The S&P 500 Enters Correction Territory

Scott and Ed open the show by discussing Southwest Airlines' decision to start charging for checked bags, Eric Schmidt’s appointment as CEO of Relativity Space, and the latest developments in Saudi Arabia’s Neom project. They then analyze the ongoing tariff battle, exploring its biggest potential consequences and why Scott believes China could ultimately come out ahead. Finally, they break down the $5 trillion market sell-off, and Ed highlights the key winners and losers from the plunge. Subscribe to the Prof G Markets newsletter Join us for a live recording at SXSW Order "The Algebra of Wealth," out now 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.

• 0:00Speaker 00

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• 0:28Speaker 01

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• 0:37Speaker 02

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• 0:58Speaker 03

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• 1:13Scott Galloway?

  Today's number five inches. That's the length of a live turtle that a Pennsylvania man attempted to smuggle through airport security in his pants last week. True story, Ed. I was blessed with a seven inch dick, but now the priest is in jail.

• 1:37Scott Galloway?

  Ed, how are you? Ed, how are you? I'm just putting it together in my head. We have all these young interns. They're literally just note to self, exhibit 22B. If I don't keep giving them increase, they're literally every day balancing the money they'll get from the lawsuit that I'll settle out of court. Only upside for us. Oh, we have a new intern. Wait, who's the new one? That's probably Bella you're talking about, who just came on full time, no longer an intern. Oh, Bella. Hey Bella. Welcome to Prop G Markets. That's right. She came to, let's talk about me. I was at Stern yesterday and I spoke to, I spoke to 500 students and Bella came and yeah, it was, I was super nice to everyone and then she told me she works for us. I'm like, I pay you, I don't need to be nice to you. That's right. Anyways, welcome Bella.

• 2:22Ed Elson?

  Very good.

• 2:23Scott Galloway?

  Welcome Bella. Let's talk about Priest. What's going on with you, Ed?

• 2:27Ed Elson?

  I'm doing pretty well, Scott, back in New York. And I'm just kind of, I just feel very good about how that South by trip went. I thought that was a great show.

• 2:35Scott Galloway?

  Talk about that. That was awesome, wasn't it?

• 2:37Ed Elson?

  So much fun. I think the key detail is that we had 1,500 people outside of the doors. So that's what I've been telling everyone when I just come back and brag to people about how successful this show is. That's, that's my big takeaway, that we had to turn away two thirds of the audience. What was your takeaway?

• 2:54Scott Galloway?

  I'm now Pete Townsend. I'm the most talented member of the band, but fucking, what's his face, the lead singer? What's that guy's name?

• 3:02Ed Elson?

  I don't even know who Pete Townsend is.

• 3:03Scott Galloway?

  Jesus Christ.

• 3:04Ed Elson?

  Exactly. You're gonna have a panic attack hearing that.

• 3:07Scott Galloway?

  He was the lead guitarist of The Who. But the front man, Richard Daltrey, who starred in a great movie, Pinball Wizard, very handsome, better looking than the more talented Pete Townsend. This is where I'm going. Everyone's like, oh, oh, Roger Daltrey, not giving any love to the real talent, Peter Townsend. And that's what it feels like at South by Southwest. Everyone's like, oh, Prof G, what's that like?

• 3:31Ed Elson?

  That's not true at all. Yeah. What did you think of the, we went to this Vox Media Dinner. And I, it was very cool for me because I got to sit next to Andy Roddick. And I was a huge fan of him growing up.

• 3:41Scott Galloway?

  You're not a fan of Megan Rapinoe? I think there's a little sexism in here. There are a lot of amazing female athletes that you have not mentioned at that dinner.

• 3:48Ed Elson?

  There were. I wasn't that into women's soccer at the time.

• 3:52Scott Galloway?

  Jesus, Claire, can you believe this guy? Bella, I apologize.

• 3:55Speaker 06

  And he calls himself a football fan, too. No love for Megan.

• 3:59Scott Galloway?

  Arguably, one of the greatest football players in history. But you didn't bring her up.

• 4:03Ed Elson?

  I didn't. But Andy Roddick.

• 4:05Scott Galloway?

  You brought up the white dude that plays tennis.

• 4:09Ed Elson?

  Okay, you gotta give Andy Roddick his credit. Fastest serve in history. Yes.

• 4:13Scott Galloway?

  And you went to Princeton, right?

• 4:14Ed Elson?

  I did, yeah.

• 4:15Scott Galloway?

  Yeah, yeah. Six foot three, white male.

• 4:17Ed Elson?

  Figures.

• 4:17Scott Galloway?

  Privileged. The patriarchy. Oh, my God. Thank God I've got Claire.

• 4:22Ed Elson?

  I totally agree with that.

• 4:23Scott Galloway?

  But literally on that stage of us, with us was Megan Rapinoe, arguably one of the greatest, you know, football players in history. Her wife, Sue Bird, a retired WNBA player, who was also, I think, won the NCAA championship two or three times.

• 4:38Ed Elson?

  It doesn't sound as good when you're reading the Wikipedia page.

• 4:41Scott Galloway?

  Bitch, who sent you checks? Is that on my, is that on your Wikipedia page? Who pays you?

• 4:46Ed Elson?

  I don't have a Wikipedia page.

• 4:49Scott Galloway?

  Get to the headlines.

• 4:50Ed Elson?

  Okay, good. Let's start with our weekly review of market vitals.

• 5:00Ed Elson?

  The S and P 500 entered correction territory. The dollar snapped its losing streak. Bitcoin fell below $80,000 and the yield on 10 year treasuries dropped on Monday, but recovered through the week. Southwest Airlines will begin charging passengers for checked bags. Beginning in late May, passengers get a free checked bag only with top tier loyalty status, a business class ticket or the airline's credit card. Shares rose 8% on that announcement. Former Google CEO Eric Schmidt has acquired a controlling stake in rocket startup Relativity Space and he will now take over as its CEO. The company is known for its use of 3D printers for rocket production. And finally, Saudi Arabia has reportedly invested $50 billion in its NEOM project

• 5:44Ed Elson?

  so far, with the total projected cost reaching $8.8 trillion. That is more than 25 times the country's annual budget and the project's construction is expected to continue for another 55 years. Scott, we will start with this new policy from Southwest Airlines. This is very interesting because the whole free bag check thing has been central to Southwest and its brand for years. In fact, they actually trademarked this phrase, bags fly free. So this was their big differentiator and last year, the company even said that the free bag policy was the third biggest reason why customers choose Southwest Airlines. And now they're scrapping it. Now, why are they doing it? It's quite simple.

• 6:29Ed Elson?

  It's because of Elliott Management, the activist firm. You might remember last year Elliott bought a 10% stake in Southwest. They installed five directors to the board and this was one of their big arguments in that play. They said, we want to charge fees on the bags. So I'm very interested to get your view on this. This feels like almost a classic business school case study. Like there's a fork in the road. Do you charge extra? On this thing you know you can make money off of. Or do you forgo the additional revenue and maybe you get some more loyalty? And maybe some more interest from your customers in the long run. What do you think Scott?

• 7:04Scott Galloway?

  This industry is arguably one of the more seminal technologies in history. The ability to, my parents had to crawl across the Atlantic over seven to nine days getting seasick to get to America. Now you can get, you can realistically fly from London to New York in about seven hours. And if you book well ahead, you can do it for $400. I mean, it's just, this technology has been such an unbelievable unlock for economic growth. Ability for to see your family more regularly, mobility of capital to its greatest return. It's been just an enormous breakthrough. Airlines, if you net out all the profits and all their costs so far are break even. Like they just, it's been a shitty business.

• 7:47Scott Galloway?

  Differentiation is near impossible in this industry. What do they have? They're all flying the same tin cans. They're all flying one of two planes from different, one of two manufacturers, Airbus or Boeing. They're all flying into the same airport. It's very hard to differentiate on labor or service. And Southwest was able to find differentiation around a brand that meant freedom. Okay, you just got fired and you want to head to Vegas, you make a reservation, you need to change it, no change fees. We're not going to nickel and dime you with bags. It's freedom. It's the ability, it was total cost structure. They even, their planes are super fucking ugly. They're orange because they found early on that that was the paint that was most over ordered and they could get the lowest cost on.

• 8:29Scott Galloway?

  They had all seven thirty sevens for a long time to create scale around repair and maintenance. Everything was about low cost to give you economic freedom to take your human capital where and when you wanted. This is exactly what you just said, and that is somebody has done the analysis that says, okay, this cost of free bags is greater than the brand equity bump we're getting. In the short term, they will absolutely recognize a really substantial increase to the bottom line. But in an environment where it is so difficult to establish differentiation, I think they are trading off long-term margin for short-term stock gain. I remember one of my first clients, I started a strategy firm in my second year of business

• 9:14Scott Galloway?

  school, one of my first clients was Dryers. And this CMO, who was just incredibly smart, this guy named Tyler Johnston. And we were going into a recession, this was 1992. And I said, well, why don't you just take down marketing spend? They were a company that was always about to be acquired by a bigger food company, which ultimately they were for a lot of money. And he said, you can't take down, you always have to be disciplined about brand and marketing spend, otherwise all you're doing is juicing your bottom line and trading off long-term strength. And I think that's what, quite frankly, what they're probably doing here. I haven't seen the numbers, the people from Elliott are very smart, but in an environment that is almost near impossible to maintain, establish and maintain differentiation, this was a tangible point of differentiation.

• 9:59Scott Galloway?

  So I would call this short-term financial engineering at the cost of long-term differentiation of margin power.

• 10:06Ed Elson?

  I do want to bring up a similar story in Costco, because I think this is one of my favorite stories in business. So Costco is famous for their hot dogs, and specifically the fact that their hot dogs cost $1.50. And they have cost that amount since 1985. They are known for this. Now, of course, this doesn't really make that much sense economically. Inflation has risen almost 200% since then. So if they were selling it at the same price, what 150 was in 1985, they should be selling it for 450 today. Several years ago, the then CEO, this guy Craig Jelinek, he was looking at the situation, looking at the income statement, he said, okay, we need to raise the price of these

• 10:51Ed Elson?

  hot dogs. We're losing money on this. So he goes to the founder of Costco, Jim Senegal, and he says, hey, this isn't really working. I know the 150 thing, the hot dogs, it's cute, but I think we need to raise the price. And Jim responded with what I think is the most iconic line in the history of business. He said to him, quote, "If you raise the price of the fucking hot dog, I will kill you." And that was it. End of story. To this day, the Costco hot dog is $1.50. That happened back in 2009.

• 11:30Ed Elson?

  The stock was around $50 per share at that time. It's now at around $1,000 a share. I don't think it's because of the hot dog, but I do think there is something to be said for sacrificing potentially short-term profits in exchange for in the future goodwill, a better brand, stronger brand, customer loyalty, all of these things that ultimately, over the long term, result in greater profits and more shareholder value. So I think, I wonder if Elliot even cares about the long-term value of this company, because presumably they're just trying to make as much money as they can in as short a time as possible. And then they sell their position and move on to the next thing.

• 12:09Scott Galloway?

  And by the way, I love hot dogs. Last night I decided to share a hot dog with a homeless person and he said, fuck off, get your own hot dog. Anyways.

• 12:20Scott Galloway?

  Let me be serious for a second. So I started a company called Red Envelope. And we spent a dis- basically, I love benchmarking, which is consultant speak for ripping off other people's IP. And I was always fascinated with Tiffany, specifically how much IP and brand associations you manage to inject into this aquamarine blue box. And that elegance, sophistication, romance, Audrey Hepburn. And I said, I'm going to start a company that is the Tiffany of hip, urban, progressive, more erotic sensibilities. And we came up, we spent a lot of time and a lot of money on a beautiful red box with a gorgeous bow. And we had people in our fulfillment center

• 12:59Scott Galloway?

  tie the bow with hands. When a machine ties a bow, it looks like a drunk guy with big thumbs tied it. It just looks weird. And it was really expensive. And someone did the analysis and said that we actually have negative margin on some of our least expensive products. When you put it in this beautiful red box. And I said, you don't get it. That is key to our brand. And so this is simply, this is why managers are supposed to get paid really well. They have to trade off. The temptation to add everything to the bottom line while managing long-term investments that create sustainable margin and brand power. And the thing about luxury brands and the thing about great brand builders, the analogy I use is like working out. When you work out, it's time expensive, it's a pain and you're sore. And so is brand building. It's expensive.

• 13:43Scott Galloway?

  And the next day, it just fucking hurts. But if you're disciplined about spending and offering the services that buttress your brand associations, over time, you get stronger. You have an easier time getting supplier relationships. You have an easier time recruiting employees. You have an easier time raising prices. But in a company like Southwest, I would be very careful to remove any tangible point of differentiation. I mean, what, how on earth do these guys compete against each other? What is Southwest's value proposition or differentiation now? Like, what is it? Well, we're just Southwest. We're orange. I mean, what is it?

• 14:18Ed Elson?

  Yeah, exactly. Let's move on to Eric Schmidt, the former CEO of Google, who is now taking a new CEO position at Relativity Space, which is this small space startup that builds rockets with 3D printers. I think most notably here, Eric Schmidt bought his way into this. So he made an offer to the company to buy a controlling stake, but that offer was contingent on his becoming the CEO. The then CEO who founded the company, this young entrepreneur, he has stepped aside and he will now take a seat on the board. Scott, I don't love this on a personal level. Just the visual of a billionaire who sees Bezos and Musk and Branson all getting involved in

• 15:03Ed Elson?

  the space race, then deciding not to build his own company, but to buy his way into one, combined with the visual of this young Y Combinator entrepreneur being swept to the side. It just, it all reminds me of this intergenerational wealth dynamic that we so often talk about, where you have all of these old guys who are billionaires with too much money and too much time on their hands. And then they just use the money to install themselves into positions of power where they can play pretend startup or play pretend politics.

• 15:38Ed Elson?

  Maybe that's too harsh. As I'm saying it out loud, I actually think maybe I am being a little harsh, but that is where my mind goes.

• 15:46Scott Galloway?

  Yeah, I think you're being unfair. So there's two sides of this trade.

• 15:49Ed Elson?

  Okay.

• 15:50Scott Galloway?

  And that is, the way corporate governance and decisions get made is that shareholders get to decide who are the board members and the board members get to decide who would be best for stakeholders, which is Latin for shareholders. And the board decided that to get a guy like Eric Schmidt, who is arguably one of the most lauded, successful CEOs in history, to come run their firm, which sounds like it was struggling, quite frankly, is they decided, yeah, that is absolutely worth it. And I would imagine the value of the company is up substantially just on that press release. So there's two sides of this trade, including, you know, if the CEO had control of the company because he didn't have to raise a lot of money or he was doing so well that he had that kind of credibility with the board, he could

• 16:31Scott Galloway?

  have decided what to do. And maybe he did decide that it makes sense for Eric Schmidt to take over. Now, having said that, I would not invest in this thing. I'm ageist when it comes to startups. And that is, when Eric Schmidt took over Google, he was much younger and probably willing to put all relationships and all vacations aside for a while. And now he's a billionaire in his 60s, who's probably in the midst of, like many of us, of a realization that he's going to be dead soon. And he's not going to work his ass off. He's going to focus on St. Bart's and relationships and time with loved ones and going to the World Economic Forum and talking about big thoughts and climate change. This is, to

• 17:12Scott Galloway?

  drive a company like this is a young woman's game. And what he should have done, in my view, was taken the chairman role, because I think 80% of his expertise right now could be leveraged 10, 20, 30 hours a week and kept someone else in the CEO position. And also, I believe that luck is symmetrical. And in order for a company to have the kind of extraordinary success that Alphabet has recognized.

• 17:37Scott Galloway?

  That was a lot of luck and I typically don't invest behind a person two times in a row. Because if it's super successful, I'm like, it's unlikely we're going to get lucky again. And I know that's a weird thing to say, but I think a guy like Eric Schmidt, I don't get why he's doing this personally. I, you know, I think he's in his mid 60s, maybe late 60s.

• 17:58Ed Elson?

  It's, it feels like maybe he's bored. Maybe he wants something to do. He's just written his book. By the way, respect to Eric Schmidt. I really don't want to just rag on this guy. And I do respect him a lot as an operator and as a businessman, but it feels like he's bored. He sees Bezos and Branson and Musk and he's like, hey, that looks like fun. I want to do that. They're CEOs of those companies. Why don't I do it?

• 18:21Scott Galloway?

  Well, actually Bezos has stepped down as CEO because he's realized he's about to die soon. So he wants yachts and thongs. I think he gets it. But, but I think the question everyone's asking is, Ed, why do you hate Eric Schmidt?

• 18:36Scott Galloway?

  No, look, the guy is, the guy is the chairman of everyone's dreams.

• 18:41Ed Elson?

  Yes.

• 18:41Scott Galloway?

  He's intensely smart, intensely well-connected. I just don't understand why a guy at that point in his life would want to do the work. When you're the CEO of a startup, I speak from experience here, your inbox is never empty. And you have to be able to work 15 and 16 hour days. The only time I've ever really grown shareholder value is when, quite frankly, my personal life is a bit of a shit show. Because the marketplace is competitive and gives advantage to people who are willing to do nothing but work all the fucking time. And this is not a Hallmark commercial. I'm not saying this is aspirational. And I think a lot of people go to work for big companies to leverage their IP, their distribution channels and their platform and their size and the regulatory capture.

• 19:24Scott Galloway?

  So they can work 40 to 50 hours a week, not 60 to 80. You want to be in a startup? You want to be in a company like this? I don't, I think it's table stakes, even for a guy like Eric Schmidt, to have to work around the clock. And if I were him with his wealth at his age, there's no way I would do that. Anyways, I'm not, I'm bullish on Eric Schmidt, but as a chairman, I think this is a bad idea for him to get back into the game like this.

• 19:47Ed Elson?

  Maybe he can run it from St. Bart's and all will go smoothly. Yeah.

• 19:50Scott Galloway?

  Look at me. I have, not that I'm comparing myself to these individuals. I have Catherine Dillon run our company, so I can just make dick jokes and go to South by Southwest. That's what he should be doing.

• 20:01Ed Elson?

  Take a note out of Scott's book, Eric Schmidt. Let's talk about NEOM. This is Saudi Arabia's plan to build a new city. It's gotten a ton of coverage over the years, ton of hype, ton of interest. Just for those that don't know, the plan is to build a 105-mile-long, glass-dormed mega-city in the desert of Saudi Arabia. It's supposed to house 9 million people with no cars, fully staffed by robots, fully powered by wind and solar. It's supposed to have its own ski resort. And my personal favorite stat, it's supposed to have its own artificial moon. I've thought this is ridiculous for a long time because it's just unrealistic. And now we're learning they're 55 years away from completion.

• 20:44Ed Elson?

  The projected cost is $9 trillion now. And I just want to emphasize, the original budget for this city was $500 billion. So they are over budget by 1,700%, or in dollar terms, $8.5 trillion. And I think this highlights a problem that I've flagged before about Saudi Arabia and their investment decisions. Quite simply, I think they're childish. I just don't think these are very serious investors. The combination of the ski resort and the moon, the obsession with the Premier League, with the World Cup, with golf, with giant AI chips that company Cerebrus, the obsession with esports and gaming. Just last week,

• 21:26Ed Elson?

  they bought Pokemon Go for $3.5 billion. And I look at what's happening in Saudi Arabia and what they're investing in. The whole thing to me is reminiscent of a rich kid with a billionaire dad who just gave him the keys to the family trust. And by the way, that's pretty much what that country is. Like, the only difference is that it's not a trust fund, it's an oil reserve. So I think these are unserious. Frankly stupid investments, but I'm going to brace myself for when you call me racist in the next two minutes.

• 22:01Scott Galloway?

  You're accurate. It is a rich kid. My interaction with the Kingdom has mostly been around involvement with hedge funds raising money and some of the investments they make. And I find that they're actually incredibly disciplined and very smart and that they hire the best and brightest from the alternative investments world to try and allocate their capital efficiently. In this instance, that maybe their eyes are bigger than their stomach, maybe it'll be scaled back, but I'd like to see more big outrageous ideas proposed. I would like to see in the US them say, we're going to spend several trillion dollars to build a national high-speed rail, at least up and down the eastern seaboard. I'd like to see some big, bold infrastructure announcements in the US. We did one, our infrastructure

• 22:42Scott Galloway?

  act was 700 billion, I think. They have seven projects of over a trillion. It looks as if this one is probably unrealistic, but I think that a place like the Kingdom has the money and the mandate to quite frankly be, I don't know, be out over their skis a little bit.

• 23:00Ed Elson?

  I do think there's a difference between a high-speed rail and an artificial moon. And there's somewhere in that difference is where we draw the line. To your point, though, they are attracting a ton of investment. They're attracting especially a lot of consulting businesses and advisory businesses. The advisory business has grown 13% in the Gulf States in the past year. Deloitte has nine offices in the UAE alone. And there's this stat that I love, which is that McKinsey, which is consulting on this NEOM project, McKinsey is reportedly earning more than $130 million per year to consult on NEOM. And my reaction

• 23:41Ed Elson?

  to that is you got to hand it to McKinsey. I mean, they are just exceptional at finding rich people, building them PowerPoint presentations and then charging them crazy fees. And all I can think is just what a great business consulting is. These huge margins, very little overhead. You were a consultant for many years. Do you have any thoughts on just how the consulting business works?

• 24:06Scott Galloway?

  Let me give you the pluses and the minuses of consulting. It's a great company to start because it requires little capex. Your expenses and your assets go home in the elevator every night. And if you don't have business, you can lay off people. If you do have business, you can ramp up. So in this sense, it's it services companies are good businesses to start because they don't require a lot of IP or dramatic capex. You can start a consulting company as I did by just getting a client. I got Dryers and I got Levi Strauss and Company and Williams Sonoma as my first clients. It's an incredible training if you want to be an athlete. You have to be a good communicator. You have to be good at analytics. You have to be good at managing relationships. You have to be able to sell. It really is training for a triathlon or decathlon. I think it's a fantastic.

• 24:49Scott Galloway?

  If you're coming out of business school and think I want a second MBA, but I want it in the private sector, consulting is a fantastic training. It turns you into a great athlete. You make good money. You never get really wealthy. That's the downside because the barriers of entry here, it's a it's a multiple of EBITDA business. When I started my second consulting firm, L2, which I called Business Strategy, I turned it from intermittent consulting engagements. I used to charge Williams Sonoma half a million dollars to do their internet strategy. Instead, I said to Nike, give me a quarter of a million a year and I'll meet with you every three months and just look at data and give you advice. It is a very taxing business. And again, see above, it's a young woman's game. It's very taxing on your health and your relationships because when you're in the services

• 25:33Scott Galloway?

  business, you're always someone else's bitch. Actually, this happened to me three times. The CMO of Audi, who was my biggest client, called and said, Scott, we love you. Can you be on Ingolstadt tomorrow? And the answer was always, yeah, yeah. I'll get on a fucking plane from San Francisco, fly into Munich, be in coach, because it was my money back then, with six young people trying to figure out a PowerPoint presentation of what we were going to say to Audi that they hadn't heard from McKinsey and Bomb to the Kinko's when we got to Munich at 9 a.m. to print this thing out and then fly back to San Francisco the next day. It takes a real toll on your relationships and your health. It's a very taxing industry. It's also you make a good living, but it's hard to get really wealthy in consulting because it's all current income.

• 26:18Scott Galloway?

  I found it fucking exhausting. I don't want to golf or have dinner. If you're having golf and dinner with people you don't really like, it means you're in an undifferentiated industry.

• 26:28Ed Elson?

  What do you mean by that?

• 26:30Scott Galloway?

  I mean, the truly great companies don't need to socialize with their clients. And also, if you're spending time, a lot of time getting taken to basketball games or dinners by third-party vendors, it means you're paying too much. It means you're getting ripped off. So Vanguard's not going to take you out to lunch, but your wealth advisor from, name the brokerage, who takes you to a basketball game, that means she is charging you onerous fees.

• 26:57Ed Elson?

  Great point.

• 26:57Scott Galloway?

  Anyways, the services business is we're all selling the same shit and the way we differentiate is relationships. Anyways, that's my TED Talk on the services business.

• 27:08Ed Elson?

  I love it. By the way, I think if you were still doing that today, you would be printing money in the Gulf and kissing ass in Riyadh, but maybe you'll still do that anyway.

• 27:21Ed Elson?

  We'll be right back after the break with a look at the latest on tariffs. And if you're enjoying the show so far, be sure to give Prof G Markets a follow wherever you get your podcasts.

• 27:39Speaker 00

  This episode is brought to you by Welch's Fruit Snacks. Back to school season can be tough on parents, but choosing a snack you and your kids can both get behind doesn't have to be. Stock up on Welch's Fruit Snacks, made with whole fruit and now made with no artificial dyes. It's a snack kids already love and one you can feel good about giving them. Go back to school with Welch's Fruit Snacks, now made with no artificial dyes.

• 28:06Speaker 01

  Are your ad campaigns lighting up the dashboard? But not the pipeline? That's bull spend. And marketers are calling it out in. Dashboard Confessions.

• 28:16Speaker 02

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had: impressions.

• 28:23Speaker 01

  Cut the bull spend. See revenue, not just reach. LinkedIn delivers the highest return on ad spend of major ad networks. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 28:36Speaker 03

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• 28:57Ed Elson?

  We're back with Prof G Markets. The tariff drama has continued to unfold. Last week, so much happened. So I'm just going to take you through a timeline of all things tariffs. So first off, back in February, Trump announced a 25% tariff on all steel and aluminum that comes into the US. And the big news is that that tariff officially went into effect last week on Wednesday. Then, as we discussed in the previous week, the Premier of Ontario announced a 25% tariff on all electricity that comes out of Ontario. And Trump got very mad about this. And a few days later, he said he would double tariffs on Canada's steel and aluminum to 50%.

• 29:42Ed Elson?

  Now, in response to that, Doug Ford backed down. He suspended his tariff. And then after that, Trump also backed down, and he brought the tariff back down to 25%. In other words, a ton of headlines and a ton of back and forth, but nothing actually happened. We're still in the same position we were a couple of weeks ago. Let's just shift to what happened in Europe. As I said, that steel and aluminum tariff, which applies to the whole world, that came into effect on Wednesday. So that does affect Europe. Europe's response was, we're going to tariff you right back. They put a tariff on American whiskey, on American jeans, on Harley Davidson motorcycles. It's a pretty hilarious lineup of items.

• 30:26Ed Elson?

  I think they're intentionally cartoonish to make a statement. But if you add up the numbers, it does actually make sense. Because those tariffs will be $28 billion on America. And that's the same amount Europe will pay on the steel and aluminum. Then in response to that, Trump got angry again. He threatened a 200% tariff on European wine. Okay, now the question is, does any of this actually matter? Probably not, because for all we know, the picture will look very different in a few days. There'll be reversed, unreversed, increased, decreased, whatever. And I have to say, Scott, it's beginning to make my job a little ridiculous.

• 31:06Ed Elson?

  Because the size and scope of these policies and the financial impact they have on our economy, they're too big to ignore. I can't simply resign from understanding them and say, I don't really know what happened with tariffs. They went up, they went down, whatever. At the same time, though, this is a complete and utter waste of my time. And for analysts and for investors and for CFOs and CEOs, it's even worse. Because for those guys, there is actual money on the line. If you're a Jack Daniels or a Levi's or a US Steel, you do need to understand the tariffs. You need to write up research reports. You need to model out the economics, analyze the downside, analyze the upside. It's a lot of work. And so these guys probably spent weeks figuring out,

• 31:51Ed Elson?

  what will these tariffs actually do to our business? And they woke up one morning, they checked the news and bang, none of it mattered anymore. And that's the thing that I think corporations and executives are going to be most upset about this. And we'll talk about what's happened in the markets. But Scott, first, just your reactions to what happened last week with tariffs.

• 32:11Scott Galloway?

  Well, as you know, I like to ground everything in a personal parable, so I can talk more about me. So tariffs coming in, you charge a tariff. We charged tariff on aluminum and steel. And the rationale was, we need to maintain a healthy domestic production or supply of steel. That kind of makes sense. If we go to war, we need tanks. We don't want to be too vulnerable, so. Great. Cleveland Cliffs and US Steel saw their earnings go up because their product became more competitive because foreign imports became more expensive. But that additional incremental income was vastly outweighed by the decrease in demand for products that had to dramatically increase their prices because of the additional

• 32:54Scott Galloway?

  costs of the input of steel and aluminum into their products. So we're net losers, even when they pay the tariff and there's no reciprocal tariff. And this comes back to my first parable. I don't know if you've noticed when we're on this show, I angle my head to the left. I guess, I guess I haven't. Now I, now I'm noticing. You need to start investing in this relationship. You never notice. You haven't noticed all the Pilates I've been doing to try and be more attractive to you either, you, you awful person. Oh, no, I've noticed that for sure. Oh, I fucking hate Pilates. Um, the, the- Angle of your face. All right, the angle of my face. My nose goes to the right. And the reason why it goes to the right is when I first moved to New York, I had, I was bored, too much time on my hands.

• 33:36Scott Galloway?

  I was doing yoga and I was doing boxing and I got a trainer, this guy, this boxing guy. And I, I'd spar with him and he convinced me, it's like, you know, you've got pretty good hand speed, you're in good shape. Why don't you enter this boxing tournament at this gym, this boxing gym we belong to? And I'm like, was stupid enough to think that was a good idea. So I'm 6'2", 190. It ends up that a guy who's 5'9" and 190 and knows how to box is fucking Mike Tyson. So I get into the ring with this guy. All I hear, all I remember was the bell and the next thing I remember was all of these bright lights because I was flat on my back. The amount of money I would pay to watch this fight, it's crazy. Oh, my God. And my nose has never straightened. My nose now goes to the right. And here's the thing.

• 34:21Scott Galloway?

  Strategy, one of the biggest mistakes we make in strategy is believing that we're boxing against someone we're paying or a speed bag, that it won't hit back. And that's where Trump's biggest flaw is, in my opinion, is he believes that he can just impose tariffs unilaterally and there won't be reciprocal tariffs that dampen the demand for our products in bigger most our best companies sell issue Nike gets two thirds of its revenue from outside of the US. Google probably gets four fifths of its revenue from outside of the US. And you don't believe that these nations are going to slap on recip. You don't believe they're not going to hit back and break your fucking nose. Of course they are. This is one of the biggest mistakes. Whenever you're doing scenario planning,

• 35:05Scott Galloway?

  you have a tendency to believe that you're doing it in a vacuum and that all of your competitors are just going to sit there and not respond. This is the biggest flaw in scenario planning. Well, if we do this, the following things will happen. Generally, what corporate strategy executives leave out is like, okay, the moment we do this, what will they do? They'll respond. Well, if we decrease prices, we're going to capture more share. We're going to roll up the industry and be able to charge monopoly rents. Well, you realize the day after we lower prices, our competitors are probably going to lower prices too, right? So we're just going to inspire a decrease in margin across the industry. And unless we have more capital, they can go toe to toe with us. This is Trump's, in

• 35:48Scott Galloway?

  my opinion, one of his many flaws is he's under the impression he's he's boxing against someone he's paying or a speeding back. Two, the biggest negative impact of this is that we have become an unserious partner. In studies with rats, they can get food without a shock. They love that. They can get food with a shock every time, or they can get food with a shock intermittently. And the rats that are the most stressed are not the ones who get shocked every time because they know what to expect. It's the rats that are shocked half the time because they don't know what to expect. And this is where we are with

• 36:30Scott Galloway?

  our supply chain and our global alliances. Every country in the world. Is thinking about how they diversify away from doing business with America because they do not know who they are waking up next to.

• 36:43Ed Elson?

  I think this is the first time where my classics degree has ever been useful, and it'll probably be the last time, but there's a quote by Cicero that I will leave you with, and that is, quote, "More is lost by indecision than wrong decision. Indecision is the thief of opportunity. Indecision will rob you blind." I think that's pretty much sums up what's happening with tariffs right now. We're not even committing to the tariffs. We're flip-flopping every second, and we're wasting both our partner's time and our own time. And one final story that I think is quite interesting,

• 37:21Ed Elson?

  and I want to get your quick reaction to on tariffs. So Walmart was recently summoned by the Chinese government, who was very upset with them, because apparently Walmart has been asking Chinese suppliers to reduce their costs because Walmart is so worried about these tariffs. So they went to these Chinese suppliers, say, "Hey, we have to deal with these tariffs. Is there any way you could bring costs down?" The CCP got very, very angry about this. They called up Walmart and their executives, and they discussed the issue. And the Chinese authorities, the state media, they said publicly, quote, "If Walmart insists, then what awaits Walmart is not just talk."

• 38:03Ed Elson?

  So it's so interesting how what started as a political altercation is now implicating companies and their executives. Walmart is now stuck in the crosshairs of this trade war, and they're being threatened by national governments. And so this is yet another reason why I think it's not just, you know, anti-MAGA people who are upset about this. I think it's basically the entire corporate world who has to deal with the fact that they are on the wrong end of the stick when it comes to the president's foreign policy and his decisions on these tariffs.

• 38:38Scott Galloway?

  You're a classics major from Princeton who likes...

• 38:44Scott Galloway?

  A white tennis player. Seriously, you're the most translucent person I know right now. You're literally the whitest guy in the world right now. By the way, let me get to a point. This is how a real, this is how a real man quotes people. Okay. General Eisenhower said, "The wrong decision is bad. No decision is worse." Not fucking Cicero. Better when Cicero said it. Jesus Christ. Anyways, this, your point is exactly the right one. Inconsistency and uncertainty is worse than the actual tariffs themselves. You, you can't operate a company, much less a business or a country this way. We've taken for granted the fact that most nations, when they enter into an agreement,

• 39:26Scott Galloway?

  they, they respect us. They think that we'll do our best, that, that the laws, the contract law applies to them and applies to us. That there's a rule of fair play, consistency. We do what we say we're gonna do. And you know who the big winner here is China? Chinese officials are roaming around the EU right now and saying, "Hey, we're the devil you know. We'll do what we say. We're open for business. You want a trade relationship? You've been buying all this stuff from America? You can't count on them. Guess what? You may not like us, but you know what? We do what we say. You can count on us. If we enter into a trade relationship and we, or an agreement between this supplier and your company assembling this in Stockholm, you can count on us.

• 40:10Scott Galloway?

  You know who you're waking up next to."

• 40:13Ed Elson?

  We'll be right back after the break with a look at the $4 trillion market sell-off. If you enjoyed the show so far, hit follow and leave us a review on Prof G Markets.

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• 41:48Ed Elson?

  We're back with Prof G Markets. U.S. stocks have faced their toughest start to a presidency since 2009, with the market losing $4 trillion in value. Amid a three week sell off, the VIX, or the market's fear gauge surged to its highest level since December. Bitcoin fell below $80,000 and Treasury yields fell as well. Across asset classes, the so-called Trump bump we saw after the election has disappeared. So Scott, in terms of the stock market, since Trump went to the office, the S and P has dropped 7%. The Nasdaq has fallen 11%. We're starting to hear the word recession a lot more. In fact, we discussed that in the live podcast. I'm also hearing people say bear market.

• 42:33Ed Elson?

  I've also seen some comparisons to the dot com bubble. In fact, it was exactly 25 years ago, as of last week, that the dot com bubble burst and the stock market crashed. And so I've been seeing speculation that maybe we're in for dot com bust 2.0 here, or that the stock market might fully collapse. So you lived through that crisis in the year 2000, which many people are comparing this period to. Do you think we're anywhere close to that? Are we close to a bear market perhaps?

• 43:07Scott Galloway?

  First off, you could say that, okay, all we've lost is the Trump bump. The, the stock market is still at a pretty near historical high. Now Warren Buffett timed it perfectly. As soon as they announced the tariffs and he saw Apple at 250 bucks, trading at 38 times earnings, when it usually trades at about 18 over its history, he's gone straight to cash. So, America just looks expensive. You could argue that some of the air being let out here is just a natural part of the cycle, and it's still at fairly robust highs. The question is, what do you do about it? And a lot of people are saying, I'm moving to cash. I believe that moving to cash, it's very hard to time the markets. I'm always invested. What I am doing, and the lesson, or the advice I would give around this, around

• 43:49Scott Galloway?

  how to respond, learn from my mistakes. In 2016, when Trump was elected, I thought, this guy is a fucking idiot, and the market's gonna crash. He's stupid. And so I sold pretty much everything. The markets ripped. So in addition to paying capital gains on the stocks that I ended up buying back into six months later at a higher price, when I realized what an idiot I was, trying to time the markets, and probably not acknowledging that the president has less impact on the markets than we'd like to think, and gets more blame and credit than they deserve, it was an emotional reaction. So now I'm not gonna have the same emotional reaction. What I am doing, though, is deciding, okay, over the medium and long term, because of demographics and productivity and innovation, the markets globally do go, tend to go up

• 44:33Scott Galloway?

  into the right. So what I am doing is diversifying out of US stocks. I won't sell everything. I still have a lot of money in the private markets here and in real estate, but I'm getting more exposure to European and Latin American stocks, because the way I have really fucked up my economic health and economic well-being is through a lack of diversification. And that is, I was all in on tech in 1999, and then all in on growth in 2007. And by the middle of 2000, in the middle of 2008, I was broke. I went from wealthy to broke. And I'm not doing that again. And the way you try not to do that again is through diversification. But trying to time the markets and moving to cash, I believe you should always be...

• 45:18Scott Galloway?

  Invested, but you want to diversify. And I think if you just look at the relative valuations, it's not a bad idea to take some money off of the table in US and put it into global index funds.

• 45:31Ed Elson?

  I think there'll probably be some people out there who are saying, but we're down 10%, you know, the market's down. Why would I want to sell now? Or freaking out that, you know, we're in the middle of this big crash. I do want to point out, so far at least, this is very much a correction and not a crash. Market's down 10% from its high. If we were to enter an actual bear market, it would need to come down 20%. So we're not there yet. And if you look at the historical PE of the S and P 500, last month, it was trading at 25 times earnings on average. And you compare that to the long term PE of this S and P 500, which is 16 times earnings. So even still, it is still

• 46:13Ed Elson?

  a richly valued market. So if you're thinking of unwinding some of your positions and diversifying elsewhere, yeah, it's maybe a little annoying. You didn't do it a month ago, two months ago, three months ago. But big picture, it really isn't a big deal at all. The market is still doing pretty well on a price to earnings basis.

• 46:34Scott Galloway?

  Okay, so Apple's PE has crashed from 38 to 34. I bought Apple and it's better to be lucky than good in 2011, and I paid nine times earnings. So to think that all was, wow, Apple's cheap. Okay, it's not as insane as it was a month ago. But to believe that the markets are on sale right now in the US? No. I mean, they're not at all time highs, but they're, by any metric, they're still expensive.

• 47:00Ed Elson?

  Let's just go through some of the winners and the losers in this sell off. We touched on it a little bit in our last episode, but I think it's worth examining more. I'll start with the winners.

• 47:11Ed Elson?

  I mentioned in at South by Southwest, a big winner here are these traders who are trading on the volatility. Let's focus on stocks for this session. I have two groups of winners here. First off, we have the domestic steel and aluminum stocks. That's basically two or three companies. It's like US Steel and its new core. There are very few companies that are actually benefiting from the tariffs from a steel and aluminum perspective. And actually, if you look since inauguration day, they're almost flat. So they're barely winners. But I think we can count them because last week, when the tariff stuff happened, they rose a little bit. The second group of winners is what I will call the defensive stocks.

• 47:52Ed Elson?

  And these are stocks that are highly unspeculative, no tech, very old, very mature. And crucially, these are the stocks that issue dividends. So companies like Johnson and Johnson and Coca-Cola, they are up since Trump took office. Again, not by that much. It's not a huge win, but they are outperforming. And I think the dynamic we're seeing here is investors are now looking for safety. They're not interested in these moonshot AI bets, or software plays, or anything basically that depends on an optimistic future. Instead, they're going to the stocks that can hand you cash in your pocket today, the dividend stocks. Let's go to the losers. First off,

• 48:35Ed Elson?

  the tech companies. Amazon down 10% year to date, Apple down 11%, Google down 12%, Nvidia down 17%. Also, the banks, Citigroup, Morgan Stanley, Goldman Sachs, they are all suffering since Trump was elected. Small cap stocks, so these are the small market cap companies, companies in the Russell 2000, they are taking a beating right now. Also Tesla, of course, that's its own story, but it's down 35% on the year. Now, what do all of these companies have in common, all of these losers? It's so interesting. They are all the Trump trades. These are the very companies that we talked on this podcast that were supposed to benefit

• 49:17Ed Elson?

  from the administration. You remember, we spoke with Tom Lee. He was bullish on these companies specifically. And to be clear, I agreed with him. But the market is basically telling us right now, hey, remember everything we said about Trump and who he's going to help and which companies are going to benefit? Forget all of that. No longer true. We misjudged him. We didn't realize. Sorry, our bad. And this is all reminding me of something that Anthony Scaramucci told us nine months ago, when we were in the middle of the election, no one knew what was going to happen, and Trump was beginning to talk about this tariff thing. And there was this consensus view on Wall Street. And I had many discussions with many investors and many people on this

• 49:59Ed Elson?

  podcast. There was this view that it's all just talk. He doesn't really mean it. He's just, he's throwing meat to the base. He's not going to go through with this. Think what it would do to the markets. He doesn't want to do that. Why would he do that? Anyway, we had that conversation with Anthony Scaramucci, and I put forward that thesis to Anthony.

• 50:21Speaker 07

  He's calling for sky high tariffs, which will cripple poor people. Tariffs, as you both know, are regressive taxes on poor people.

• 50:29Ed Elson?

  Do you think he's serious about those?

• 50:31Speaker 07

  So Ed, this guy knows how to boil a frog better than anybody that I've ever met, right? You're in the cold water, and he simmers the frog until the frog is dead. Do you know how many things from 2016 to today that we could say, is he serious about that? And then you say, oh, no, he's not serious about that. And he fucking does it.

• 50:54Ed Elson?

  Hundred percent.

• 50:55Speaker 07

  And you're like, holy shit, he is serious about that. And then he does it again.

• 50:59Ed Elson?

  I mean, he completely nailed it. And I think it is very interesting to see what's happening in the markets right now. The fact that the markets are down and Wall Street and corporations are suddenly realizing, oh, my God, he was serious. Maybe he's not on our side. And I think that's the vibe shift that is making Wall Street and investors so freaked out right now. We thought that Trump was one of us. Maybe he isn't.

• 51:30Ed Elson?

  Let's take a look at the week ahead. We'll hear the Fed's interest rate decision for March. We'll also see earnings from Nike, FedEx and Five Below. Scott, any predictions?

• 51:41Scott Galloway?

  So supposedly SoftBank was about to lead a round into OpenAI at a valuation of between 260 and 300 pre-money, putting a $40 billion round, putting it a post of 300 or post of 340. I think the insecurity in the market right now is probably going to give them a reason to hit the sanity button and either get different terms or better terms or not do this investment. It strikes me that valuing OpenAI is amazing a company as it is, is valuable or as impactful as AI is going to be. I would imagine a lot of his investors are like, it's beginning to smell a lot like WeWork. I guess my prediction is I'm not sure this round is

• 52:23Scott Galloway?

  going to close on the terms initially reported in the press because it hasn't closed yet. And it just feels to me this is too rich. If you're a limited partner in SoftBank, basically Masayoshi Son has tried to convince you that within five years, this will be one of the 10 most valuable companies in the world because it's going to have to have a trillion-dollar-plus market cap to justify the kinds of returns for this type of risk. I think that is a difficult argument to make with any level of certainty right now. Is OpenAI an amazing company at 50 or 100 billion? Absolutely. At 300 billion? I don't know. That feels that feels very toppy to me, Ed.

• 53:05Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burris is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our interview with Lynn Alden, only on Prof G Markets.

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