to the dollar, you know, you'd be in trouble with the property of your, you know, the value of your property and the, you know, the cash flows that property can generate, you'd have trouble with your liabilities, it just hardened. The same thing kind of happens to them, except it's the dollar that's going up. And then more capital wants to get out of there. When that's happening, it goes into the US, which that ironically strengthens the dollar further. And so you get this kind of vicious cycle against emerging markets. But then the good news is the opposite can happen on these, on these other cycles, which is that, you know, once the dollar is strong, no capital is in the BRICS. It's all in US and a handful of other places.

• 27:49Speaker 08

  If around the margins, not like this big giant capital flow, but around the margins, there's a rate cutting cycle, these other places are cheap, the ones that kind of survived the, the strong dollar cycle. The marginal dollar can go to them, which can alleviate the, you know, the strength of the dollar can can support their currencies a little bit. They start showing signs of life and then more capital wants to flow in. And so you get that reversal effect, that that virtuous cycle. So what I'm looking for is to see if that engine starts kind of kicking off and to really start seeing if we get follow through.

• 28:22Ed Elson?

  And last time we spoke, we had a pretty lengthy discussion about Bitcoin. I feel like you kind of crypto-pilled Scott in a little, in a strange way. But anyway, since then Bitcoin has fallen around 15%. Then we've also seen Bitcoin popping up in political news. Trump has been talking about Bitcoin, he's very pro Bitcoin, pro crypto. He spoke at the Bitcoin conference. I'd just love to get your updated take on Bitcoin. And has anything changed since we last spoke?

• 28:54Speaker 08

  So I'm still long-term bullish and I, you know, I wouldn't say I'm, I'm big on crypto in general. I tend to be pretty skeptical of the majority of the crypto space. For me, it's, it's so far been really Bitcoin and stable coins that I think are the most interesting. And then there's little pockets elsewhere that are kind of also kind of interesting. But, you know, for the most part, it's pretty concentrated. I'm, I'm long-term bullish on Bitcoin still. Nothing really changed with that thesis. The way that I'm interpreting this year is that the ETFs pulled forward a lot of excitement. You know, you started to get really, people started to get really bullish in like February and March of this year. And we've seen kind of a slow draining of these kind of overinflated

• 29:34Speaker 08

  expectations since then. The, the big metrics that I've, that Bitcoin tends to track, and actually I've commissioned a report from an analyst I like, and I'm advising it, that we're kind of quantifying this a little bit more. But Bitcoin tracks global liquidity better than any other major asset class. So better than stocks, better than gold, better than emerging markets, better than bonds. And there's different ways to measure global liquidity. I, you know, in, in that report and in general, I defined it as global broad money supply, but denominated in, in dollar equivalents. So you get, you get both a credit expansion or credit contraction component, and then you get that strength of that dollar relative to the other major currencies.

• 30:17Speaker 08

  And basically, if that goes up or down in a given 12-month period, Bitcoin has the highest likelihood of other assets to do the same direction, which is over 80% in Bitcoin's case. So I put a lot of that focusing on global liquidity. When I'm thinking about, say, a two-year or 12-month Bitcoin price, I don't really try to judge like month-by-month or quarter-by-quarter Bitcoin price. For the political component, you know, obviously that so most Bitcoin conferences are not that political. This particular one that happened in Nashville is, one, it's the biggest one in the world, and it's during American election season. So this one was very political.

• 31:00Speaker 08

  I guess the interesting thing about it is that the most of the headlines were the Republicans there. So obviously, Trump was there. There are a number of senators and representatives that were there. But I think what went under the radar is that there were some Democratic politicians there as well, like Ro Khanna, for example. And then he and over a dozen other congressmen wrote a letter to the DNC saying that they need to embrace that industry a little bit better than they have. So right now, in, you know, if you look at, there's actually a study recently by Troy Cross, a professor and another professor, I can't, I can't remember his name. But they found that they, they kind of looked at a sample, a pretty big sample, it was a well-designed test, as far as I could tell.

• 31:44Speaker 08

  And they wanted to see if there was a difference between Bitcoin holders and the general public on a number of metrics, including politics. And they actually didn't find that much difference.

• 31:52Scott Galloway?

  Really?

• 31:53Speaker 08

  Yeah, the big, the two biggest areas that stood out were Bitcoin holders skewed male, and they skewed younger. But they didn't, they didn't skew left or right, which is actually kind of surprising, because when you look at politicians that embrace it, it certainly has skewed, skewed right.

• 32:10Scott Galloway?

  When you look at the economic policy, or not even policy, the economic plans, the thing that really has jumped out about Trump was this embrace of tariffs. And the thing that jumps out for me with Vice President Harris is there's a few things actually, price controls and subsidies for first time buyers. Do you have any thoughts when you look at their policies and the impact on the markets?

• 32:39Speaker 08

  It's funny, I think a lot of investors are kind of discounting the tails. Like, they're assuming that the kind of polarizing forces of Congress will prevent some of their tail outcomes happening. So for example, that we'll get more tariffs, but they won't be as huge as Trump, you know, is kind of narrating that they will be. Because I, you know, I think that obviously the issue with bigger tariffs and many critics of the proposal pointed this out, that a lot of those costs you get passed back on to American consumers in many cases. You know, if those, if those companies are not making the profit margins, they'll either stop selling to America or they just increase the prices. So we effectively pay for it one way or another. And so that can be all around the margins inflationary.

• 33:24Speaker 08

  The Democratic propositions, on one hand, there are things that are more disinflationary like, you know, the tax increases that were proposed. And some of those are pretty tail outcomes, like taxes on unrealized capital gains and things like that. I think, again, the market's kind of, kind of like how they're assuming that Trump wouldn't get like enormous tariffs through, just kind of tariffs around the margins. I think they're assuming that, that Harris wouldn't get like an unrealized capital gains tax through, or even that other one, the more broad capital gains that is just an increase to the current capital gains. I think the market is kind of discounting that somewhat. I find both tails not productive in general. That'd be my take. I did like a 50 year analysis on how economy performs,

• 34:09Speaker 08

  how markets perform, how, you know, inflation performs under Republican or Democratic presidents. And it's more complicated than that because you'd have to incorporate the Senate and the House and, you know, kind of the government's not just one entity. But in general, over those 50 plus years, the economy did better under Democratic presidents. And so did, so did the US stock market.

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• 36:18Ed Elson?

  We're back with Prof you markets.

• 36:20Scott Galloway?

  It feels as if inflation has kind of come down to its sort of target level or is fast approaching its target level. Is there a fear that it could crash through its target level and we could enter into stagflation or recession? What, when you look at the different barometers for inflation, what do you see?

• 36:38Speaker 08

  So it came down from officially measured like 9% to 3% fairly quickly. And then it got kind of stuck in that, that like 3% plus corridor for quite a while, kind of sticky above target inflation. In recent period, it kind of came down to slightly below 3, but still above target. But obviously nowhere near kind of the headline issues that it was before. You know, I think the Fed is correct in the sense that. Like, I don't particularly endorse the idea that central banks even set interest rates, like that basically this price controls the money, but to the extent that that's how they operate now, they do have these mandates between employment and inflation. And clearly, the risks have moved from, you know, when you have 9% inflation, that's kind of a

• 37:22Speaker 08

  four alarm fire for inflation and you got to get it back down. Now that inflation is in the ballpark of three or the high twos and unemployment is still low, but has increased from 3.4% to 4.2%. And historically, that tends to, when you get a move like that, more often than not, it keeps going. So if you're the Fed right now, you're saying, well, one is a little high, but headed down. The other one's low, but headed up. They're more shifting to the one heading up now. Also, if you look at the Fed's projections of where unemployment would be over the next couple of years, 4.2% was kind of their median, you know, where they expected it to go. So if you start to get any sort of increase

• 38:03Speaker 08

  above that, they would grow more concerned. And the chairman's already said that they don't really want to see any more employment softening than they've already seen. You know, we're outside of that really hot market where like you couldn't really hire people. Now it's kind of more balanced. And so I think from their standpoint, from their mandate that they follow, it makes sense for them to be more balanced between the two. There obviously is a risk. We could go, you know, down further and kind of approach more recession territory. My theme that I keep pointing out is that, you know, it's when you go into recession, when you're already running 7% of GDP deficits and deficits normally expand in a recession, that tends to be a different type of recession. You know, I

• 38:48Speaker 08

  think that a lot of investors kind of fight the last battle. They think of 2020, they think of 2008. I think that a recession under these types of deficits would be a little bit more stagflationary. So maybe not as disinflationary as we think, but also maybe not as high unemployment as we think, because there's kind of a lot of pre-stimulus going into that recession. So I tend to kind of model it a little bit differently than average.

• 39:15Ed Elson?

  And do you have any thoughts on the likelihood of a recession? I mean, there were some debates and some... Slightly overblown panicking earlier in the summer.

• 39:25Ed Elson?

  But where do you stand on recession and the probability in the next year or so?

• 39:30Speaker 08

  So one thing I've had to do over the past couple of years is break out sectors. Because we have an unusually large divergence between very high fiscal deficits, so very loose fiscal policy and very tight monetary policy. And that divergence is bigger than normal. We've got bigger than normal divergences between sectors. And so if you look at, for example, like in 2022, when many people were forecasting a recession, we did not get a National Bureau of Economic Research, like they didn't define an official recession. But if you looked at, for example, the misery index, which is inflation plus unemployment, that reached recessionary levels.

• 40:11Speaker 08

  If you look at consumer sentiment, it reached almost record low recessionary levels. If you look at, and this is the interesting one, bank loan tightness. So if you look at, they do surveys of senior loan officers at banks and they say, are you tightening credit standards or are you loosening credit standards? And almost always when they have a big tightening period, it's recessionary. And when they're loosening it, it's, you know, at least in rate of change terms, like fewer of them are tightening, you're coming out of recession. And in 2022, we went through a classic bank credit tightening cycle that looked like recession on the on the bank, you know, senior loan officer survey. It was like basically everything about that survey screened recession. And we did not have a defined recession.

• 40:55Speaker 08

  In large part, it's because, you know, we're at that point, we're two years after peak lockdowns and we're still on like the tail end of, you know, COVID era things. The environment was just very different. You didn't get that unemployment cycle. That's kind of like a main driver of recessions. So I think that ahead, there is more risk of a classic unemployment recession. I don't have a high conviction. But then the weird thing is on the other side, I'm actually seeing there's also indicators suggesting emerging out of a recession, like the the bank loan tightness is easing rather than getting worse. Or for example, the manufacturing purchasing managers index that was in recession like throughout, you know, 2022, 2023.

• 41:38Speaker 08

  That was in one of the longest contractions of manufacturing in a long time. And that's kind of stabilizing to some extent. So I think we could get a reversal of what sectors have been doing better or worse. And that's how I'm trying to think of it is like, which sectors could be entering or emerging from recession, rather than thinking of a purely binary outcome of recession or no recession.

• 42:03Scott Galloway?

  Are there any sectors or specific stocks that you're especially bullish or bearish on?

• 42:07Speaker 08

  I have concerns around some of the very expensive tech stocks. I treat each one independently. I don't, I don't, I don't like, when people kind of classify them all together, I don't really like that approach. I like to treat them individually. Actually, I'll give you a more specific one. So back in, back in the dot com bubble, everybody was focused on the high valuations of the tech stocks, right? But when under the radar is that Coca-Cola was trading at over 50 times earnings in the late 90s. Walmart was trading at like 50 times earnings in the late 90s. And what happened was throughout the 2000s, they continued to grow. They were, you know, they're, they're high quality, blue chip companies. They continue to grow, but their stocks had like a 10 year dead period because their

• 42:51Speaker 08

  valuations went down from 50 times earnings to like 20 to 25 times earnings as their earnings doubled. So you had just basically the stock going nowhere. You know, right now, everybody's focusing on the mag seven, but for example, Costco is trading at like 55 times earnings. And it's a, it's a wonderful business. I mean, it's actually one of the few businesses that like shareholders, employees and customers like, I mean, who doesn't like Costco? And, but it's, you know, I wouldn't pay 55 times earnings for it. When you look at the PEG ratio, it's a price to earnings to growth. It scores very poorly on those metrics and it hasn't mattered yet. I mean, you know, Coca-Cola has spent a very long time overvalued and so did Walmart.

• 43:35Speaker 08

  And so it's actually, I think there's a bubble in some. Blue chip risk off names where everyone says this company's bulletproof, so I want to own it. And then the problem is maybe the company's bulletproof, but the stock might not be bulletproof. And ironically, Costco is trading at higher valuations than a lot of the Mag 7. You know, we look at price to earnings or other kind of metrics like that.

• 43:56Scott Galloway?

  That's crazy.

• 43:57Speaker 08

  Yeah, higher valuation than Alphabet, higher valuation than Meta, higher valuation than Apple. You know, it's one of the more expensive stocks out there. When you look at kind of traditional price to earnings or price to cash flow or price to earnings growth metrics. So it's not just Costco, but I think that basically I have concerns around very high quality, low fundamental volatility, so low earnings fluctuations, all these different quality metrics. There's a lot of capital kind of stuffed into some of those names.

• 44:30Scott Galloway?

  Anything you're especially bullish on?

• 44:31Speaker 08

  I'm looking for this potential emerging market rotation. I want to see if we get follow through with it. I wouldn't layer on more risk until you start to see more follow through. But basically, I think, you know, this could be like a three to five year period where the S and P 500 stopped outperforming some of these places. The S and P 500 already stopped outperforming Latin America for the past two and a half years, at least on a total return basis. You know, maybe we go back to outperforming, but at least so far, that's a trend that's kind of been paused. The biggest kind of bullying outcome is China right now, just because the stocks are so

• 45:13Speaker 08

  cheap, the fundamentals keep getting better in many cases. But then you have to kind of weigh that tail risk, right? So what is the chance that you just, that, you know, you wake up to some headline three years from now and, you know, you get kind of zeroed out of your positions or something? The interesting thing is that if anything like that happens, I mean, stocks like Nvidia are in big trouble potentially. I mean, they make all their chips in Taiwan. Apple would be in big trouble, Tesla would be in big trouble. So on one hand, investors are very much fine with Chinese geopolitical, like Chinese-US geopolitical relations, because they're fine with really big US tech stocks that have a presence there.

• 45:56Speaker 08

  But then nobody wants to touch Chinese stocks with a 10-foot pole. Which I would say, you know, high probability they outperform in the next three to five years. Uh, but, but then you have to, you have to tweak that with the tail risk of, you know, what if something crazy happens?

• 46:14Ed Elson?

  I'm just looking at your, uh, portfolio, your multi asset model portfolio here, which you publicize and, you know, you're totally transparent about your portfolio, which I love. And I think it's really valuable for people who are getting into investing. I'm just seeing, I don't see Apple, I don't see Meta, I don't see Tesla. Uh, why not those three? It looks like you have the rest of the mag seven, but why, why are those three missing?

• 46:43Speaker 08

  Uh, so Tesla, I'm not very bullish on fundamentally, uh, right now their, their growth metrics are not great. I, I generally view them as structurally overvalued. Apple, less extreme case, but basically it's, I would say it's a value stock, very high quality value stock priced like a growth stock. So you, you pay, you know, it's not like Costco, like, but you're, you're, but you're paying pretty high valuations for a company that's most, you know, it's a lot of the growth now is coming from a fairly static top line. And then, you know, they, they buy back their own shares, they adjust their price with inflation. Like you're kind of this like wide moat, but slower growing entity now, um, doesn't excite me. Meta is more borderline. I've been back and forth on that. There, there are periods of time where I've owned it.

• 47:28Speaker 08

  Uh, that one I'm kind of more neutral on, like that, that could go either way for me. Uh, whereas a lot of the other mag seven, I think they have reasonable valuations relative to their, uh, you know, current and expected growth rates.

• 47:40Ed Elson?

  Just one last question from me, uh, for our listeners who are maybe just starting out, investing, just about to build their portfolio, would you have any, if you could give one piece of advice to someone in that position, what would it be?

• 47:54Speaker 08

  So the way that I approach portfolio in this environment is a three pillar portfolio. So it's like one big part stocks, uh, one part those more kind of like, you know, cash or, or short duration bonds and things like that. And then one chunk is that, that little more inflationary thing. So, you know, energy producers or gold, um, Bitcoin, things like that. I mean, another thing that's outperformed this S and P 500 for a while is, um, the S and P 500 has underperformed gold since late 2021. Not by a lot, but basically there's if you look at kind of the S and P 500 to gold ratio over the past century, you get these kind of these really big sine waves.

• 48:37Speaker 08

  And if you include dividends, the S and P 500 is greatly outperformed. But it goes through these like five plus year periods where it greatly underperforms. And there's, there's kind of current signs of a rollover, like they were in one of those down periods where the S and P 500 does not outperform gold. And I think of gold anyway, more like a bond replacement, or you know, if I have a 6040 portfolio, maybe I take 10, I take a, you know, 10% of it and put it into gold or 5% of it and put it in gold. And so I think that, you know, my approach generally is rather diversified portfolios so that you can focus your attention on what you do to what you do best.

• 49:19Scott Galloway?

  Isn't it the end of the day, buy an index fund and then just try and focus on what makes money?

• 49:24Speaker 08

  Yeah, I think, I mean, buy, probably buy a handful of index funds to reduce the probability of a lost decade. I think the, the popular, the only, the only risk of that approach is that a lot of that kind of came out during this like 15 year period of like, you know, just buy the S and P 500 and win. Whereas there are decades where that can not do well. And having a, having a handful of different indices together can really kind of structurally just keep going up, which then, yeah, you can, you can focus on your work, you can focus on your family, you can focus on everything else. I think the majority of people shouldn't be spending a ton of time on investing unless it is again, they're, you know, unless they either love it or it's their way that they earn income.

• 50:09Scott Galloway?

  Lynn Alden is a full-time investor, independent analyst, and the author of Broken Money, Why Our Financial System Is Failing Us and How We Can Make It Better. Her work has been featured in the Wall Street Journal, Business Insider, Market Watch, and CNBC. And she's also served as a consultant to startup companies, hedge funds, and executive committees. You can find her research at LynnAlden.com. Lynn, we always love having you. I think we've got to get you a jacket. I think you've been on five times now.

• 50:34Speaker 08

  Somewhere around that, four or five, I think.

• 50:35Scott Galloway?

  There you go. Thanks again. Thank you, Lynn.

• 50:37Speaker 08

  Thank you.

• 50:48Ed Elson?

  Algebra of Wealth. Scott, Lynn mentioned that we could be in for a period of outperformance among international stocks. I'm wondering what you think of that and how you think about geographic risk in your portfolio.

• 51:03Scott Galloway?

  Yeah, it just makes sense. My sense is almost every market is cyclical and everyone gets their time in the sun. And the time to get really worried is when everyone sort of decides we're in a new economic era and that, oh, it's just the US forever and that the US has moved to a new economic model of innovation and will always outperform. I remember in 99, reading the Wall Street Journal that perhaps the internet had ushered in a new era of a different type of company and valuation metric and we shouldn't be thinking about how overvalued these companies are. That's when you really should run scared. I believe in diversification, not only across companies and sectors, but across markets.

• 51:42Scott Galloway?

  So I have, I don't know, I would say about 20%, maybe, and that's not a lot, but it is some, I guess, maybe it's 20, 25% of my net worth tied up in, maybe it's close to a third, in non-US companies. I have a, my biggest investment actually is in a hedge fund that a friend of mine runs named Orlando Machand. It's a fund called Tyrion that invests in kind of unloved stocks, mostly in Latin America. Yeah, so I diversify across regions and there's no doubt LatAm and China are going to come back, it's just we don't know when.

• 52:21Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

• 53:18Speaker 10

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