The Texas Stock Exchange + Is Short Selling a Dying Strategy?

That's the percentage of employers

who claim to have had a recent college graduate bring a,

get this, parent to a job interview.

Ed, true story.

I figured out that my parents favored my twin brother

when they asked me to blow up balloons

for his surprise birthday party.

Hold me, Ed.

Little twin humor.

Little twin humor.

Unneglected dog humor.

That's right.

We're trying to clean it up.

Still PG-13.

Still PG-13.

Welcome to Prop G Markets.

Today, we're discussing the Texas Stock Exchange

and the dying breed of the short seller.

Here with the news is Prop G media analyst, Ed Elson.

Ed, what is the good word?

I'm just pretty shocked by that stat.

19%.

It makes no fucking sense.

It makes no way.

Do you think that's right?

I don't know.

Surely, surely there's something wrong with the survey there,

unless I'm just completely out of touch.

It's unbelievable.

Yeah.

No.

I asked my parents if I was an accident,

and I said, no, it's really more of a tragedy.

That could have been our opening joke, too.

Yeah.

There you go.

You were in Scotland yesterday.

How was that?

I am this morning.

It was great.

Went up there for the night

to a place called the Five Arms in Aberdeen.

By the way, one of my favorite things to do

is when I look at your schedule,

I will look at the hotels you're staying at

and Google them and look at all the photos.

I've already seen the Five Arms website.

I know what all the amenities are.

It looks quite nice.

Yeah.

What do you think?

What should we have done?

We pretty much just drank whiskey

and had a long dinner.

We didn't even take a walk.

We didn't go outside.

Also, I don't know if I told you this,

but actually, speaking of parents,

my parents treat me like a god,

and that is they don't believe in me, Ed.

They don't believe in me.

Back to the Five Arms.

Do you have a jokes website

pulled up in front of you right now?

Where are these coming from?

100%.

What place am I going to

that you're most excited about?

I love that you're stalking me.

I love doing that.

I don't know.

First off, where are you guys going?

Where's the team going?

Oh, we're going to St. Bart's.

That's right.

That's what happens when you work for the dog.

That's right.

That's right, he sends you to St. Bart's.

Did I tell you once

I walked into my parents having sex?

Seriously, Ed?

Seriously, I'm not joking.

It was the worst 45 minutes of my life.

You've told that one before, but yeah.

Never gets old.

And just a reminder,

just a reminder,

just a reminder to go listen

to the Prof G Markets feed.

Prof G Markets.

Go subscribe.

All right, get to the news.

Gladly.

Get to the news.

Let's start with our weekly review

of market vitals.

The S&P 500 hit a new record,

the dollar declined,

Bitcoin topped $70,000

and the yield on 10-year treasuries fell.

Shifting to the headlines.

Spotify is increasing the cost

of its premium subscription plans,

including the Family, Duo and Student plans.

That's its second price hike in a year.

Meanwhile, Warner Brothers Discovery

also announced a price hike for Max.

Morgan Stanley's trading platform, E-Trade,

is considering banning Keith Gill,

also known as Roaring Kitty,

over concerns of potential stock manipulation.

The company is concerned that Gill's influence

can enable him to pump up stocks

like GameStop for his own gain.

And finally, Nvidia became

the first computer chip company ever

to reach a market cap of,

wait for it, $3 trillion.

As of Wednesday's close,

the company surpassed Apple

as the second most valuable company

in the S&P 500, also in the world,

behind only Microsoft.

Scott, your thoughts.

I think that the subscription space

is just such a fascinating lesson

in economics and markets

and essentially what you had is

everyone figured out that the future

isn't streaming and it's also

consistent revenue, it's not ad revenues

where if there's a recession,

everyone stops advertising.

Even if there was a recession,

people usually don't cancel their Netflix

or their Spotify.

And so the market got drunk on it,

this is the future,

and gave these companies

an enormous valuations

and then the ones with the biggest market cap,

specifically Netflix,

started reinvesting that capital

to take an Amazon-like strategy

of just using capital as a weapon

and pull away from everyone else.

And Netflix got up to $17 billion a year

and spend on content,

which no one could match.

And then the markets got less excited

about the space

because it didn't appear

anyone was very profitable

and that the space had been over-invested

because everyone was trying

to catch up with Netflix.

So it was a great time to be a gaffer,

it was a great time

to be in the business of production,

but at some point, the music was gonna end

and it ended about, I think,

about two years ago when Netflix crashed

and all of a sudden it became clear

that things like Paramount Plus

just might not survive.

And the market has done two things.

It's consolidated,

and it's also, based on the consolidation,

given some players,

specifically Netflix,

the cloud cover to raise prices.

And this cloud cover and the consolidation,

because there's fewer and fewer options

at the very high levels,

has given this pricing power

back to the organizations

and Spotify has increased prices.

I think it's gonna be twice now.

And Spotify, for the first time,

I think in a while,

their stock is performing really well.

The individual dual and family subscriptions

will increase one, two, and three dollars respectively.

The stock popped 5% on the news.

Its performance to date has been underwhelming

and it's 25 quarters as a public company.

It's only been profitable of eight of them,

but things are looking up.

The stock has doubled in the last 12 months.

And you're also seeing Max

is increasing its prices on ad-free plans.

So the companies that come out

the other end of this

will be the consolidate ores

as opposed to the consolidate E's.

I think it'll do well.

And that's one of the reasons

our three stock picks for 25,

again, invest in index funds,

but it's fun to follow stocks,

are Alphabet, which is up, I think,

25 or 26% on the air,

and then Warner Brothers and Disney.

And Warner Brothers has been a laggard.

Disney's done okay,

because I think that the pricing power

that they will register at Disney Plus

and at HBO respectively

will start to give the markets a reason

to look at them again.

But this is just a case study

in overinvestment and then a crash

and then consolidation

and then pricing power coming back.

Any thoughts?

I just couldn't believe

the stock performance of Spotify.

It's up 110% in the past year.

It's doubled.

It's pretty fascinating to me.

I mean, we discussed their earnings

from last quarter on this podcast,

which was also pretty phenomenal,

20% revenue growth.

They had this massive reduction in spending.

And now they're doing

what great companies get to do,

which is raise prices.

So I think we'll see how that will affect

the usership in the next earnings.

It's got its next earnings call

a month from now.

But I have a feeling

that it's not really gonna hurt

MAUs that much.

I feel like price hikes are always

less damaging than people predict.

And that's certainly been the case

for Netflix, as you pointed out.

Thoughts on Keith Gill and E-Trade?

So I thought this was really interesting.

When we first talked about it

in the editorial meeting,

I thought, this is bullshit.

You know, it's the SEC's job

to decide what market manipulation is,

not E-Trade.

And then it dawned on me.

E-Trade is full of shit.

This is what's going on,

or what I think is going on.

E-Trade is worried about

what happened to Robinhood.

And that is, when the meme stock phenomena

went just literally parabolic,

the ability to pair trades

on these highly risky, highly volatile stocks

meant that the trading or the clearing firms

asked them to have a certain amount of capital

reserved in case the stock accelerated

before they paired it with another trade.

And I think E-Trade is worried

that they might get caught with their pants down.

Because if you remember what happened to Robinhood,

they effectively said to people,

you cannot buy GameStop,

or I forget which equity it is.

And to a certain extent,

they probably should have gone out of business

when they did that.

And I think E-Trade looks at what's happening

and says, someone in their compliance

or their risk department comes back and goes,

if this shit gets real again,

and it starts going fucking crazy,

we could potentially find ourselves

in a Robinhood-like position

where the people who clear our trades

demand so much equity that we don't have it.

But this notion somehow that they have decided

they're the arbiters of market manipulation

makes absolutely no sense to me.

What are your thoughts?

Yeah, I found it really interesting,

the debate that's going on at Morgan Stanley,

as you pointed out, why they should ban him,

but also why they shouldn't ban him.

Because it actually isn't a question of legality for them

because their terms and conditions are very clear.

They can basically restrict whoever they want.

That's what you sign up for

when you sign up with their platform.

But their concern is that if they do ban him,

that they're gonna make enemies with the Reddit army.

And that by antagonizing him,

it's gonna start this chain reaction

and all of his hundreds of thousands of fans

are gonna leave and follow him to a different platform.

And I just find it so interesting

that this issue is kind of becoming a theme

for every platform.

And the first obvious example that comes to mind is Trump.

But it's sort of like, if you're a platform,

if you have users, you have to develop a strategy

for dealing with these larger than life characters

with these huge followings who misbehave.

Because even if you rightly punish them,

you risk losing millions of users

and eventually probably millions in revenue.

So it's interesting to me that a stock trading platform

could be dealing with the same issues

that we've seen over and over again

on the social media platforms like Twitter and Facebook.

And I just think that every platform,

no matter what industry you're in,

should have a game plan for situations like this.

Because it feels like it's happening

more and more frequently.

Your analysis is the right one.

But the folks at Morgan Stanley are really smart.

And they sat down and said,

okay, what are the risks of a Robin Hood-like moment for us?

That is a terrible scenario for us.

What are the risks we're gonna lose

a bunch of meme stock traders?

They probably looked at their,

I would imagine their trading base and said,

it's not a big part of our business.

I think they would have rather not done this,

all things being equal.

But I think they decided the risk,

the kind of tail risk or the black swan risk

of an event where the stock goes to,

one of these meme stocks goes absolutely parabolic

and there's just a 30, 50, 100x increase in volume.

And all of a sudden the people

clearing their trades freak out and say,

you need 30, 40x the capital reserves here.

They thought, okay, that's just not a scenario

where we all wanna be woken up at 2 a.m.

and try to figure out how to get more liquidity.

Okay, so we piss off Roaring Kitty and his followers

or some people on Reddit.

They probably did some analysis

and tried to figure out what percentage

of our trading volume is these individuals.

And they said, no, we'd rather piss off

this small group of people

and not be subject to this tail risk.

Thoughts on Nvidia to $3 trillion in market cap.

I just, I've never been a company this successful.

If you define success by the ability

to add that type of value in a short period of time,

it's added $1.8 trillion year to date.

It added three quarters of a trillion dollars in May.

So it's now larger than the entire stock markets

of Canada and South Korea.

Its market cap is larger than the GDPs

of all but six countries.

I mean, we were talking with Bill Cohen about Paramount.

We're talking about 5 billion is worth 15 billion.

You know, this company loses that

in a trading hour or gains it.

And it just, it's absolutely striking.

And we're gonna see all sorts of stories here

about thousands of employees in the Bay Area

who are now worth 10, 50, 100 million dollars.

The numbers here, people can't even wrap their head

around what the numbers here are.

And then one of the things that Mia pulled up

that just fascinates me is I believe that the S&P

is up about 13 or 14% year to date,

but half of that gain is Nvidia.

So the S&P outside of Nvidia

is basically up a little bit more than inflation.

So essentially, if you have money in the S&P,

you're kind of flat if you don't own Nvidia.

But if you own Nvidia, or you're part of an index fund,

and this is why you should be in an index fund,

because you're balanced across

based on a weighted adjusted ratio of the market cap,

you're up 14%.

But if you're buying individual stocks,

most likely you're probably not doing that well

unless one of those stocks was Nvidia.

And it goes back to, I think it's a lesson

in the power of index investing,

because what I have found,

having been through a lot of ups and downs financially,

is that the pain of losing a lot of money

is much greater than the joy of making a lot of money.

And so diversification and index funds

and getting that 14% feels really good.

Now, it doesn't feel as awesome as getting 300%,

but what really fucking sucks is being the guy

that's not beating inflation or has lost money.

So this thing is an absolute phenomena.

Josh Brown had a really interesting point.

I said, this is Cisco all over again.

He said, yeah, there's a key distinction though,

and that is as the market cap has accelerated,

the PE has actually come down,

which means that their earnings growth

has been greater than this exponential

market capitalization growth.

I think this is a bubble.

I think it's a matter of when, not if,

but I think it's gonna happen

when a big company who's a big purchaser

announces they have their own ship

and that it's pretty good,

or when Mary Barra from General Motors says,

we're dramatically decreasing our spend in AI

while it's still important to us,

we've realized that it's not gonna revolutionize

everything we've done.

That's when I think you see the bubble pop here.

But this is, as of today,

this is the most successful company in history

as registered by an acceleration in value.

What are your thoughts?

I just love seeing the star power

that Jensen Huang has accumulated in the past year.

Two awesome examples of that.

One, that viral photo of Jensen signing a woman's shirt

who comes and accosts him

while he's walking out of an interview.

If you haven't seen it yet,

you should go check it out.

He literally looks like a rock star.

I mean, he's wearing the leather jacket,

but it's sort of like,

it's Cristiano Ronaldo, like Justin Bieber level fame.

And the second thing that I found

also pretty interesting is what he did to Samsung stock.

And that is Samsung rose 4% in one day

after Jensen said in an interview,

not that he was partnering with Samsung

or that he was even conducting

any sort of business with Samsung.

All he said is that he has been looking

at the chips that Samsung has been producing.

And through that comment alone,

he was able to create $15 billion in market value

and increase the stock 4%.

Here's a question for you.

Do you think Jensen Huang is at this point

the most powerful non-politician in the world?

It's a really interesting question.

I think some people would argue

that it's Mark Zuckerberg or Satya Nadella

because of their control over such huge swaths,

huge businesses, and also their ability to sway elections

or not sway elections or depress teens

or whatever it is they do.

But what Jensen, in my opinion, sort of indicates

is the financialization of everything.

As a society becomes more capitalist,

what it offers is different gradients of life.

What do I mean by that?

When I was younger, my dad would have people over

who worked for him, and then we would occasionally

go over to his boss's house.

His boss had the nicest house on the block,

but it was still the same neighborhood,

and we were all still members of the same country club.

And he had a Cadillac, right?

Instead of a Thunderbird, he had a Cadillac.

My dad had a Gran Torino, but his boss had a Cadillac.

But now, the guy who runs the company flies private

and stays at a series of hotels that people just,

most, 99% of people could just never even afford.

The five owns, yeah.

Well, not even that.

I mean, what you can do with money now,

that wasn't even an option back in the 70s and 80s.

Like, money bought you some stuff,

but it didn't buy you what it buys you today.

And so I think the reason we're morphing

to a different species is, one,

mostly because of loneliness,

but two, the financialization of everything

has created different criteria.

What do I mean by that?

The sex symbols used to be military.

Your ability to protect the tribe

made people attracted to you.

Now, the people we're most attracted to

are the people who can offer a better life

to the entire tribe.

And that is, if you're very wealthy,

you have power, a ton of power.

And you can offer such an extraordinarily different life

to not only your immediate family,

but the people around you, your employees,

that these people have become the new generals,

the new athletes, the new movie stars.

They are the sex symbols.

They are the new heroes in a species that has evolved.