How China’s AI Efficiency Could Gut the U.S. Economy | Prof G Markets

Today's number, 12 million. That's how

many pigs there are in Denmark. Twice

the number of human inhabitants. True

story. Had someone asked me how many

sexual partners I'd had. And I started

counting them and fell asleep.

>> Get it? Takes a minute.

>> I got it. I mean, it's it should be

counting sheep, not pigs. Right.

>> Right. But that's the point that when

I'm talking about my sexual partners, I

start counting them. And I'm counting

sheep. Ed,

>> I got it. But we're talking about pigs

here now.

>> Yeah. I couldn't find I couldn't find a

good pig joke.

Um yeah, I was um accused of performing

acts of beastiality

at the London Zoo and supposedly they

saw me uh trying to escape while getting

into a jaguar.

That's better. We should have led with

that one.

>> Testing the material.

>> How are you, Ed? What's going on?

>> Um what is going on? doing some more

speaking stuff. Spoke at Aspen Ideas

Festival New Jersey, which is a spin-off

of the real Aspen Ideas Festival. I'm

sorry, the Ideas Festival New Jersey.

>> That's right. Wow. I think that's

probably the weakest flex you've ever

made.

>> Hey, I spoke at the Ideas Festival in

New Jersey.

>> In New Jersey.

>> And then the other the other side note

is that I wasn't I was there was I

didn't realize this. It was the main

room and I didn't realize while I was

speaking Mark Xandandy who is of course

our our big guest he was in the main

room and I was off in the side room with

Kyla Scandlin. So the first time I spoke

at South by Southwest

I looked at the schedule and of course

uh they scheduled at the same time uh Al

Gore and this is back when any every

anyone cared about the environment.

>> Speak for yourself.

>> That's right. You're young. I'm old. I

don't care. are going to be dead by the

time we all have to engage in mass

migration and super super fires. And I'm

not and they put me in a room that held

like 1,400 people. And I'm not

exaggerating. I think 18 people showed

up and like nine of them were from Vox.

It was so humiliating. I'm like, should

we bother? Should we just go get drinks

at this point?

>> When did you do this, Ed? And what was

your topic?

>> Uh, we talked about the casino economy.

uh specifically Gen Z's perspective on

all of this and it was me and Kyla

Scandlin and we keep on doing uh events

together. We we we did a

>> really you guys are the voice of Gen Z,

you and Kyla.

>> Exactly. We we're sort of the double

header. Um been on TV together a couple

times, which is great. Um but yeah, we

spoke about Gen Z. We spoke about the

casino economy.

>> And what is the casino economy?

>> The gambling and the options trading and

the sports betting, etc. and the crypto.

Do you do any gambling or buy options

which is essentially gambling? Like do

you have any sort of a gambling back?

>> No, I don't. I I I've never been

interested in gambling really strangely.

Yeah. And I have a lot of friends who

love gambling. They love sports betting.

Um they find it fascinating. They find

it fun. I've never been interested in

it. I've never found it fun.

So I guess I'm kind of lucky in that

regard because most of them lose money.

>> Trying to find like what you're you're

like you're one of those guys. Do you

like a Steepford wife? Like I want to

stab you with a fork to see if like

wires come out because everything I've

learned about you so far, you are

remarkably like well balanced and stable

and have a good relationship with your

parents and you're very humble and

living with a woman and you seem to have

a nice relationship and I just don't buy

it. Something's going on here. We're

going to find out. You're like

>> having sex with Jaguars,

>> going to kids birthdays parties dressed

up as a clown and then taking them home

and like killing them and eating them.

>> I'm the Ed Guy of financial markets.

>> Yeah. You know, something something's

going on here. Um, we're definitely I

don't know what it is.

>> No, but it's it's fair. I mean, I I like

Look, I like partying. I like drinking.

Uh, but gambling has never been a vice

that I've been interested in. I I'm

really not sure why.

>> I don't think I've ever really seen you

drink. People don't like to drink around

me. People don't like to drink around

their boss. They think they're going to

get in trouble.

>> What are you up to? This is one of the

first times we talked a bit more about

me than we have you.

>> It feels alien, doesn't it?

Uh, I'm in London where it's starting to

get cold and dark and I started to real

I'm I'm really excited to get back to

America. So, the countdown has already

started and I went to a dinner last

night and I met the the general manager.

Is that they call the coach of Arsenal?

He's like a lovely guy. You met Mikuel

Artetta?

>> Yeah, I met him.

>> You met Mikuel Ortetta last night at

dinner.

>> I did. Yeah. I think I've peaked. It's

time for me to leave London. Right.

>> Just so we're clear, that's the coolest

flex you've said on the podcast probably

of the year. At least in my book. Melta

is very that's that's awesome.

>> Well, his kids go to the same school as

my kids and he and his wife are really

lovely.

>> He's a good-looking guy, too, right?

>> Oh my god, he's dreamy. I barely he

would start talking and he has

>> he's sort of the heartthrob of of of

them right now

>> and he has this Spanish accent and

you're like what I don't I see his lips

moving but I can't I can't focus on what

he's saying. He's so good-looking. He's

very dreamy. He could be he's like a

James Bond kind of looking guy

>> and he's an incredible manager. He

studied under Pep Guardiola for his age.

>> Is he the most successful person in the

pre Prem right now? He's they they don't

get trophies but they're always at the

top.

>> Yes, they're top of the table.

>> Always at the top of the table. and he

turned around a mediocre team and turned

them into a worldclass team. That's

amazing. So, you had a conversation with

him. He know Did he know who you were?

>> Well, of course he did. That's why he

came. Uh it's he wanted a chance to meet

a professor. Um no, he had no idea who

he was, but he's very friendly. And I

asked him, I said, "What's it like?

What's it like now?" He was a player for

17 years or something. And then he went

right into coaching. And I said, 'What's

it like? Um, what are the young people

like today versus, you know, because

they're all young men. What are the

players like today versus when you were

playing? And he said, it's a much more

chaotic environment now. There's the

money, the fame, the social media,

they're just it's like constantly

there's no rest and no break for them.

And I could kind of see that it's so

competitive and their careers are so

shortlived. And the difference between

making the league minimum of whatever it

is, £150,000, and making 30 million is

not that great. It's like when you get

to those levels, it's like the best

golfers in the world are on average

score, you know, point4 strokes less

than the the guys who never get their

PGA card. So,

you know what I need? Well, this is all

a way of saying I need you just to make

a little bit more effort in this

podcast. I need you just to go that

extra mile. Yeah. I like what you're

wearing today. You look very stylish.

We're clearly paying you too much. What

are you wearing? Let's do a shout out.

Let's do What are you wearing? I'll tell

you what I'm wearing today. I'm wearing

Brunella Cuchinelli, which makes me feel

59 again. And then I'm wearing Viori uh

pants because A, they're a sponsor. And

B, this douchewear athleisure is so

comfortable. I'm turning into a doctor's

housewife. I'm on my way to do Pilates.

>> Pilates and Brunella. That sounds good.

Well, they should be they should be

really sponsoring us if you're going to

give a shout out. This is this is

Drake's. And again, they should sponsor

us as well, which is an English brand

that you'd probably love. Yeah, it's

very handsome on you. Well done.

>> Thank you very much. Okay, should we

talk business?

>> Sure.

>> The top open-source AI models used to be

American. Now that is changing. Today,

the top five open-source AI models are

all Chinese. And that is not the only

story of AI evolution coming out of

China. Chinese companies are also

showing that they can do more with less.

Deepseek is using a new format that has

allowed their training models to run 30%

faster. Meanwhile, Alibaba last week

said that its new computing pooling

system cut the number of GPUs needed to

run its AI models by 82%.

So, this is quite significant, Scott,

following the conversation we had last

week about how we're seeing all of this

data center demand and we don't really

have enough energy to power the data

centers. Energy costs where data centers

are being built have tripled. And as a

reminder, if you want to build AI, you

need to build the data center that

powers the AI. Open AAI wants to build a

chip network that would consume 250

gawatts of energy, which is equivalent

to a quarter of America's entire grid

capacity. Point being a lot of AI and

not enough energy to power the AI. And

then we ask this question, okay, well

then maybe we need to figure out a way

to either get more energy through solar

or nuclear or perhaps drill baby drill.

Or you figure out a way to make the AI

models more efficient. You figure out

how to consume less power, how to do

more with less. And it appears that

China is making some headway on that

front. Alibaba just last week announcing

this new system. It cuts their GPU usage

by 82%.

Basically, they can use 200 GPU chips

and they'll perform at the same level of

1,200 GPU chips. Don't ask me why or how

they can do that, but that is what

they're saying. Um, and it appears that

this may be a trend in China. So, Scott,

your initial reactions to China winning

the efficiency race, or so, it appears.

I was thinking in the editorial call

yesterday when we were going over the

stories and I kind of got my mind blown

thinking about as I heard you guys talk

about AI and the energy requirements and

open- source less openw weight um models

and I got this what I think is this like

I don't want to call it revelation but

something that I thought was really

exciting and I thought wow maybe we do

see something here in the matrix and

that is while everyone's talking about

the gating factor is going to be energy

and that there's no way that there'll be

enough nuclear power coming online to to

quench the thirst of Sam Alman's

unbelievable juggernaut called Open AI.

And I thought, well, maybe he's just

trying to manifest it and these big

energy projections that are running up

the stocks of electric companies and

scaring everyone that we're not going to

have enough power.

I wonder if well innovation can come

from the other side and that is people

can start producing chips and LLMs that

just require dramatically less energy.

And then the other thing that sort of

blew my mind and now I think as I

thought about it and slept on it, I

think it's actually a pretty decent

um thesis is that if you look at the US

economy, it's run for profits and

shareholder value. The life in America

is so much better if you're wealthy than

if you're middle class. and your life in

the middle class is so much better than

if you're in a low-inccome household

that we make a series of incremental

justifications every day where it's all

about America's now all about the [ __ ]

you have or specifically your ability to

to buy more [ __ ] Our economy and our

society is run

uh for profit. The Chinese economy is

run for control and also long-term

geopolitical power. They make 50 and

100year plans which we would never have

the ability to do. And part of that is

because we pay the price for having

governments, democracies that turn over

and sometimes go zig and zag. But what I

think is going on or what I think is

going to happen is the following. China

is really fed up and sees America as

their enemy or is sick of America having

this sclerotic trade policy that is

really damaging them and then saying you

can't have our chips. And they've said,

"Okay, we've had it with these guys." So

what do they do? They're much more

strategic. And quite frankly, she is 10

times smarter than Trump and also has

this incredible weapon in that he's

willing to kind of think middle and you

know think kind of medium and long term

which Trump has absolutely no ability to

do. And I think what they've decided to

do is the following. I think they are

going to flood the market with cheap

openweight models AI models. And if I

were advising she and I said okay if you

think of America as an adversary or

America essentially America has become a

giant bet on AI specifically 40% of

their entire market is from the

valuations the exceptional valuations of

10 companies related to directly related

or related adjacent to AI and if we take

down if those 10 companies go down 50 70

90% like they did in the do era they are

in a global recession Trump is out of

vogue we don't even need to stop buying

soybeans. They are in a world of [ __ ]

hurt. How can we do that? Pretty easy.

Let's start pumping out a bunch of

models that require less electricity,

less power, less processing power, and

are 90% as good. And another personal

anecdote, my first strategy client, I

started a strategy firm called Profit

when I was 26.

And my first client was The Gap. And

they wanted a new brand. And we came up

with working with this really

intelligent guy named Mark Bucko. Was

that a strategy there at the time? We

came up with what I thought and ended up

being a great strategy. And that was I

just read Peter Jarker's book and he

said every major business shift in

society is largely reverse engineered to

a demographic shift. And as someone who

had personal experience with this I said

one of the biggest demographic shifts in

America and this is 1993

is the explosion in single parent homes.

And it's almost when we say single

parent, we mean a single mother. And

single mothers, we did some research in

some focus groups, are very cognizant,

self-conscious, and focused on dressing

their kids well because they're insecure

and self-conscious about the fact they

don't have as much money and the dad

isn't around and they want the kid to

feel good about themselves. And so we

identified this segment and it was this

fast growing segment. And we said,

"Okay, here's the positioning. 80% of

the gap for 50% of the price." And that

positioning took Old Navy from zero to a

billion dollars faster than any retailer

in history. And that is probably if you

look at the fastest growing businesses

in the world. Oftent times they're that

80% of the biggest airlines, America,

Delta, and United for 50% of the cost.

That's Southwest, now the most valuable

or was the most valuable domestic

airline. I think that the Chinese tax

sector under the direction and

encouragement of the CCP is about to old

navy the [ __ ] out of the US economy. and

they've done it across BYD electric

vehicles. They generally that's their

business strategy whether it's cell

phone towers or clothes. But I think

they are going to spend a ton of money

and time and put their most talented

scientists of which there are a ton uh

to work on the following. Let's [ __ ]

go. We've been going for the heart and

lungs after red states with these uh

trade policies whether it's rare earth

minerals or or cancelling our contracts

for soybeans. Now, let's go for the

[ __ ] jugular and let's let's neuter

their AI industry, specifically the

valuations, and let's release a ton of

near premier quality uh LLMs open weight

that anyone can use for near-free that

maybe require much energy, but most

likely don't and certainly aren't nearly

as expensive. And let's let's [ __ ] with

America's big bet here. Let's make this

big bet uh not pay off. I think that is

exactly what is happening. I would add

that part of the reason why this has

happened is because of the export

controls that we put on chips to China.

And this is was the the deepseek story

that we discussed at the beginning of

the year where China had less capable

and fewer chips to work with because of

these export restrictions and it forced

them to get leaner and more efficient

and work with what they had. That is

exactly what they've done. And I think

to your point, they are doubling down on

that. And I'm just going to go through

some of the data that we've seen on how

China is winning in this AI efficiency

game. So I just talked about Alibaba and

their uh AI model, which is called Quen.

Uh they're using 82% less GPU chips

because they figured out this system

that helps them do that. Again, as I

said, I don't know exactly how that

system works, but that's what they've

told us. Deepseek, they are also

optimizing for efficiency. They're using

this thing called the FP8 format, which

essentially just cuts down the number of

the the decimal count on all of these

long numbers that go into these models,

which allows them to reduce the amount

of usage of memory, and it allows them

to run their training models a lot

faster. GLM is a model that is produced

by this other Chinese AI company called

ZAI. They are also using a lot less

energy and all of these efficiencies are

being reflected in the costs of these

models. So just to go through the costs

here, the cost per million tokens if

you're using OpenAI's model, which is

GPT5, the cost per million tokens is

$10. Compare that to ZAI's model, which

is called the GLM4.6 model. The cost is

$1.75.

For Alibaba's model, Quen Plus, it is

$1.20. For Deepseek, it is $110. Put

another way, all of these Chinese models

are nearly 10 times cheaper than their

equivalents in the US. Now, I'm sure the

US models are better and we'd want an AI

engineer to come on and confirm that to

us, but what is clear is that they are

put it exactly as you say, the Old Navy

strategy. 80% of the value or the

quality or whatever you said for not 50%

of the price but for 10% of the price.

So they are doing to AI the same thing

that they did to electronics, the same

thing that they did to apparel, the same

thing they did to consumer goods. It's

the same thing again. It is reduced the

costs dramatically and at the same time

and sort of upstream of that reduce the

amount of energy required to create

these models dramatically and they seem

to be way ahead of the ball on this and

I do agree with your point that this

could be um it could gut the American

economy which as you say has become

incredibly reliant on AI. Now I want to

go through in a second just the history

of efficiency in the business world but

I will pause there and see if you have

any reactions to those numbers.

>> So earlier in the year we predicted that

the rivers of capital into the US were

going to reverse flow. That was mostly

sort of right and that is EU stocks have

done really well but also to be fair

American stocks are up 12 13% the S&P is

up. So clearly the flows of there's

still massive flows of capital into the

US. The most dangerous own goal over the

medium and long term is there really has

been a chill placed on the inbound

rivers of human capital. The inflow and

that is some schools some colleges are

projecting there's going to be 20 to 40%

fewer foreign applications. Every

talented PhD student and every

world-class researcher in the world had

one thing in common. They had either

come through US universities, been

trained here, or would seriously

consider coming to work for our

universities. And now what's happened?

China's figured this out. China produces

120,000 PhDs every year. That's three

times what the US produces in 2024.

China's AI research publications.

The output, the amount of peer-reviewed

credible research matched the combined

output of the US, UK, and European Union

and now commands more than 40% of global

citation attention. And AI, which let's

be honest, is very IP and researchheavy,

technical heavy.

They've got more coal in the furnace and

they're going to use it strategically to

reach that type of scale that you're

about to talk about. Talk about the

importance of scale in our winners. What

I would describe is versus scale is the

importance of efficiency. And if you

look back through basically every great

company in history and what they were

good at and where they innovated, they

all basically have one thing in common.

And that is they were all incredibly

innovative when it came to cutting down

costs.

And we can go back as far as the

invention of the car. I mean, you look

at Ford as a great example. Their great

innovation was the conveyor belt, the

assembly line. And they basically what

they did was revolutionize how you make

a car. And what used to take 12 1/2

hours of manual labor, they were able to

reduce it to just 90 minutes. And

because of that, in less than a decade,

Ford cut the price of cars in half. And

then a decade later, they cut the price

of cars in half again. to the point

where by the 20s more than one in two

cars in the world was a Ford. That's how

they did it. They just innovated on

let's make it more efficient to build

this thing, not let's make the coolest

and sexiest and fastest car in the

world. McDonald's, same thing. They

reinvented the kitchen assembly line.

They reduced the menu to just a few

items. They cut the cost of the

hamburger in half. They became the

biggest restaurant chain in the world.

IKEA, another great example. Their big

innovation was just how you ship the

products. Let's put them in flat small

packages. They shrunk the size of the

box by 50% which cut the logistics costs

uh almost in half and they can now ship

10 times more furniture than their

competitors for the same amount of gas.

Now it's the largest furniture retailer

in the world. Walmart, another good

example, too, cutting down logistics

costs so they can sell products cheaper

than their rivals. SpaceX, a newer

example, their big innovation. Let's

just reuse the rocket. Let's make it

cheaper and more energy efficient to do

this. And they cut the cost of launching

stuff into space by more than 95%. And

as we've discussed, now they have 90% of

the space launch market. So I think what

when we look through history the most

impactful companies the companies that

achieve the most amount of significance

and dominance and revenue it's the

companies that figure out a way how can

we do more with less and I think that is

the big question that America now needs

to ask itself especially when we look

over what's happening in China where

China is laser focused on addressing

this problem and I think if you look

through history what you would what you

would assume

is that they're going to win on AI if

they figure that out before we do. So

there's this great economist at Stern

named Bruce Buchanan and he absolutely

blew my mind and gave me a model that

through which I run almost every

strategy and every decision I make

economically or in terms of positioning

a company and that is all shareholder

value all stakeholder value is a

function of the relationship between

three lines

at the very top perceived value in the

middle the price you're charging and the

bottom line is the cost to produce that

product. And companies can only increase

stakeholder value by doing one of two

things. They either push down the cost

line, right, through scale. That's what

we're talking about now. Hamburgers for

less money, putting satellites into

space, payload into space at a lower

cost per kilogram, assembling a computer

for less than anyone else, Dell, right?

that and then once you push that line

down, you can pass on the savings as

Walmart does and immediately lower the

price concurrently and that creates a

gap between the price you're charging

and the perceived value which is greater

which should result in more market share

which is how these companies have

created hundreds of billions of

shareholder value. It's like oh my god.

So the the old ad that was most

effective for Walmart was if you start

shopping at Walmart, it's like getting a

promotion and that is your quality of

life. You're you're not going to have to

buy Budweiser, you can buy Heineken. You

can now buy steaks instead of hamburger.

It's like you got promoted because of

that scale because we're able to lower

our cost. We're immediately going to

pass on lower prices and the margin, if

you will, of perceived value relative to

price is greater, more market share. The

flip side and what actually America is,

I would argue, better at is taking the

top line or perceived value and pushing

it up through branding, through

merchandising, loosely speaking or very

reductively. China wins by pushing the

bottom line down scale and passing along

those price advantages to their

customer. And America generally speaking

has value ad products through

advertising strategy distribution

whatever it might be. Scarcity,

artisanship pushes the perceived value

line up.

>> I mean, open AI appears to be the king

of the perceived value in the AI space.

I mean we keep on seeing these

benchmarks and in a lot of cases

different models are actually beating uh

GPT when it comes to reasoning and and

and speed all these things and yet Open

AI is the premier brand in AI and I

wonder if if that is a function of as

you say maybe they they are really good

at doing the stuff that Apple's really

good at which is the branding and

pushing up the perceived value but I

wonder if when you're talking about

gigantic revolutionary technologies that

expand beyond just retail. something

like this, something like AI, which is

supposed to take our entire economy, the

global economy into an entirely

different direction, whether it is

imprudent of America to spend their time

on perceived value versus figuring out,

okay, how can we deliver this to the

most amount of people for the least

amount of money possible? That to me

seems like the right direction to go

with when it comes to AI, especially if

this is going to be as transformative as

they say it is.

>> It's an interesting question, but

traditionally the American economy has

been about value ad as opposed to scale.

The Chinese

So think of value ad is synonymous with

brand value. Name a global brand that

has come out of the second largest

economy, China. It's it's tough. Isn't

that weird? Think about it. Great.

There's great French brands. Louis

Vuitton,

>> BYD, I think, is is probably the sexiest

brand coming out of China right now.

>> We hadn't heard about that till 24

months ago. Some people say Tik Tok,

some people say Alibaba, but America

probably has a whether it's Coca-Cola or

Harvard. America has like hundreds of

amazing We're really good at media.

We're really good at creating value ad.

At the end of the day, our consultants

are the most expensive in the world,

right? Our schools are the most

expensive in the world. The digital

world, I think to your point, has become

more about scale and open AI was first

zero to kind of, you know, whatever zero

to what is it 0 to a million users in

like 5 hours or something whereas other

technologies have taken months if not

years 0 to 10 billion in revenues faster

than anybody else. So these digital

products that are frictionless, I agree

with you. It's more about scale, but

generally speaking, American products

are usually considered globally the

premium product at a at a higher price

and greater margin. Just to put a button

on this, where do you stand on the US

China AI race? I mean, China is winning

on energy capacity and energy buildout.

They're also winning on efficiency.

We are probably winning on quality and

in some cases scale

uh and brand value. We do have some

progress on efficiency. Google's

developing uh these alternatives to the

GPU called the TPU. I think you're going

to hear a lot about this TPU over the

next few months and they are more energy

efficient. They just had this deal with

Anthropic. Amazon is working on their

Trion chips which are supposedly more

efficient as well. We're getting there.

But I think it's safe to say China's

winning on efficiency and they're

winning on energy. So given that,

where do you stand on the race? What's

going to happen, do you think?

>> My emotional reaction is China's going

to beat us because I think Donald

Trump's policies are just incredibly

scllorotic and short-term and just head

up your assy like nothing before. The

biggest own goals in history are being

committed in my view. Having said that,

I have a tendency and I think we have a

tendency to overestimate the policies of

a current administration relative to the

underlying economy which just turns on

and the US economy biggest gears in the

world to grind on more. It's like, have

you seen those Tik Tok videos of those

things that crush metal? Like you put a

car into the thing and it starts like

eating it alive like it's a tomato. I

mean, it barely even feels it. It's

like, oh my god, watch this. What it can

do? I mean it can just eat anything.

That's like the US economy. The US

economy just appears to be so resilient

and so powering on. So my answer would

be okay. Does China win with scale and

low cost or does America win in AI with

value ad? I think the answer is yes. And

that is if you want to order a puffy

winter jacket, it's going to be hard to

get something for less than if you get

it from Shien or another company that

has manufacturing in Southeast Asia. At

the same time, people are still going to

love Northface. The existential threat

here is a function of our valuations.

And we've been saying this forever, that

the cloud cover for the Trump

administration right now and the cold

comfort that people have in terms of

confidence to spend more money,

especially the wealthy who the top 10%

now account for 50% of the consumer

spending, which is basically economies

resting on the top 10%. The top 10%'s

consumer confidence comes from where the

stock market is. And the stock market is

up solely solely because of 10

companies. You know, 77% of that growth.

So they don't need to win. All they need

to do is show that these companies

aren't going to dominate the world.

Built into these valuations is an

assumption that these 10 companies are

going to own all of it.

all of it. And so if if they still have

the niche products, still amazing

businesses, still get premium margin

because people want to say, "I'm on chat

GPT or Claude, I don't want to be on

Deep Seek. I don't want to be on, you

know, it's not great self-expressive

benefit or if you're an American

company, there might be security

concerns." Fine. But all they need to do

is say, "We're eating into their share."

So I don't think there's a winner and a

loser here. What I think is both will

find their niches, if you will, or niche

or both will find a market. The problem

is is that these companies get cut in

half and the stock market goes way down

and when it becomes clear these

companies aren't going to have like 97

points of share of the global AI market.

We'll be right back after the break. If

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We're back with Profy Markets. Four

thieves carried out a daring heist at

the Louvre in Paris last week. In just 7

minutes, they broke in and stole eight

of France's crown jewels valued at more

than $100 million. While that burglary

drew international attention for its

scale and audacity, it does come amid a

string of far more troubling crimes. In

the US, we've seen several high-profile

murders in the last year. Political

commentator Charlie Kirk was

assassinated in September over the

summer. Minnesota state law maker

Melissa Hortman and her husband were

murdered in their home. And late last

year, United Healthcare CEO Brian

Thompson was murdered just before the

company's annual investor conference. So

these incidents raise questions about

how institutions, individuals and even

private companies can address safety

concerns. As a result, one sector in

particular has seen growing investment

and that is private security. So Scott,

we have been talking about this for a

while. Uh, and we've been bringing up

the possibility that in a less

structurally sound society that is ailed

with issues mostly to do with income

inequality that leads to more crime that

leads to more violence which in turn

leads to a need and demand for security.

Now I just want to go through a couple

of statistics here. one uh this comes

from Goldman Sachs which surveyed a

bunch of companies public companies

private companies nonprofit companies

and basically they found that 3 years

ago

17% of CEOs of the companies surveyed

17% had private security

as of last year that number had risen to

27%.

So it went from 17% to basically a third

in two years. A third of companies in

America are hiring private security

professionals to protect the lives and

the safety of CEOs.

Uh we've also seen residential security

demand skyrocketing. Demand for

residential security rose 20% last year.

Uh also after the United Health CEO

shooting, there's this security company

of a big company called Allied Universal

and they said that their executive

travel protection business grew by 300%.

So it quadrupled right after this. So we

are seeing a lot of demand for security

for private security and you actually

called this right after the shooting in

December.

>> I I would imagine the first reaction is

we need to keep our executives safe.

Those numbers that you quoted around CEO

security are about to explode. That's a

good business to be in right now,

offering executive security.

>> That is exactly what we're seeing. And

we're seeing more and more high-profile

crime, specifically attacking

high-profile individuals or high-profile

institutions.

Scott, your reactions? I I just went to

one of these master the universe

conferences where I don't know probably

12 of the 30 wealthiest people in the

world were there and there was just

security everywhere

and it's a real shame and I think these

people can't just take a walk

and something that always struck me as

my father said to me he said the key to

happiness is to be rich and anonymous

and that always struck me as very

insightful that you because he said

famous people who are rich and famous,

eventually there's an industrial

incentive to go after them and tear them

down or that they become targets or, you

know, they get sued more easily. He

said, "You want to be rich and

anonymous?" And I said, "How about if

I'm famous and not rich anyways?"

>> That's what we're going for on this

podcast.

>> And someone once said to me, "Oh, your

son's so smart, he'll probably be

famous." I'm like, "As long as he's not

infamous." Um, but look, the when you

have guns everywhere, when you have

income inequality, when you have people

who go down rabbit holes and get

radicalized and go after famous people

because they think in some sort of

historic act of violence, they're going

to regain social capital among a group

of people that they think they've lost

capital with and they suffer from mental

illness and, you know, guns everywhere.

What I'd be interested in knowing, it's

like, okay, this is a market show. How

do you make money? Are there public

companies or places you can invest

that's that's that make the supplies of

the materials for security? Right. I got

to think home security and things like

that are going to are just going to boom

because the number of wealthy people

oh just on a lighter note when I was in

a bea this summer I saw a friend of mine

and he had a table up front and he had

these two enormous security guards and I

said to him I'm like dude you're not

that famous. You don't need security.

He's like, "No, no, no, no, no." He's

like, "It's a chick magnet. It means I'm

really important."

And I'm like, "Let me get this. You're

doing this for women." He's like, "Yeah,

it's amazing." He's like, "Everybody

thinks I'm super famous." And he goes,

"But next year," he's like, "The

gangster move." I'm like, "Could these

dudes be any bigger?" And he's like,

"No, no, no, no, no. The new This guy's

really funny." He's like, "The new

gangster security is to have a hot

Israeli woman who worked in the MOSAD,

and she just has kind of this resting

[ __ ] face."

and and and I'm like, "Oh my god." So,

could you be any douchier? You're

walking around with huge guys right now,

but next year you got to find an Israeli

security woman cuz that's the new flag.

>> This guy would like pay to be on the

Epstein list.

>> Yeah, this that's funny. Pay to be on

the Epstein list. That's funny. I got to

tell him that. I'm going to text him

that. That's funny.

>> I want to hear more about this Master of

the Universe conference you went to and

all of the security that was there. I

assume there are a bunch of tech

billionaires in this room and you're

observ You're saying that you saw more

security than you've ever seen. Is that

is that right?

>> It's a strange kind of security though.

There's no metal detectors.

So, we're all staying at uh some we're

all staying at the same hotel. But I'm

not exaggerating. Every 8 ft if I was

wearing a long sleeve shirt and you have

your wristband that identify you're

supposed to be there. if your shirt was

covering your wristband. Some guy in

plain clothes that looked like he's been

on human growth hormone for the last 20

years, you know, like got

got cut after his first season at the

New York Giants and has been pretty much

just working out his whole life. Comes

up to him and goes, "Oh, can I see your

can I see your wristband?" I mean,

everywhere in the bathroom, there were

all these guys doing their best to be

kind of out of the way and not

obtrusive, but everywhere.

I remember thinking, yeah, I remember,

you know, you have those. I'm like, what

if I just the like I wanted to go up and

meet one of these guys and I thought I

need to walk slowly cuz I think if I

walk a little too fast I'm going to get

shot towards I'm going to like be

tackled and tased and then if I like you

know if my wristband isn't present

they're just going to ex you know there

was so and you can understand these

people a they have the money and b when

they see that that these horrific events

where a guy the CEO of a publicly traded

company who's anonymous is walking down

the street in Manhattan and is executed.

So, I don't know some of it. But

anyways, back to the market standpoint.

These have got to be great businesses

because they're pretty, I would imagine,

pretty high margin. I would imagine

there's a lot of people who are

looking for work like this. The people

who don't want to round up our farmers

and our servers and and occasionally a

US citizen while wearing a mask would

probably rather do private security for

a very wealthy person. And by the way,

what I would tell anybody, and this is

kind of sad, but it's true, um, go to

work for wealthy people, and that is

there's this cartoon that wealthy people

are awful. And Monty Burns, I have

generally found that really super

wealthy people are generous and nice and

treat their employees really well. And I

just don't buy this notion. You know,

like I if go to and all not only that,

if your boss is making 10 million bucks

a year, it's not easy for him to pay you

$7.25 an hour.

>> I think that's the more important point.

It's like it would be uncomfortable not

to pay you. Well,

>> let's not even say it's the character

thing. It's just that it's you can't

have people in your home organizing your

jewels, you know, and picking up your

kid from a school that and then and

then, you know, you can't pay your nanny

$40,000 bucks a year when you're

spending that, you know, when you're

spending $100,000 to get to Sanrope.

So, and and also just generally

speaking, I have found

Yeah, I'll stick by it. really really

wealthy people get there. Not kids

who've inherited money. I I can't get

over what [ __ ] douchebags some of

these rich kids are that I meet and how

out of touch and non-empathetic and how

I don't know just just they're just so

tonedeaf as to their privilege and to

the fact that yeah, you'd be maybe the

number two salesperson at Subaru of West

Hollywood if your father wasn't a

[ __ ] billionaire.

And but they're under the impression

that it was their grit and character

that got them where they are. Anyways,

those people I I generally believe the

cartoon is pretty accurate, but the

self-made billionaires quote unquote are

have been put in a room of opportunities

constantly that they're not in

physically because they're good people.

And also, I think when you get a little

bit older, you get excited about the

opportunity to share time and work by

giving, you know, by paying people.

Well, uh, but there, you know, and

that's what's so disappointing. Well,

I'm I'm I'm I was about to go on my

socialist rant, but I'm not going to do

it. But but generally speaking, we were

talking about there's a lot of

opportunities probably for these guys.

Um or and they're usually guys unless

you're a female former Mossad. Um

I want to hire the K-pop demon hunters

to be my security guards. I have a 3D

anime following me around. I wonder I

would like to have I know who would I

like to have as my security guard.

>> I'd like to have Erling Holland. I think

Scott Beao or maybe David Hasselhoff.

I'd like to get David Hasselhoff like

incredibly [ __ ] up and have him just

walk around and introduce himself as my

security

>> or B Midler.

>> Bet Midler should be my security.

Anyways, the number of ultra high netw

worth individuals surged 21% last year.

The top 1% owns half of the market cap

of the entire S&P 500. The top 19

households own 2% of all household

wealth in America. 50 years ago it was

0.1%. So their share of the pie has

20xed in the past 50 years. Compare it

to the bottom half of Americans who

control roughly the same amount. So you

got 19 households versus several hundred

million households who control the same

amount of money. And then you ask the

question like what's good with all the

crime? Like why why are people shooting

each other in the street? Why are we

seeing like Hollywood style heists

capturing hundreds of millions of

dollars worth of of uh royal jewelry?

And I think it's not a stretch to make

the connection between what we're seeing

with inequality and what we're seeing

with crime and therefore what we're

seeing with the demand for executive

security and private security. In fact,

studies have shown that as the genie

inequality index rises, so too does the

number of private security employees per

capita. And of course, so too does crime

in general. I just want to point you to

this stat. There are now more than a

million privately employed security

guards in the US, which is more than the

number of high school teachers in

America.

Compare it to the past two decades.

The number of security guards in America

has doubled. And for context, you might

say, well, the population has grown. No,

population has grown only 16% since

then. So you've got America's population

up 16% and the American security guard

population up 100%.

Over the past two decades. So it does

appear that we are entering into a sort

of uh I don't know postlaw society where

every man for himself and every man

needs to get their own former MSAD agent

to protect themselves uh to protect

their home and protect uh their jewelry.

And uh to your point about, you know,

can this be an investment thesis, which

I believe it can. It's a it's a highly

cynical investment thesis, but it's a

real one. And that that might that could

be something to to discuss. We we have a

few names that we could mention, but I

first let's just get your reaction to

that number. You know, more than a

million security guards in America.

>> That blew my mind. More security guards

than teachers. Look, this is the erosion

of a society, but it's a continued

pattern. And that is very talented,

hardworking, and lucky people garner

disproportionate amount of their

resources. They incrementally come up

with candidates and ideas to lower their

tax rates and make it such that they can

sequester from the rest of society with

private air travel, private

infrastructure, private security. They

don't need cops. They don't need

teachers. They don't need the FAA. They

don't need

they have their own they have their own

health care. They don't need

hospital rural hospital systems can be

shut down. It doesn't affect them. These

huge cuts to to Medicare

uh and Medicaid. They don't affect them

because they have their own concierge

healthcare. They have doctors coming to

their house. Oh, teachers don't make

enough money. I don't care. I've got my

teachers in my private school make

plenty of money. Oh, we're making cuts

to the police force or fire department.

That's okay. I've got my own I've got my

own security. So, this separates the

people with the power from the realities

of our society and makes them less

invested in our society and they keep on

just voting for and giving money to

people who will cut their taxes because

the decline in the civility and social

services they're immune from. And I'm

not proud of this, but I don't know

where to put my money right now. I don't

I think the markets are overvalued. So,

what I've been doing, and I've told you

this, I've been buying real estate in

what I call 0.1% communities.

And when I meet with someone to talk

about, I'm like, I say, this is simple.

This house, I'm ultimately going to sell

this house. I don't know if it's going

to be 3 years or 10 years or 20 years,

but who's it for? It's for a new

billionaire.

The only thing I'm fairly certain of is

in the next 10 to 20 years, the

regulatory capture, the income

inequality is only going to get worse

globally. And as capital becomes more

global, they all want to live in the

same small number of places. And they

are price insensitive when it comes to

their home. And so that's the best bet I

can find right now is that, you know,

it's why these it's what private air

travel is surging. And this is the dark

side of that. And that is the same

pattern emerges. At some point, people

realize that if one man is worth more

than the lower 52% of America, the

easiest thing to double our wealth, 160

million people, is to take his [ __ ]

away.

And that's a form of revolution. And it

keeps happening over and over. But

revolutions take on different

complexions.

And I've said this before, the Me Too

movement, Black Lives Matter, the

execution of a healthc care CEO, these

are all forms of small revolutions. And

that's not to say the Black Lives Matter

and the Me Too movement didn't have

righteous components to them. But

effectively, what they they weren't

going after sexual harasser managing a

taco truck. They weren't going after the

racist small business owner. They were

going after rich people. So there is

this populist anger. M Tommy is probably

going to win the mayoral race of a city

that has a larger GDP than I think all

but you know 12 or 14 countries

on the notion

of of essentially income inequality and

unaffordability. People are angry and it

the income inequality isn't just about

the poor versus the very rich. It

trickles up. What do I mean by that?

There are so many people of your

generation living in New York that are

they've played by the rules. They've

gone to great, they worked their asses

off in high school. They're good people.

They got into amazing schools. Their

parents borrowed money for them to get

through those schools. And they worked

hard and they got scholarships. They got

out. They got great jobs. And they still

can't [ __ ] afford to live in New York

or San Francisco. I mean, they still

can't afford. When I moved to New York,

granted I had to have two roommates, but

I could afford to live in New York

making back then I was working at Morgan

Stanley like 50 55 grand a year.

You have to either be in technology at

with Meta or Google, working at JP

Morgan, or have rich parents who are

putting you through New York and San

Francisco. So, it's not just poor people

deciding to break into a jewelry store

or committing crime. It's general

dissatisfaction among New York voters

who are like, "Fuck, I've played by the

rules. I'm making a great living and I

can't live here." But I see this

pornographic wealth being shoved in my

face 210 times a day. And I see people

aggregating the GDP of a Latin American

nation who are paying their lowest taxes

ever. So this revolution is like

happening kind of up and down the income

ladder. People are dissatisfied who are

making six figures right now. Like,

okay, I was supposed to live a better

life than this. The extraction of so

much value and capital is going so much

not to the top 10% but the top.1% that

even if you're in the 90th percentile

right now, you're starting to feel

pissed off.

>> That's what that's what the so

interesting about Mana. People like, why

is this why is this message working in

New York? Why are people in Manhattan

voting for this? It's like even the

people who are making good livingings

feel that the city is unaffordable.

That's why it resonates. It doesn't just

resonate for the for the for the bottom

50. It resonates for the bottom 90. I

think it's an important point. So now uh

we get to the part of the show where we

make uh investment trades based on the

collapse of society. So,

um, how do you invest in private

security?

>> Short answer is it's pretty hard.

>> Yeah. Most of it's private, right?

>> Exactly. Most of them are privately

owned. The biggest one is Allied

Universal. They have 26% market share.

They're still private, but they said

they're considering an IPO maybe next

year or the year after because, of

course, they're doing very well. There

are some publicly traded stocks. Um,

there is Brinks. They provide ATM

services and armored trucks. There's

securitas on-site guarding uh and remote

monitoring services. There's ADT which

provides professional home security. Uh

these are we haven't done proper

diligence on these companies. Um but so

these are not this is not investment

advice. Um certainly go look into this

yourself. Um but you know those are a

few of the names that are publicly

traded if you want to get that exposure.

Also there are a lot of private equity

firms that are that are investing in

these kinds of security companies and

and some of them are publicly traded.

Aries as an example uh they invested in

this company called Convergent and

they're sort of the global leader in

building security. Apollo is a major

investor in ADT there's one of those uh

private security companies. So there are

some ways to get some some distant forms

of exposure and there are some ways to

get involved in the public markets but

uh again not not investment advice and

I'm I'm not saying you should go buy

these stocks.

>> So when my mom was diagnosed when her

cancer recurred she went in for her

second mastctomy

and while she was in the hospital

somebody broke into her condo. So

obviously it was an inside job right?

that somebody at the hospital knew the

names and addresses of people who were

undergoing surgery and was providing it

to other people to break into their

homes knowing that no one would be

there, which is pretty depraved but

pretty obvious. And my mom had rented

out my room, you know, total cliche, the

moment I go to college, she rents out my

room cuz she needed the money to this

lovely uh PhD student. And she was home

and she heard something and opened the

door and saw this guy and screamed and

closed the door and the guy ran out of

the house. And my mom was totally

freaked out like she'd just come home

from surgery. The house had been broken

into. She was just, you know, as you can

imagine, upset, paranoid. And so my

answer being creative and of course a

protector was I went across the street

to the Johnson's who were total [ __ ]

[ __ ] and I stole their ADT sign and

I planted it in front of her house that

this home is protected by ADT. I'm like

we're fine cuz it's clearly the sign

that scares people off.

>> I love that.

>> Anyways, that was that's my home

security story. Ed,

>> you were master of branding from a very

young age. I I'd love to see the data,

but these home security systems are

ineffective in my view and play on

nothing but fear

>> and and that that might be right and it

could be that a lot of these

billionaires who are hiring the these 12

person security teams, maybe you don't

actually need them, but the fact is

they're scared and they're worried.

>> I know, but what I'm saying is somebody

Okay, you have an alarm system, maybe

that works. Uh, fine. But the idea,

those commercials are like, "We see an

intruder." And this nice lady is like,

"We're deploying the police now." Okay,

folks, if you want, if you look at the

data, you know, hands down, and by the

way, people think um a good home

security is a gun. No, that means you're

much more likely to be shot. The moment

you get a gun, you're much more likely

to be shot because you don't sit there

cocked with your gun cocked waiting for

a criminal, right? And generally

speaking, criminals don't aren't there

to kill you. They're there to steal your

[ __ ] Unless you show up with a gun and

then they shoot you. The most effective

home security system. Hands down. Hands

down is what? Ed,

>> you just want me to get a dog, man.

>> It's a dog. 100%.

They've done all these surveys. They've

done all these surveys of people who've

been incarcerated for home invasion or

theft, and they all say the same thing.

We don't go into houses with dogs.

>> I'm going to get a pet chihuahua.

>> If you get a Chihuahua, get one that is

exactly 2.2 two pounds and name it Kilo.

I think that is the best dog name I've

ever heard.

>> So this this is really an investment

trade on buy on dogs. How do we go long

dogs?

>> Well, actually pet food companies, pet

supplies companies have been amazing

investments. People will start eating

cat food themselves before they cut off

their cats cat food.

Seriously, people that spike been it's

been a great a great sector. But I don't

know how to invest. I don't know how to

invest across this

um sector. Even like the TSA is all

illusion. It's not.

>> But fear is a powerful thing and it

makes makes a lot of money.

>> Yeah. 100%. 100%.

>> We'll be right back. And for even more

markets content, sign up for our

newsletter at profarkets.com/subscribe.

We're back with Profy Markets. It was a

big week for streaming and the industry

looks closer than ever to consolidation.

Warner Brothers Discovery stock jumped

more than 9% after the company hinted it

was open to a sale. Reports emerged that

Paramount has already made three offers

to buy it, all of which were rebuffed.

Meanwhile, CNBC reported that Netflix

could be a potential buyer. Netflix also

made headlines of its own. Its third

quarter earnings missed expectations,

but mainly because of a $619 million tax

settlement with Brazil. But beyond that,

it was a solid quarter. Revenue rose 17%

to 11.5 billion dollar. So Scott, lot of

news in streaming and in entertainment.

Another turn in the Warner Brothers

saga. Earlier this year, they announced

they were gonna split into two entities.

Then we learned they're fielding

interest from Paramount Sky Dance aka

David Ellison. And now we learn they are

getting quote unsolicited interest from

multiple parties. They say they are open

to a sale. And then we're hearing from

CNBC that among the interested parties

are Netflix, also Comcast. Now you uh

actually highlighted Warner Brothers as

one of your top stock picks for 2024.

Here's what you said back in January uh

of 2024.

>> I think Disney and Warner Brothers

Discovery are going to do really well

this year. I think they're both going to

be put into play. They have become

distressed assets. They are now trading

at some of their lowest multiples in

history. It's not because these guys

will do anything that deaf or that

brilliant. It's because quite frankly

they've just gotten so cheap they're

going to attract a lot of sharks. They

also are single class shareholder

companies, meaning that they're

breakable, if you will, that someone can

come in and start rattling their cage.

>> So, Warner Brothers has doubled since

then. Um, and it now looks like it will

be acquired by someone. Your reactions?

>> So, Mark Zuckerberg and Schol Samberg

have made more money while doing more

damage to young people than any people

in history. But from a shareholder

perspective, they deserve every penny.

With respect to shareholder value, the

person who added the least value,

destroyed a ton of value, took Ibida,

cut Ibeta in half and like almost [ __ ]

up the tax ramifications of their asset,

which was Japan, the Japan division of

the company. As Marissa Mayor for coming

in and [ __ ] up Yahoo, walked away

with a quarter of a billion dollars.

uh she's about to be bested by David

Zazoff who has already earned somewhere

between a quarter and a third of a

billion dollars for getting the stock

back to where it was when he came up

with this idea to merge the two. And I

have no doubt that he is quite frankly

trying to figure out a way right now to

get some crazy golden I don't know exit

package from this acquisition and for

basically selling the company for the

same price he convinced shareholders to

pay for it when this ill- fated dumbass

merger was formed um several years ago.

This is going to happen. Uh they are

leaking false information. And Comcast

is smart. Comcast isn't going to buy

this company because the only people who

are willing to spend $24 or $26 a share

for this thing is the Ellison's because

the kid wants to go to the Academy

Awards and wants to spend dad's money to

be a media mogul. And the father just

who made $90 billion in one day probably

says, "Okay, we're going to sell the

shitty cable assets and we're going to

take Warner and HBO and we're going to

AI the [ __ ] out of the content side of

this and it'll be really interesting and

we'll see if we can do something." and

my son who's a good kid, you know, gets

to go play in traffic. But the idea they

are leaking information that there's

multiple suitors here. [ __ ] This

thing makes no financial sense. And

there's a reason that the only people

involved in these companies are all the

children of billionaires cuz no one else

that has to answer to shareholders is

willing to show up and pay anything

anything close to this price. So Zazlov

is leaking rumors that this is a

multiple party bidder. There's one

bidder and his last name is Ellison.

>> Yes.

>> It'll end up going they're trying to

play the reluctant bride. So they come

up to 24 or $26 a share. They will buy

the thing and right now all Zazlav is

doing is feathering his bed for a deal

that he walks away with a quarter

another$100 to $500 million for

basically adding no value. And these are

trophy assets. uh they will I I don't

think it's a Mavavelian strategy for the

Ellisons to control media. What this

will be is an interesting application of

AI and potentially taking colliding

Warner Brothers in great content and IP

with their uh US division of Tik Tok if

they get control of that.

>> I totally agree with Well, you said two

things. One, they're they're pretending

that there are multiple bidders. I 100%

agree with that. I think that's

definitely right. The second thing you

said is that it will happen. It will get

sold. I'm not 100% sure.

>> Why is that? What do you think is going

to get in the way of it?

>> Well, they've rejected the offer three

times already.

>> That's a reluctant bride.

>> Just to play this out. So, Warner

Brothers says, "We're open to a sale and

here are some biders that may or may not

be involved." And it gets leaked to the

press and then now we're on the podcast

talking about, "Oh, maybe Netflix will

buy it. Maybe Comcast will buy it, etc."

You're saying Zazoff wants to sell. He

wants to create an illusion of an

auction and that's why this is happening

and Netflix isn't actually interested. I

completely agree. What is interesting is

the fact that the stock went up 10% on

the news. So the market says, "Oh my

gosh, something's happening. They're

open to a sale." And what you're saying

is they were always open to a sale. They

were dying for a sale. Zazloff

specifically. And they're kind of

pretending as if something has changed

and nothing's really changed here. And

yet the stock has gone up 10%. So that

in and of itself is very interesting

that we're seeing this stock explosion

on not really anything at all or at

least something that appears to be kind

of manufactured. But it does raise this

question.

Ellison has come to him and he's given

him a few offers. He first offered $19

per share, then $22 per share, then

$23.50

per share. Zazloff said no every time.

Supposedly, according to Rich

Greenfield, who's uh a great media

analyst, he thinks that Zazoff wants $30

per share. Before all of this was

happening, Warner Brothers was at 11.

So, we've gone from 11, we're now

looking at $21 per share. And I wonder

if he's overplaying his hand here. I

wonder if he's get getting a little

carried away with it. He loves saying

no. He goes out and says, "No, no,

Comcast really wants us. Netflix really

wants us. And I wonder if at some point

David Ellison says, "You know what,

dude? Let's quit [ __ ] around. Netflix

doesn't want you. They want IP. They

don't want your shitty TV networks.

Amazon can't buy you. There's going to

be a whole antitrust concern. I'm sick

of this game."

>> At the end of the day,

the really the most important job of an

investment banker is to create the

illusion of multiple biders.

Companies are bought, not sold. And

people say, 'Well, I'll decide to sell.'

No, you don't get to decide when to

sell. People get to decide when to buy.

And what you need is when you get a you

have to have a credible inbound

opportunity and offer. You give that

credible inbound opportunity a chance to

take you off the market at what you

would call a rich, even a rational

price. Otherwise, you're going to

investigate other suitors. Fine. They

don't want to give you an irrational

price up front. You get it. You get a

first strike opportunity. Sometimes they

do, sometimes they don't. When I sold my

first company to Densu, I said, "Here's

a price. It's above market, but if you

take it, we won't talk to anybody else

and it's yours." They did that. Great.

With L2,

uh, we had a credible inbound

opportunity. I countered at a much

higher price. They said, "No, we can't

do that." I said, "Fine, but just FYI,

we're going to do a market check. Go out

with a book, data room, have people

signed LOIs. Seven players signed LOIs.

It's a great business." We got three

term sheets including the existing

inbound offer. One was from Gartner, one

was from Accenture and one was from

corporate executive board.

And I wake up and uh Accenture basically

said, "This is so exciting. You're going

to love this, Scott. We do business with

400 of the 500 global, you know, biggest

the Fortune 500 globally. We want to

take your thought leadership and

introduce you to everyone from, you

know, uh, Debeers in South Africa to to

Samsung.

And they were acting as if what a thrill

for you as a professor. You're going to

get to molest the globe and share your

thought leadership with CEOs all over

the world. And I thought, I can't

imagine anything I would less rather do

than get on a plane again for the rest

of my life and being shitty corporate

hotels

again, renting my brain to old white

guys or old brown guys around the world.

I'm just done. I'm [ __ ] done. And

they made it sound like I would love

that. I'm like, so I went back to him

and I said, "Look, this isn't for me."

And then I wake up on [ __ ] Monday

morning and there's an announcement that

Gartner has acquired corporate executive

board. So in about 72 hours I go from

three suitors to one.

And I remember that thinking that I have

to give them the impression that there

are multiple suitors here otherwise I'm

[ __ ] And basically I tried to talk my

there's only two things you have to

remember in any negotiation. One don't

let emotion get involved. Don't make it

about win lose. You're all good people.

And if there's not a fit, there's not a

fit. But don't don't think of it as a

win-lose. Two, always show a credible

willingness to walk away. Always show a

credible willingness to walk away. And

the way you can do that or go with

another partner is the illusion of

multiple biders or, you know, they get

the sense, the tone of your voice that

you're willing to walk. And the only way

Gartner closed was I walked. They kept

coming back with additional terms and

conditions. And at one point, I said, "I

need you to let me out of this exclusive

because I'm done. I'm kind of done going

back and forth. And then the co called

me and said, "Okay, let's close the

deal." It's very rare that a deal closes

without one party walking away at some

point because basically you're sharks

bumping each other to see, you know, to

kind of bump each other and see if you

respond.

These guys, in my view, and I don't know

the situation, nobody can rationalize to

their public shareholders, whether it's

Ted Sarandos or or the Armstrongs at

Comcast, can get on an earnings call and

justify anything close to this. So,

Zazav is, in my opinion, and his bankers

are playing a total game. It was at 11

bucks. If all of a sudden Ellison

announced they were dropping out, I

think this thing goes down 30%.

And maybe more. And within three months

it's back to 11. It's maybe not now it's

back to 11 because it's still in play

>> kind of. I mean we're saying that

there's one bidder. He's pretending that

he's got five. And if suddenly people

start to connect the dots and say

actually hold on this doesn't work. This

doesn't work. This doesn't work. There's

only one bidder. Then suddenly that

transforms the the the transaction in a

huge way. And suddenly David Ellison has

has has the leverage. If you look at

Warner Brothers stock, right, in April

of 25 and April of this year, I mean,

eight months ago, it was at eight bucks

a share, right? In October of 24, it was

at 740. By the way, the business was

better then. This business gets worse

every month because they're in the

business of adported cable. So, when the

business was better at seven bucks a

share, the only thing that's changed

here is there's a kid with a preloaded

credit card of $40 billion that showed

up.

>> And Zazoff is saying it's not good

enough. He's saying it's not good enough

at 23.

>> That's the whole point of negotiation.

It's never good enough. They're going to

play the reluctant bride and pretend

that there's other idiots out there

willing to pay 24 bucks a share, 26, 30.

No, there aren't. And if if Ellison

tomorrow announces we're out, we're

moving on, this thing this thing is down

30% and most likely I would bet it's

down to 11 or 12 bucks again in 3 to 6

months. So they're all and and good for

them. That's their job. He's trying to

get the maximum He's trying to get the

maximum value for his shareholders. It's

a trophy asset. There are some assets

here that are non-replicable. I get it.

But be clear, there's only one

irrational buyer right now and his last

name is Ellison.

>> All right, let's take a look at the week

ahead. We'll see earnings from big tech

with Amazon, Apple, Google, Meta, and

Microsoft all reporting. We'll also hear

the Federal Reserve's October interest

rate decision. Traders are betting on a

quarter point cut with near 100%

certainty. Scott, any predictions?

>> Well, we talked about it earlier. I I

think that she is going to come for the

jugular and you're going to see a flurry

of openweight LLMs.

Old Navy, the Old Navy of AI is about to

come from the east and I think it's

going to have a a pretty serious could

have a serious impact on the companies

that are totally dependent upon AI

projections which could have a big

impact on the market. I think that uh

China is

what was it that Tyrion Lannister said

about I forget that character's name. He

said this is a very serious man. I think

she is very serious and I think they are

being very strategic. I think it's no

accident they went after the soybeans in

red states and I think that they again I

just makes if I was advising she this is

exactly what I'd do. flood the market

with cheap AI LLMs that are irresistible

to use and these companies don't live up

to their already irrational expectations

and all of a sudden GDP growth and the

economy in the US goes into recession

right away and this guy loses all of his

cloud cover for these [ __ ] sclerotic

irrational geopolitical decisions around

tariffs and I think that's exactly what

they're going to do and he has the power

to say to these companies maybe it's not

good for shareholder tell you that

you're going to come up with an amazing

with amazing LLMs and AI models that

require less energy and you're going to

make them for free.

Thank you for listening to Prof Markets

from Prof Media. Tune in tomorrow for a

fresh take on the markets.