Prof G Markets: Mutiny in Russia, Adobe’s AI Rally, and the Threat of a UPS Strike

This week on Prof G Markets, we open with how the mutiny in Russia might impact the global markets. Scott then shares his thoughts on why the U. S. housing supply is so constrained, and what to do about it. He also discusses the package delivery market and what might happen if one of its largest players goes on strike. And finally, he takes a look at the run-up in Adobe’s stock after announcing its AI product, Firefly. Scott also discusses what the tragedy of the OceanGate submersible means for another extreme tourism company, Virgin Galactic, which is set to launch its first revenue-generating flight this week. 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.

• 0:01Scott Galloway?

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• 0:48Speaker 01

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• 1:18Scott Galloway?

  This week's number, $2,600. That's the average resale price for a ticket to Lionel Messi's Inter Miami debut next month. This is gonna be tough for him, Ed. In Paris, you go to the bathroom and you're pissed. In Miami, what do you do in the bathroom? Cocaine.

• 1:46Scott Galloway?

  That was good. That's good Miami humor. Ed, welcome to Prof G Markets. Today, we're discussing the housing supply rebound, FedEx and UPS, and Adobe's AI hype. Here with the news is emerging Twitter star and influencer. Ed Ellison. Ed, what's going on?

• 2:06Ed Elson?

  Not much, Scott. I want to hear everything about Cannes. I've seen all the pictures. It looks incredible. What have the highlights been?

• 2:12Scott Galloway?

  I'm legitimately a B-list celebrity there. So I'm sort of like a Kathy Griffin, or I don't know, who's a B-list celebrity. Like, you know, the guy that was on that 80s show but got replaced after the second season. I don't even know if that's a real person. But I get stopped and people say the same thing. One, where's Cara? And two, what about the Hawks? I did a big thing on how I'm staying at this hotel called Hotel du Cap, which is lovely, Ed. And they used to have these guys come out and take the hood off a peregrine, I think it's called, a falcon, and it would kill a seagull. No more seagulls. And I feel gipped. For 2,800 euros a night, they have now these ceramic owls that the seagulls don't appear to be too scared of, as I saw one humping one of these things.

• 2:57Scott Galloway?

  In addition, I had a seagull, no joke, fly around. I was filming it, and then come on my table and take a croissant.

• 3:04Speaker 03

  Yes. Are you going to finish that croissant?

• 3:07Scott Galloway?

  So you almost had a professor leap out of his chair and try and strangle a seagull after stealing my 18 euro croissant.

• 3:17Speaker 03

  Croissant?

• 3:18Scott Galloway?

  But it's very, for all the stuff about Europe being socialist, it's more stratified here at Cannes than any place I've ever been to. And I'll use an example. So yesterday, I walked along trying to find food, but all the beaches are sponsored beaches. There's the Microsoft Beach, the WPP Beach. And I basically tried to find someone or someone somewhere that recognized me such that I could go into their beach club and eat food. And Spotify loves me. I've made friends with the folks at Spotify. This woman came up to me, recognized me and said, oh, Scott, Professor Scott, it's so great to be here. Do you want to go to the VIP area? And I'm like, wow, there's a VIP area? And I'm not someone who's spent a lot of time in the VIP area of clubs, Ed. I know that sounds hard to believe. So they put this silver band on me and I go to

• 4:00Scott Galloway?

  the VIP area. Very nice, on the beach, and it would appear to be nicer, younger people bringing me my drinks. And then I say, can I go to the bathroom? Like, well, the only bathroom here is upstairs in the V VIP room. And they get me another band. I go up there and I hang out. I hang out with the cast from SNL. I posted a picture. That was really fun. They're all super nice. And like, they're all like 17. They're so young.

• 4:23Ed Elson?

  Did they know who you are?

• 4:25Scott Galloway?

  Oh no, they could give a shit.

• 4:26Ed Elson?

  No way, right?

• 4:27Scott Galloway?

  No, absolutely no idea. But they assume I'm rich, so they're nice to me, thinking I might like that my wife might produce movies or something, so. And then, out of nowhere, these huge guys come along and set up another rope for the VVVIP, and then a woman who looked like she was about to literally give birth comes rolling in, and her and her posse, and it was Rihanna.

• 4:50Ed Elson?

  No way!

• 4:51Scott Galloway?

  Yeah, so I hung out with the SNL cast.

• 4:54Ed Elson?

  She knew who you are.

• 4:55Scott Galloway?

  Oh yeah, yeah, Rihanna absolutely is a huge fan. Let's break it down, what's going on with the news, Ed? Oh, first off, wait, first off, so you had about 8,000 likes, which validates you as a human, on Twitter, you said that Governor Newsom put on a masterclass in debating and communication, and the reason I do think this has a link to the markets is I believe the markets, because the majority of companies now go public, are not profitable, is about storytelling, and part of storytelling is engaging in an active conversation and sometimes debate. And you broke down how Governor Newsom was incredibly deft in terms of him pushing back on Sean Hannity of Fox News. So anyways, over to you, Ed.

• 5:36Ed Elson?

  Yeah, I mean, you look at this interview, and Governor Newsom is literally a human spreadsheet. I mean, he has all of the data in his head, and he just pulls it out seamlessly. And there are all these examples that we could go through. I mean, Hannity points to inflation, for example, which we've talked a lot about on this podcast, and he blames Biden for it, and he says it's a result of reckless, you know, liberal fiscal policy, that we're spending too much, and that's, you know, driving, driving prices up because there's too much cash in the system. And then Newsom makes the point that actually, this is a global issue.

• 6:08Speaker 04

  Let's talk about inflation, it's down 40% since last summer, 10 months in a row, 4.9%. He was just with the UK Prime Minister, it's 6.9%. Is that because of Biden's? I think Biden's economic and energy policies directly impacted the UK's inflation? No. Or the fact that France is 5.5%, or Germany's at 6.1%. On inflation, we're moving in the right direction.

• 6:30Ed Elson?

  And he makes the very simple point, using data, it's an informed response, that actually, if you're gonna look at inflation, you're gonna talk about macroeconomics, you have to look at our country in relation to other countries. Now, here are just some main takeaways, and I want to be clear, I'm not a Newsom supporter. I just think that when you look at what he says and the way he debates, it's inspiring. So the first takeaway is that, one, in a debate, you should always let your opponent make their full argument. And I feel like recently, people feel like in the Trump era, that there's no space to do that, because Trump will interrupt you, people interrupt you. But Newsom shows that if you let someone make their full argument, and you don't blindly

• 7:12Ed Elson?

  disagree or agree with them, you listen to the full analysis, you gather all the data, you synthesize it, you can actually use that to build your argument. And the best part is that you'll be rewarded for it. So if you look at the Fox News comments on the YouTube channel, literally, all of it is, wow, I never respected Governor Newsom until now. This guy, this guy has a point. This guy took Hannity to town. The second thing is, it's very powerful to own your mistakes. There are a lot of times when Hannity pointed out the issues that Newsom has had to deal with, for example, homelessness. And I think he set it up expecting Newsom to say, no, that's a lie, you're framing it wrong, I don't agree. Instead, Newsom just says-

• 7:55Scott Galloway?

  It's a disgrace, the homeless issue, I agree.

• 7:56Ed Elson?

  In 2008- He says, I own this. And it's so rhetorically powerful, because it builds credibility and trust in Newsom, that he's actually looking at the facts. And then it brings up this point, which is, you should think of every mistake that you make as an opportunity to own up to it. And the final point I'll end with is, it is the number one job that Newsom exemplified of any leader, whether you're in business, whether you're in politics, whatever field you're in, you have to know your shit. You have to know all of the facts and all the nuances of the facts to be a decent fiduciary to constituents, to your shareholders, to whoever it is that you're representing.

• 8:41Scott Galloway?

  So how did Governor Newsom respond to the notion that he's an insurrectionist and has assaulted 29 women? Oh, wait, that's Trump. That's Trump. Never mind. Anyways, Ed, speaking of knowing your shit, talk to us about the headlines.

• 8:52Ed Elson?

  Let's start with our weekly review of MarketVitals.

• 9:01Ed Elson?

  The S and P 500 was down, the dollar slipped, Treasury yields gained, and Bitcoin rallied. Shifting to the headlines, UK rents rose 5% last month, the highest increase in seven years. Virgin Galactic will send three members of the Italian air force on a space mission this week. That's the company's first revenue generating space tourism flight, and the stock popped 50% on the announcement. OpenAI is considering launching an app store that would allow people to buy and sell customized AI models. Tesla stock sank 6%, its worst drop in two months after a Barclays analyst said the stock is overvalued. Tesla has rallied around 140% year to date.

• 9:45Ed Elson?

  And finally, SoftBank founder and CEO Masayoshi Son gave his first major investor presentation in more than nine months. He said he wants to lead the AI revolution and added that the firm is, quote, "ready to shift to offense mode." Over the past few years, SoftBank's Vision Fund has hemorrhaged billions of dollars in its venture investments. Scott, do you have any thoughts?

• 10:08Scott Galloway?

  So the UK is really, I mean, as you pointed out, Governor Newsom said, with respect to inflation, who's doing it better? I mean, we keep talking about this, but they somehow figured out a way to decrease productivity while increasing their costs with Brexit. So it's stagflation, whatever you want to call it, it's the worst of all worlds. I think Virgin Galactic is really interesting, and it popped when they announced they were about to commence their commercial flights. So one of the biggest stories that's sort of gripping the world is this submersible, you know, this is, and I don't mean in any way to make light of this, this is a tragedy. I think that this is the end of Virgin Galactic. Because what I think it will point out is that just because you're wealthy, doesn't

• 10:53Scott Galloway?

  mean you should make these types of irrational decisions that can result in tragedy. And I think that people are gonna, as soon as they stop their fixation on what's happening here, they're gonna turn their gaze to Virgin Galactic because the reality is people probably shouldn't, unless they're highly trained and willing to take these risks, this type of exploration at this level of danger is not a consumer item. I don't think it's a consumer experience, and I don't think it should be. Tesla, I mean, it's added in the last 30 days, it's added the value of GM, Ford, Volkswagen, and throw in Honda and BMW. And I'm trying to rationalize it because it has nothing to do with the

• 11:35Scott Galloway?

  car. It has nothing to do with the fundamentals. It trades at 50 times EBITDA versus 5 for all the other automobile companies. I reverse engineer to Satya Nadella's investment in OpenAI, which I think will go down as the greatest corporate VC investment of all time. And AI has unlocked this new hope that the markets, the tech markets, might go on a tear again. And people are looking for kind of AI-ish, tech-ish, unicorn-ish, exciting companies where, that have sort of detached from all fundamentals of reality to get on a rocket ship, if you will. And everybody's favorite kind of irrational investment that is an amazing company with amazing products, that has kind of an AI-ish feel to it through autonomous driving, is Tesla. And I think there was a lot of capital on the sidelines

• 12:20Scott Galloway?

  thinking that maybe we'll take a wait-and-see attitude in the equity markets. And now they're thinking, I don't want to miss out on this, this recent AI unlock or boom, because its multiple, yet again, makes absolutely no sense. SoftBank founder and CEO Masayoshi Son, I don't know, he's slept off the hangover and is back. This guy, he is the luckiest investor in history. He invested, I think, $20 million in Alibaba and got a $50 billion back. And so people assumed, oh, he's not lucky, he's a genius. No, he's just really fucking lucky. I think it is literally taking money into the street and burning it. I think he has the same meth dealer as Kathy Wood. I think these individuals make no sense

• 13:03Scott Galloway?

  whatsoever when you hear them talk about their stocks. And then OpenAI launching an app store, I think it's a great idea. I hadn't thought of it. I don't understand what their advantage would be over. The dominant monopoly in apps, and that is Apple.

• 13:17Ed Elson?

  Well, I think it would be, it's a platform for AI models that aggregates all of those products in one place. And I think that there's already a platform that's doing a similar thing called Hugging Face. But yeah, I think it's a great idea. I mean, there are so many different AI products out there. I would love to go to a sort of clean UI where I just check out the latest new AI products. I mean, we're constantly talking about like, oh, we should, we should be on top of AI. We should know what the new products are. Well, this would solve our problem, right? Just a dashboard. It's like, here are the top 10 AI model applications that have been downloaded today. You should check them out. We'll be right back after the break with a look at how the attempted mutiny in Russia

• 14:01Ed Elson?

  may impact global markets.

• 14:09Scott Galloway?

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• 14:54Scott Galloway?

  new tabs, no switching apps, no losing your place. This is AI that works with you, not on top of you, so that you have the time and brain space to solve the problems that matter. Check it out. Find out more at superhuman.com.

• 15:12Scott Galloway?

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• 16:26Ed Elson?

  We're back with Prof G Markets. Now, just a note before we get going. This story broke after we wrapped our last recording, so we're recording in different locations, and that's why we sound different. Onto the story. So, over the weekend, an attempted mutiny occurred in Russia. Things kicked off on Friday when Yevgeny Prigozhin, the leader of a private Russian military company known as Wagner Group, released a video criticizing Russia's war efforts. The next day, the Wagner Army was on its way to Moscow, and Putin mobilized his own troops to defend against this armed rebellion. And then, in a surprise turn of events, Mr. Prigozhin announced he was turning back around after agreeing to relocate to Belarus. Now, the question is, how does this affect the markets?

• 17:11Ed Elson?

  The short answer is, we don't know. We're recording this before market open on Monday, but we still want to discuss what to expect in the weeks ahead. So, Scott, let's just break this down from a markets perspective. What should we be paying attention to as this news unfolds?

• 17:27Scott Galloway?

  So, first off, this is just... I don't think I can, in my wildest dreams contemplate an analyst predicting this, that a mercenary army, which by the way reflects weakness on the part of the Russian military that it needs a mercenary army to begin with, turns around and starts marching back and is threatening to wreak violence and deliver chaos to its native country that it's supposed to be fighting for. I find that the most interesting thing of all of this was that they went into Rostov-on-Don and they faced no resistance. And that struck

• 18:08Scott Galloway?

  me as just really telling about how weak Putin is right now. In terms of the markets, the stuff that seems sort of obvious, and that's not to say that it'll happen, but the stuff that we'll start to see a lot of conjecture around is that you'll see food and grain and oil prices probably go up. If the supply chain out of Russia gets disrupted or there's volatility there, you can see crude oil futures accelerate. You can see food and grain markets more unstable. You'll see, the ruble has already started to decline. The question, or the more interesting question, is what are the second order effects? And this is total conjecture, but I would bet, I would bet, the big losers here on a macro

• 18:50Scott Galloway?

  basis are, it looks like China bet on the wrong dance partner. And that is, China has been importing a lot of food and a lot of oil from Russia. And in addition, I just can't, and we hate, or I should say, Americans' favorite pastime is to love to hate ourselves. The US has comes out of this, and the West has come out of this, huge winners. We have shown that our resolve, our resources, our superior weapons, all backing the heroic Ukrainian military. This is feels like masterful and I would just personally like to say to all of these libertarians and Republicans who are mimicking Donald Trump and pretending that they love Putin that you

• 19:35Scott Galloway?

  know that, okay, guys, go fuck yourself. This could not have played out any better for America and is a total testament to the unity of the West and what the West has done and pulled together here. Europe is a union for the first time. So I think you could see American markets and European markets actually pick up here because it feels as if our enemy, Russia, has been seriously emasculated and that our adversary, China, bet on the wrong cowboy. So, you know, the third order effect would be that somehow this erupts into a larger crisis that royals the larger markets. But this is, this really is a historic moment.

• 20:16Ed Elson?

  So some analysts are saying that this would actually trigger a sell-off in the US stock market and the thesis there is that there's going to be this renewed flight to safety. People are going to be going to, you know, safe haven assets. I agree with you that I think this only spells a good thing for the US stock market because my question is sort of like, well, what's safer? Like, what is the ultimate safe haven asset here? Is it, is it treasuries? Is it gold?

• 20:42Scott Galloway?

  Or is it Google?

• 20:43Ed Elson?

  Right, exactly. Or, I mean, some would say, oh, it's Bitcoin. Like, I, I mean, what could be better than getting into Nvidia right now? Or as you say, Google? I mean, what do you consider to be your ultimate safe haven?

• 20:56Scott Galloway?

  Well, I think the academic answer would be US treasuries because given that we're two thirds of the world's reserve currency and we can just print more money, it's unlikely, despite all the posturing by the crazies in Congress who occasionally threaten to not pay our debts, it's unlikely our debt treasuries would ever be in default for very long. And as personal matter...

• 21:20Scott Galloway?

  My kind of safe haven, if you will, is unlevered real estate. And that is, it's tough for me to hold cash because the reason why cash might be a safe haven or treasuries are a safe haven, but the fear is that you get deflated or inflated, if you will, out of existence. You're, you get negative real interest rates. They pay you, you know, right now they're paying 5%, but usually they pay 2% and inflation is 2.8. And so slowly but surely, your purchasing power just goes away and you go broke, sticking in cash or T-bills. But my go-to, if you will, around what I consider, you know, a flight to safety for me or a safe haven asset, it would be unlevered residential rental real estate because typically

• 22:04Scott Galloway?

  with population and productivity growth, you have GDP growth and that all spells an increase in housing prices. And if you can hold on to residential real estate for longer, say than 10 years, and what that means is you don't lever up so you don't get caught short, if you will. Generally speaking, personally, if I want to sort of de-lever, I put money into real estate.

• 22:28Ed Elson?

  And so do you take this news seriously in terms of how much you're exposing yourself to risk in the markets? Like, is this the kind of event that would trigger your interest into moving into safe assets such as residential real estate? Or is this sort of just interesting news to you?

• 22:47Scott Galloway?

  In terms of the markets, I'm not selling. I think Russia has always punched above its weight class from a propaganda standpoint. And that is, I believe what John McCain said, this is essentially a gas station posing as an economy. And the only reason we take it seriously is because they are very aggressive, they are very good with propaganda, and they have 10,000 nuclear warheads. It's a tiny economy that's not growing. It's a series of different people who grift off of the population and organize around grift. It's not, in my opinion, a society or even really an economy. It's a group of people who steal from their populace and essentially molest the nation for its resources.

• 23:28Scott Galloway?

  And then there's, they fall, and then a new group of grifters comes in and fills the vacuum. But I don't see it as a player on the global stage, other than what is always perceived as the nuclear threat here.

• 23:40Ed Elson?

  Yeah, so you look at what's happened to the Russian economy since Putin invaded. First off, the ruble fell. Around almost it dropped almost half in value, it fell around forty percent. And then it rebounded, but then there have been other implications. For example, uh, Europe is no longer Russia's top client in terms of oil exports. Um, EU imports of Russian oil are down ninety percent this year. And then you look at outflows of Russian money from the, the Russia's domestic financial system into foreign banks. And those outflows are five times higher than they were before the war. Now it feels like things could get even worse.

• 24:19Ed Elson?

  The Russian stock index is down, but say there were a situation that resulted in a change of leadership, which it feels like. That's not totally out of the question now. It's like Putin's power is as fragile as it's, as it's ever been before. What do you think the macroeconomic implications of such a change in leadership would be? How would that affect us and, and the world as a whole?

• 24:45Scott Galloway?

  Uh, I think it would make for great news, but I don't think it would have that much, as much of an impact as the headlines would catastrophize. Because it's happened several times. I mean, whether it's, you know, Yeltsin, then Gorbachev, then Putin. I mean, it's just, uh, Russia falling, so to speak, or breaking apart or reasserting its strength is just something that is not that historic, if you will. Um, you know, the, the interesting thing here is that China is probably loser because of the immense bear hug here. A winner, uh, through all this has been India, because India's been able to take advantage of the blockade or, uh, the restrictions on importing oil into what was, used to be their largest customer, and that is Europe.

• 25:30Scott Galloway?

  And it's getting cheap oil and cheap agriculture. And they've managed to stay somewhat neutral. And Biden, you know, Biden, it was no accident that Biden invited Modi over and went to his yoga classes and talked about how close they want to be. Because here's the bottom line, the world was shaping up as China and Russia versus, uh, Europe and the US. And the swing votes, the swing votes, and like any election, it's the swing votes, the moderates who decide the election. The swing votes that will likely decide the future of the global economy are India and the Kingdom of Saudi Arabia because they've managed to stay somewhat neutral. Their idea is we're going to play you off each other and we're going to continue to do business.

• 26:13Scott Galloway?

  China is probably regretting going all in on Russia and alienating us. Russia, staggering capital L loser here. And the biggest winner of all, hands down, is the US.

• 26:26Ed Elson?

  Okay, thanks Scott. We're going to switch gears now and discuss the US housing market. New home construction, a key indicator of economic sentiment, has been in a year-long slump. Back in 2021, almost 2 million homes were constructed each month. This year, though, that number's been closer to 1.4 million and economists have expected it to continue to decline. But last month, something strange happened. Data showed 291,000 new homes were constructed in May, a 22% increase from April. That's the largest percentage increase since 2016 and the largest absolute increase in more than three decades.

• 27:11Ed Elson?

  Meanwhile, home builder sentiment has advanced to an 11-month high. So Scott, the housing market is still hot. There's low inventory and home prices are still hovering near all-time highs. But this seems like a positive, forward-looking indicator for the market, right?

• 27:28Scott Galloway?

  Yeah, it's striking. I spoke to a Goldman analyst today. It's striking how resilient the home builders have been. And what you have is housing prices really haven't budge much. Everyone's been calling for an apocalypse in home prices, thinking once their mortgage had to reset, that you would see a crash in home prices and home values. And it just hasn't happened. It appears that the marginal buyer still wants in, even at a 6% or 7% rate. They have been purposefully or accidentally constraining supply, so there just isn't a lot of supply there. But the reality is, from an incumbent's standpoint, you know, it's been good to own housing stocks and good to be a housing company.

• 28:06Ed Elson?

  Yeah, I mean, it's interesting how home construction is just completely reverse engineered to prices. Because, you know, you look at housing prices, they're still extremely high. It's around $390,000 for a median existing home. And that, and the reason for that is, it's just a supply and demand problem where there are not enough homes. You know, existing home sales are down almost 25% from a year ago. And it all begins with, we're not building enough homes in America. So I guess my question to you is, why do you think that is? Why aren't people building homes?

• 28:39Scott Galloway?

  Our nation has decided to pursue an LVMH-like strategy and employ scarcity. And the same is true in housing. We have so much zoning and permit constraints that it is very difficult. And I know this as someone who has tried to develop property, even in what is considered landlord or builder-friendly Florida, it's near impossible to build new housing because the incumbents have a vested interest in ensuring that new houses don't get built. So what does that mean? It means that when I graduated from business school in 92, in 1994, I bought a home in San Francisco for $285,000, which was, I was making 100 grand a year, or my offer out of school was 100 grand.

• 29:18Scott Galloway?

  So I could buy a house in San Francisco for 2.85 times my MBA salary. I would bet an MBA salary now at the School of Business is 150,000. I would bet the average house is 2 million. So it's gone from, and I'm guessing, it's gone from 2.8 to 12X. And that's just not sustainable. That means that people don't put down roots, they don't start saving money, they don't start families. So this is a real problem. I'd like to see some sort of statewide or federal legislation that says, you can't hold up housing. And I don't know, I don't know how you do that. Florida tried to pass a law that made it more difficult to get in the way of new housing permits. And the local housing boards just stuck up the middle finger and said, sue us.

• 30:03Scott Galloway?

  And they continue to do it. But it's a nimbus LVMH-like bullshit rejectionist culture that is taking up housing prices.

• 30:09Ed Elson?

  How do we even begin to fix this problem?

• 30:12Scott Galloway?

  There was something pretty innovative in Florida, actually. And that is a developer, a builder, actually incorporated a city. And said, okay, we are now the leadership or the council or the local government for what is now a city. Solely such that people couldn't get in the way.

• 30:29Ed Elson?

  Yep.

• 30:30Scott Galloway?

  And they're going to build tens of thousands of units. So, you know, the market, you like to think the invisible hand here will come in, but I do think there needs to be regulation that says, look, if you can't prove that the city is hugely impacted, that it's going to have some sort of crazy, you got to err on the side of creating affordable housing. It just that we should have laws that create a bias towards new building, not against it. And I don't know the best execution of that, but it is becoming an existential threat for young people. The majority of older people build wealth through housing. You know, this is their retirement. It was my mom's retirement. It's forced savings. It's pride of ownership. I think it's good for your mental health to have a home.

• 31:13Scott Galloway?

  A lot of economists would argue that over time, when you look at maintenance and insurance, it's not a good economic deal. I think that's bullshit. I think it's a lot of psychic return from owning a home. And the fact that we have again, yet again, taken another asset class, and I think it's the largest asset class in America, I think it's bigger, I don't know if it's bigger than stocks, it's either one or two, residential real estate, and sequestered it to the incumbents or the children of rich people. It just, again, this is not America. It's not an America we want or that we recognize. And homeownership among young adults aged 25 to 34 was at 41.6% in 2021, down from 45% in 1990. 12 and a half percent of this group lived with their parents in 1990. In 2021, it's now 20% of them.

• 31:57Scott Galloway?

  So, you know, be careful, parents, about showing up to your housing board. It means that your, your son's going to be living with you until he's 40.

• 32:05Ed Elson?

  No, exactly. And then finally, we should probably tie this back to interest rates. Could you explain what the dynamic is between interest rates in general and the housing market? Specifically, how do interest rates affect?

• 32:20Ed Elson?

  The housing market.

• 32:21Scott Galloway?

  It's pretty basic. If your housing, if your mortgage goes from 3% to 6%, your monthly mortgage rate is going to go up by 50%. And that's going to crowd out spending and other things. And it's also the first time buyer that did the math and looked at, went to a bank and said, we have this much down payment and we have this much income and we can support this kind of much monthly mortgage payment. The bank might say to them, okay, you can afford a $600,000 house. That was two years ago. That same couple can afford a house that's $400,000 now. So you would think that would pull down the prices of houses. But what's happened is there's been this artificial constraint on supply. Because people have such great mortgages, they're afraid to move. So they're not putting on their house on the market. I mean, something that's interesting and the markets are creative here

• 33:06Scott Galloway?

  is that investors and real estate agents are now treating mortgage rates as assets. And that is Redfin has noticed a sharp increase in listings that are essentially selling mortgage rates from several years ago by transferring them to new buyers. And so essentially, people are trying to monetize the low interest rates they have on their houses while entering into an agreement to sell their house. Also, it just appears people have built up a lot of equity in their house and don't feel, there's no forced selling. So there's very little price discovery. You also have buyers who feel like they should be getting a deal. And you have sellers who aren't willing to offer a deal. And they don't feel an urgency or a sense of urgency to move because they have some money saved up, they have some equity in their house. And even with the increase in interest rates, it really hasn't. It's been shocking.

• 33:51Scott Galloway?

  The resilience of the housing market could best be described as shocking.

• 33:56Ed Elson?

  Well, hopefully, this new data will be the beginning of the reversal of that trend. We'll keep tabs on it.

• 34:10Ed Elson?

  A potential strike is brewing at UPS and a significant piece of the US supply chain is at stake. UPS workers are pushing for improved safety measures, higher wages and more manageable shifts. The Teamsters Union, which represents 340,000 of them, voted to authorize the strike if it can't reach an agreement before the end of July. Should UPS workers walk out, it will be the largest single employer strike in US history. And a quarter of the delivery market will be on hold or diverted to UPS's competitors. This strike also comes at a challenging time for the entire sector. Both UPS and FedEx recently reported revenue decreases of 6% and 10% respectively,

• 34:51Ed Elson?

  and both cited macroeconomic issues and weakening consumer demand. But it appears FedEx has done a better job weathering those conditions and could be poised to benefit from this strike. FedEx stock is up nearly 30% year to date, while UPS stock is down around 1%. Scott, what's your initial reaction to this news?

• 35:12Scott Galloway?

  So the market share of parcel volume for the four biggest players is the United States Postal Service has about a third of the market, 32%, UPS 24, Amazon 23, FedEx at 19%. So there's a number of players here, which you would think, okay, do the workers have power? And if they can, unlike the writer's strike where it's a gift to the studios who all need to recalibrate down their costs because they're in a shitty business right now, mostly chasing Netflix, it strikes me that there's incentive on both ends here to figure this out. Because my Netflix queue is several hundred hours deep, meaning that Netflix is in no danger. The 12 bucks I give to Netflix a month is not a risk.

• 35:57Scott Galloway?

  If UPS can no longer, you know, pick up and ship stuff for me, you know, that tap gets turned off, I'm not going to continue to pay them. It's not like, it's not like they can bank shipping capacity.

• 36:08Ed Elson?

  Well, the thing that struck me is just how essential UPS is to the economy. I mean, some stats, UPS carries one in four packages in America, handles 24 million packages a day, and the company says it transports 6% of US GDP on its trucks every day. This to me, from a pure weight of the economic effect perspective, this to me is the story. So, I mean, my question to you, am I missing something? Or would this strike, if it goes through, not? Basically cripple our economy.

• 36:44Scott Galloway?

  I think there are substitutes. So the last mile, it used to be when I started Red Envelope, fulfillment and delivery was simple. It was just try and get it there, not too fucked up and damaged and dented and screwed up. Try and get it there within seven days for the lowest price possible. And to get a $10 box or can of chocolate covered almonds overnight somewhere would cost you 50 bucks in shipping. And then Amazon came in and basically said, shipping is a feature, not a bug. And if we offer everyone 48 hours free delivery, we're going to turn operations from a cost center to a point of differentiation. And, you know, not overnight, but in the course of, you know,

• 37:28Scott Galloway?

  less than probably a decade or a decade and a half is now just one percentage point behind UPS and has a greater share of last mile shipping than FedEx. So there are more options now. And that is, I'm not sure UPS can shut down the economy, but at the same time, this strike could probably put UPS not out of business, but really, really make it an ugly year for them. So it strikes, it strikes me, no pun intended, that both sides want to figure this out because I don't know how transferable these jobs are. I don't know, will the other guys try and take advantage of this and grab share?

• 38:03Ed Elson?

  And just to tie this back to FedEx, I mean, the stock performance of these two companies, UPS is a massive company. It's like almost $150 billion market cap, but the stock performance so far this year has been drastically different. So FedEx is up 34%. That's compared to the S and P 500, which is up 14%. And UPS has declined 1%. How, how do we account for those differences? What's, what's happening there?

• 38:30Scott Galloway?

  The market likes FedEx's moves in response to the macroeconomic slowdown. The Memphis Giant, the Memphis Giant, I like the way I incorporated that. I made that up. It's combining its express and ground delivery networks into a single business to cut costs. And they've also, they've also deployed cost-saving measures that include fewer flight hours, higher rates for shipping to offset the post-pandemic decline in shipping volume. And over the last 10 years, FedEx has raised its dividend by an average of 26 per year compared to UPS's 10% a year. Meanwhile, UPS appears to be stuck dealing with labor negotiations. So FedEx and other carriers have encouraged shippers to switch from UPS for months and order to avoid delays. They're using scare tactics. What if they go on strike? So they're taking advantage of that.

• 39:12Scott Galloway?

  And FedEx appears to be more innovative, or at least that's the reputation they have right now. It's published 29 patents since 2019 compared to UPS's 12. And some FedEx just feels more, I hate to use this word, more Tesla-like right now, more innovative, more resilient, and the market is responding.

• 39:30Ed Elson?

  We'll be right back after the break with a look at Adobe's AI rally.

• 39:42Scott Galloway?

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• 40:27Scott Galloway?

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• 40:50Speaker 05

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• 41:24Ed Elson?

  We're back with Prof G Markets. AI is the facelift many tech stocks have been waiting for. Since the beginning of the year, the Nasdaq Tech Index has risen 35%. But there's one tech stock in particular that's especially benefiting from the hype cycle, and that's Adobe. Year-to-date, Adobe is up more than 40%, and in the past three months alone, the company has added $48 billion in shareholder value. Now, strong financials are part of it. Two weeks ago, Adobe reported better-than-expected earnings that lifted the stock 3% on the announcement. But what investors are really interested in is Adobe's implementation of AI. So in March, the company announced several AI initiatives, most notably an image and

• 42:08Ed Elson?

  ad video generation tool called Firefly. Within a month, Adobe struck a deal with Google to incorporate Firefly into Google's own AI chatbot called Bard. And per Goldman Sachs Equity Research, this "shifted the narrative squarely on AI and highlighted Adobe's potential to be a key beneficiary." So Scott, last time we discussed Adobe, it had announced a $20 billion acquisition of the design app Figma. Investors took that as a sign that the company was struggling to innovate, though, and the stock fell. But now, the narrative has completely reversed with this AI wave.

• 42:44Scott Galloway?

  This is a case study in how to leverage AI as opposed to getting blindsided by it. And if you look at a lot of the education stocks that have said that AI might hurt us, they've gotten taken down 50, 60%, Adobe could have easily been roadkill here. A generative AI or a design AI could have come out, and if Adobe had said, "We're investing here, but it'll probably said it's impacting our business," Adobe could have got cut in half. It could have been half, but instead, they really leaned into this early, and you have to give them credit, they were out in front of this. And Firefly was not only out in front, investing in generative AI design. What I think was really innovative or visionary is that they saw that IP and who gets paid and

• 43:28Scott Galloway?

  Whatever design informs these generative AI models technically would create problems as in who owns the content that's submitted or that these design AI models learn from. And they got out in front of that and only had design that they either own the intellectual property, they own the rights to it, or they have licensed it. So when you use Firefly, you know that you're clean. You know you're not going to be caught up in some lawsuit. And the result is the stock has gone up dramatically. And Adobe's stock increase here, stock price increase, next to Microsoft, Adobe's investment in AI is probably the most innovative or most forward leaning corporate investment of 2023.

• 44:12Ed Elson?

  Yeah, I mean, you look at its valuation, its E V EBITDA ratio is 31 X. You compare that to competitors, Oracle's 22, Microsoft's 25, Google 17. If you look at that E V to ARR ratio, that's annualized recurring revenue, which makes sense because this is a SaaS business. It's 10.7 X and the median across all US SaaS firms is 7.7. But I do want to pivot to Figma. The European Union is preparing to launch an investigation into that acquisition. And this is called, apparently it's what's called a phase two investigation, which supposedly will take many more months. It's a far more onerous investigation. Meanwhile, the Department

• 44:54Ed Elson?

  of Justice is preparing a lawsuit to block that deal. Do you think that deal will go through? And do you think it will impact Adobe as a company and the stock?

• 45:03Scott Galloway?

  I don't think it's going to go through, and I don't think it matters. I think they're on to something bigger and better. I don't know what the breakup fee is here, but I think it's sort of like Figma schmigma. We figured something cooler out. And of course, my ultimate market validation is my 12 year old son is using Firefly. So I assume this thing's everywhere. I think this is, I think they're gonna double down on this. I think they mentioned, Adobe mentioned AI thirty times in their most recent earnings call. And the revenue increased ten percent year on year, EPS increased seventeen percent, while operating margin declined only one percent. Adobe is arguably the best run company you don't hear much about. I'm blown away by Adobe. I'm totally blown away by Adobe. I partied the V V V I P

• 45:48Scott Galloway?

  room with Adobe the other day.

• 45:49Ed Elson?

  They throw good.

• 45:50Scott Galloway?

  I think they're incredible. So, real quickly, let's talk about other companies.

• 45:53Ed Elson?

  Yeah.

• 45:53Scott Galloway?

  That have really, their stocks have really benefited, or companies from AI. I would say Adobe's right up there. Obviously, Microsoft, visionary investment in OpenAI. People don't talk about it, and I hate to admit it, but Meta's stock rocket screamer, or stock rocket acceleration, is kind of on the backs of reels. People are spending twenty-four percent more time over the last year on Instagram because of the success of reels, and a lot of reels is powered by AI. I mean, the stuff you get served up and suggested is really powerful. Oh, and then, of course, Nvidia. Nvidia designed and built these graphic process units for video games, and it ends up that that same technology is just the gangster technology for AI, and has breached, I think it's the seventh company in history to breach a trillion dollars.

• 46:37Scott Galloway?

  By the way, Ed, and I know you, you take a special interest in this, I spoke at WPP Beach, and the person who spoke after me was this guy, Jensen Huang.

• 46:45Ed Elson?

  Oh, nice.

• 46:46Scott Galloway?

  He came up to me and said, I love your videos.

• 46:49Ed Elson?

  No way.

• 46:50Scott Galloway?

  And I said, oh, it's a fan. I said, do you want to take a picture? And he kind of stopped and said, sure. And someone came up to me and was like, you know, that's the CEO of Nvidia.

• 46:58Ed Elson?

  Most visionary CEO in the world.

• 47:00Scott Galloway?

  And then the guy who spoke after him was the co-CEO of Netflix, Greg Peters. I think Greg Peters and Ted Sarandos are the strongest co-CEOs in the world. A, there's not that many co-CEOs.

• 47:09Ed Elson?

  Yeah.

• 47:10Scott Galloway?

  But him and, or the two of them, and Reed Hastings are all in their fifties. They all have amazing hair, and the likelihood of being a guy in your fifties with amazing hair is like one in a hundred. So that means it's literally a one in a million chance you would have three leaders with great hair, and I think that they are folliculists. I think they are bigoted against people without hair, and I think that is totally inappropriate. Anyways, that's my, that's my hair joke. But I spoke before the CEOs of Nvidia and the co-CEO of Netflix. So that means I'm important and relevant, Ed.

• 47:46Ed Elson?

  That's right. That is right.

• 47:50Ed Elson?

  Let's take a look at the week ahead. We've got earnings from Nike, Walgreens, General Mills and Constellation Brands. And we'll see the personal consumption expenditures index for May, as well as data on new and pending home sales. Do you have any predictions for us?

• 48:05Scott Galloway?

  Well, it's the one I made during the show. Virgin Galactic actually had a bit of a dead cat bounce. It was up, I think, 20 or 25% last week on the announcement of their first commercial flight. And I think this entire category just makes no sense. In addition to it being just a shitty business that is both supply and demand constrained, I think the entire market is going to rethink and realize that space tourism is not a thing. Although I do hope that Elon Musk is the first person on Mars, space tourism never should have been a thing. And I think we're going to rethink who should be allowed to go on these incredibly dangerous missions, if you will. But look for Virgin Galactic to be sub a dollar, I think, in the next 12 months. Highly strained.

• 48:48Scott Galloway?

  Business makes no sense. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavros and Catherine Dillon. Miel Severio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday.

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