Housing as an Investment Policy

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Mount Sinai is proud to answer the call Announcing our new Carolyn Rowan Center for Women's Health and Wellness, the future of womomen's healthcare in New York City, One destination where leading specialists, evidence based medicine, and a whole person approach come together under one roof. to support your health and wellness at every stage of life No more fragmented care, no more dead ends, just seamless transformative women's health carere designed around who you are and where you're going We get you And we've got you The Carlyn Rowan Center for Women's Health and Wellness at Mount Sinai We find a way Welcome to Profty Markets. Scott is off today, but we have got a very, very special guest filling in, someone who A lot of you guys have been very excited about the one and only Patrick Boyle is joining us, Patrick Great to see you. Hello. Thank you for having me on as the fill in Bald guy for the channel This funny last time, we had Rbert Armstrong, who was the Financial Times Candator. Also bold, also very smart Also very insightful. So clearly there's a theme going on here, but we love it. Good to see you. How are you Thanks. How are you? I'm doing very well. I'm very glad, I'm very glad you're here Um Yeah know, we're recording this before the England game. for the World Cup, which I'm very excited about. But Are you supporting anyone in the World Cup? I mean, your accent is Irish So I have to assume that maybe you wouldn't Want England to win? like where do you stand on this? The way it works in Ireland is that we don't acknowledge sports that we're not good at. So if we were in and doing well, it would be huge. But we just view it as a foreign sport that you know, it's not worth watching So what are the sports then? It's basically just rugby. Rugby is acceptable, but then there's also, you know, GAA football, which is better. We've got hurling, you know, we've got all of our own sports. We don't need your sports, you know? Hurling. You've got your own things going on. don't need to participate in all of the or the popular sports, the sports that matter, but I won't continue down that path. justust for everyone who doesn't know Patrick is a professor at Kings's College, London and a portfolio manager with more than twenty years of experience Many of you probably know him from his YouTube channel, Patrick Boyle on finance, Patrick breaks down these very complex topics in a very simple, understandable way, and we just love his insights. And he became our favorite person to discuss SpaceX with and we will be discussing it again today. Just before we get into the show, Patrick I think a lot of people are like dying to know your origin story how you ended up becoming this superstar YouTuber, but also Professor of Fance, like how did you get into this stuff? You know, a lot of it I was just asked to teach at originally Queen Mary and then Kings's College. And you know I teach the masters in finance students. And then I sort of always liked cameras and things like that. And so I started, you know students will come to you with questions. They'll say, you know, can you explain that again And often I just thought it would be easier to record it and be able to send that to the students. Wow. And that then turned into a whole YouTube thing. So it's very interesting. Yeah, Scott often says that his history of being a professor was kind of a cheat code because he got to test out his material on his students. And then if the students like it, then he'll take it to the public, then he'll take it to the big les and talk about it on TV. Clearly it works. clelearly it's a good system. Let's get into this today. We've got three very interesting stories. We're going be talking about SpaceX. We'll be talking about what's happening in the crypto markets, something that a lot of people are now calling the G rotation. We will be explaining exactly what that means. And then we will be ending with a little breakdown on what is happening. in the housing markets, news Flash prices are not going down. Let's start with SpaceX. Bye Last week SpaceX officially joined the NASDAQ one hundred. It qualified under the new fast track listing rules, which reduced the required trading history to just fifteen days and it also eliminated the minimum public float requirement. That same day The stock received an overwhelming vote of confidence from Wall Street eighteen out of nineteen analysts publishing a buy rating and only one publishing a hold rating, which was Honestly, quite surprising to me. I mean, as I think a lot of people know, I think that the stock is way overvalued. I know other people think that too. I believe Patrick believes that as well, but we'll get his official views in just a moment Despite all of that positive momentum Both those ratings from Wall Street and also its inclusion in the NSDAQ, which essentially meant billions of dollars of passive investment which should to stop praise despite that BX shares fell. neearly six percent And at the time, Of this recording, the stock is now down thirteen percent over the past week and thirty four percent from its peak. So All of that positive influence, things that should really be raising the stock price. The stock continues to fall and it's now trading Below where it was on its opening day when it first IPOed. So Patrick. I guess let's just start with your reactions to how the stock has traded over the past two weeks, it hasn't been great What do you make of what's happening here? I mean, the truth is it's above the IPO price. Like if you put in for D IPO, you got it at one thirty five, you're pretty happy with the return. And it's sort of in line with what you get from IPO days. I forget the name of the researcher, but I can't think of it now But there's a guy who's an expert on this and he's done all the research and it shows that typically IPOs jump about eighteen percent, which was right in line with what SpaceX did. Now, the thing is if you bought it on the day of the release, you were buying post pop Rright. I think it hit the market, maybe it's some like one hundred sixty five or something like that Most people who didn't get a fill and bought it at the market open, they'll be down on it. But the truth is it's trading at a know very high valuation. and if you invested in it, you can't really claim to be too surprised and you've probably done all right out of it Just to break down the dynamics here. As you say, the IPO price was one hundred and thirty five and the IPO price was the price that was allocated to the insiders people who had access to that IPO. but if you are a retail investor, if you were just buying it on Robin Heard or whatever your trading platform is. the lowest price you could have gotten in at what it was when it immediately went out, which was one and fifty And we're down from that price point. In other words, as we kind of predicted Everyone who bought this as a retail investor has thus far lost money. They're all down And the guys who bought it when it was going close to two hundred, those guys are really down at this point, which was kind of what we all sort of expected. and it's certainly what you talked about as well. So just looking at the valuation now, they did A little over nineteen billion dollars in revenue in the past twelve months. So they're trading at one hundred and one time sales which is already Quite absurd, and you've pointed that out But then We get the price targets from Wall Street and I'm just going to read out these price targets and I want you to react to them. So Goldman Sachs' price target for SpaceX, is what they think the stock should be trading at Their price target is two hundred and five dollars a share So that is a two point seven trillion dollars market cap. that implies a one hundred and thirty nine price to sales multiple JP Morgan two hundred and twenty five, that implies a two point nine trillion dollars market cap trading at more than one hundred and fifty time sales Deutsche Bank has two hundred and fifty five dollars. That's more than three trillion dollars in market cap, one hundred and seventy three time sales. Morgan Stanley, three hundred dollars, nearly four trillion dollars market cap, more than two hundred tim sales Here's the best one though. Raymond James price target is eight hundred dollars a share, a ten point four. trillion dollar market cap and implied price to sales multiple of five hundred and forty two. What the hell? I mean, you have to wonder if they built spreadsheets to justify this or they just pulled out the numbers because you know to people at home who aren't familiar necessarily with these ratios, like nothing trades at one hundred time sales. it doesn't happen. The kind of thing that even could potentially trade at a very high price to sales ratio would be maybe like a software company where sales basically converts straight into profits, know where there's no real costs There's massive, massive costs here. There's the cost of the rockets,, but that's not really what SpaceX claims to do anymore. It's an AI company. so it's the cost of all of those NVIidia GPUs and whatever. know they're burning, I think, about five billion a quarter. So I mean, it's not just losing money, it's losing a shocking amount of money And you're really paying up as if, well, it would be hard to justify paying a hundred times because if you think about, if all of the sales passed straight through as profit, you're still, do you want to pay a hundred times, you know, a hundred years worth of profits for the next year's profit? Like you have to wait a hundred years to get your money back. doesn't makes sense, you know, threeree hundred years to get your money back. it's getting wilder. and then of course to the listeners who are going, o, oh, but what about growth? know, because of course the revenues should be growing and hopefully it will eventually become profitable. It's not really growing that much either. I think it's, know, SpaceX is a growth rate of around fifteen percent, which compares to when Google went public at I think ten times sales and maybe it was less Google was growing about two hundred percent a year, right? So it's sort of an ex growth company that's putting itself forth as an AI, primarily an AI and in fact, enterprise AI business, when they're not really much of an AI company. I think they've got a three and a fiveal percent market share It's, you know, it's just hype based and in truth even Why did it fall once it hit the NASDAQ index inclusion? Well, a lot of people were buying for that pop, you know? And so to a certain extent, you know, the thing everyone is waiting for has happened now. L I mean, what's the next hype? likeike what's going to be so exciting? like something's gonna to have to dramatically increase growth or you know you have to have another massive forest fire out there so hearing all of that and I appreciate you putting into context what it actually means to trade at a hundred time sales. L yeah, what we're basically saying is that you got to make your money back on the earnings. We're not even talking about earnings. We're talking about the top line So we're just ignoring the costs here. That which begs the question like How on earth are these Wall Street analysts justifiably setting these price targets. And I just want to get into some of the details that we got from the Raymond James reesearch report on SpaceX. This is the one that their analyst Brian Giswa, who set the price target at eight hundred dollars. I'm going to give you some of the data points or his projections that how he justifies that valuation. He estimates SpaceX revenue will rise from nineteen billion dollars last year. T five point two trillion dollars by twenty thirty five That's his estimate He says that ninety four percent of that revenue come from AI In other words, he thinks that SpaceX is going to generate four point nine trillion dollars in AI revenue in twenty thirty five. He says, quote, We see the company as one of the defining industrial infrastructure companies of the twenty first century. just as railroads, electric grids and the internet reshaped prior economic eras, we believe SpaceX is building the foundational platform for the next generation of industrial capacity. So he's comparing it to railroads electric grid, interternet chips, essentially a bunch of things that were bubbles that all blew up. Like you know, to talk about be like, o it's a lot like investing in railway a couple of hundred years ago. It's like, and how did that work out orr the dot com bubble, isn't that? what they call the dot com bubble. So so it's a lot like many bubbles in the past in that the price could go up before it finds, you know, before gravity has its effect. That's a very good point. I was going to make the point that if you look at all of those industries and the biggest companies at their peaks, you look at US steel at its peak, it was worth six percent of US GDP for Cisco. It was worth five and a fivealf percent of US GDP. You make a good point. they've since come way down. If SpaceX were to hit a ten trillion dollars valuation which is what he believes this companies what it would be equal to a third of the entire GDP of America Which to me doesn't really make much sense at all. But if you think through, what would the other AI companies be worth? Because this is the smallest one. this is three and a fivealf percent market share, like you don't wna own space. You know the reason they have to say that it's an AI company is just that you the only thing that's kind of sort of profitable is the satellites, the satellite internet thing can only grow so much, right? It's only ever going to get so big. So you can't justify its current trillion plus dollar valuation on satellite internet The rocket launch business, you know, it's worth noting that that loses money and that most of the launches are launching their own satellites. So when people even point out that the satellites are profitable and the launches are unprofitable, that's sort of like McDonald's saying, well, we're profitable on the hamburgers, but we're losing money on the bnds. tied together It's a very, very good analogy. L, maybe they should up the price they charge their biggest customer, thenen the whole thing will be profitable going through some more of these analyes because to be clear, Raymond James isn't alone. is this is basically the entirety of Wall Street that is in agreement on this Deutsche Bank said that SpaceX is, quote, the apex of civilizational ambition. They said the company is, quote, bending the ark of history. JhP Morgan said SpaceX' quote potential impact on humanity is bigger than any companies we've ever seen. Morgan Stanley called it the final frontier of AI. I think the report was called the apex of civilizational ammbition I looked at like other Morgan Stanley reports like the one on XMMobil or the one on you know, many of the other companies that we think about, they never add such drama, you know? Like they put the guy with the Hawaiian shirt analyzing this and he comes out with a title like that, you know? And I think the only other real company covers is Tesla, it's worth noting Yeah, exactly. which is crazy. And by the way, just when we look at that price target, I was looking into that Morgan Stanley report. so there The price target at the bestest they have set is three hundred dollars. So again, that's like double where we are now They say that the bull case on the high end, their target is six hundred dollars I guess there's a standard deviation around that, right? Right But then on the other side of it, they say that the bear case is seventy five dollars. So it's quite a skewed distribution. Eactly f fifty percent, but it could also rise three hundred percent So you're basically not telling us anything. I mean, it's a call option basically, right? Like it's yeah. Exactly. So when we were talking about this offline, you made a really interesting comparison to something that happened in the dot com bubble with this guy named Henry Blogget Could you just explain what the story is there and how it might have parallels to today? This is quite a famous story. It wasn't just Henry Bludick, but he was sort of the most the biggest example. He was the internet analyst at Merrill Lynch at the time. And basically, you know, after the dot com bubble burst You know, there were a few investigations and they found that many of the analysts were privately sending emails describing companies as POSs, you know, which we'll work out what that means. while publicly going on TV and really like bulling them up and saying that they were the greatest companies ever. And so Henry Bludget, I think he was hit with a four million dollars fine. was He was banned from the securities industry. He' since went on. he's now, I think he founded business insiders, so he's gone on to be a success During then what was in two thousand two, Sarbenes Oxley was passed. And there were regulations put in place because they basically said that what was happening at the banks was that you know the banks were making a lot of money IPOing all of these internet companies. and it was sort of tied into like, you know, which bank will lead the IPO? Well, the one with the analyst who willll say the most good things about the company, right? We need to get the price up And I think even back then IBD, the investment Banking division got to put in as to how much of a bonus the analysts would get. So that was all separated. You know, investment banking couldn't influence you know research reports after that or at least that was the idea but it's worth noting That SpaceX, which you they raised how much did they raise in the IPO? wasas it eighty five? I eighty five billion? There's a research report out from a guy he's got a substack called Cape Far Capital. And he dug through that the IPO prospectus and very carefully added up all the uses of funds. know, because normally in an IPO prospectus They sort it sources and uses of funds, like why are you raising this money? What do you need it for? And it was all spread out and like not very clear at all, but he added it all up. And I think he worked out that they need two hundred thirty five billion dollars in spend between now and twenty thirty, so four and a half years So that actually means if you're working at Goldman Sachs, Morgan, Stanley, any of the big investment banks, that Elon will be decide, know they need to raise capital. They'll be asking the banks to raise that capital. Banks charge about know a one percent fee. I think they charge less for SpaceX because it was so big big fees in the pipeline. and if your analyst says that this is a POS, you know, you might not get that call from Elon. so it could be expensive to say the wrong thing. Now you know believe that the banks are not supposed to be doing that anymore. you know, and it's reasonable maybe they just pick like the biggest Elon fan booys to analyze his stocks because otherwise, you know, I don't know that I would get a job as the Tesla analyst, for example. You know, should this go badly, which it's reasonable to think it I imagine you know that many of these people, you know, if you're on the index inclusion committee at NASDAQ or if you're you know at one of the bankers who claimed it's going to be trading at an astronomical level the likes no company ever has before, you know, you may get a nice day out in Washington while you attend some sort of congressional investigation into your work I would say hold on to your spreadsheets, you know delete or no do delete some emails maybe. I mean, I think it's such an important point because I mean, what we saw with the dot com bubble on what we learned is that there is structurally a conflict of interest embedded into equity research And that is if you say something bad about a company, if you say that a company is a sell rating then it's unlikely that the company will be interested in working with you to underwrite your IPO throughrough which you would receive your one percent. And if they're going to be raising two hundred thirty billion dollars over the next four years, that's more than twenty billion dollars in fees. And it is literally the bank's job to figure out how to make sure that they can go out, pursue that deal, underwrite these equity offerings, maybe underwrite some debt offerings, maybe underwrite some M andA transactions and pick up those fees. And so Elon is naturally going to choose whichever bank is nice to him. and we literally saw this exact same thing play out when there was the dot com crash. So there was, as you say, Henry Blogget, Merrill Lynch. He writes this exceedingly positive research on all of these different internet companies. He privately calls those same stocks POS's, pieces of shit junk to his colleagues in private emails and it ended up being that that was sort of what got him because it's illegal to publish research that isn't your genuine opinion, That's how they got him. And deeply unethical as well. L even if we step outside, you know the legality, I mean, what are you doing? you know? L this is I don't know, to me, it's just such awful behavior cent And we saw it, but he was not the only guy. I mean, this was a problem across the industry. There was another example of analyst at Salomon Smith Bonney. He said this company was a buy. He had privately had called it a pig in an email to colleagues And then there was another internal email that was sent by a Merll Lynch employee. He said, quote This is this guy had come to sensus clearly. He said, quote, We are losing people money and I don't like it. John and Mary Smith are losing their retirement. just because we don't want an investment banking client to be mad at us. So this is like a thing in the industry. It's a problem. Yeah. And as a result We saw this regulation that was designed to prevent this stuff from happening. There was Sarbanes Oxley, and there was also the Global Research Analyst setettlement, which I've been digging into since you brought a lot of this to my attention. And this was basically this agreement that was that the SEC came up with in two thousand three that was designed to completely separate the research side of the investment banks from the investment banking divisions whose job is to go out and get those underwriting fees. And they literally said, you cannot communicate with each other unless you have like a chaperone. who's going to sort of oversee all of this stuff and make sure that you guys aren't kind of meddling with each other. We're going to make sure that the research guys have zero compensation tied to whatever happens in the investment banking divisions. I'm looking into this I'm, you know, learning about this global research analyst settlement Something I learned last night. is that seven months ago law was terminated by the SEC. I was not aware of that, but that is interesting. Yeah. This is the headline, the press release. SEC agrees to terminate Global research analyst settlements And right after that happened Arthur Levitt, who's the former SEC chair, he wrote an article in the Wall Street Journal titledQote, The SEC M makeake Wall Street analysts corrupt again and he warned about the dangers of getting rid of this stuff. The argument that they have proposed as to why it's okay to get rid of this is because they say that we have new regulations that already do the job of what that old regulation did. But if you actually look into those regulations, what you learn is that It's kind of does the job, but way weaker, way more flexible. The communications restrictions are kind of loosey goosey. The requirements on third party research, independent verification, those are virtually gone. And the former SEC chair said, quote, don't be fooled by the promise that other regulations provide this separation Financial regulators are floating the removal of quiet periods restricting when analysts can publish research on their own, banks transactions, this is the natural pattern of regulatory surrender So this I'm sort of learning about this one go I feel like this might be an explanation to what's happening. N not accusing anyone of anything But it seems striking now. It's pretty wild. it's funny because even without this rule being changed, there's sort of just a general issue that if you work at one of the top investment banks that's really hoping to bring in billions of dollars in IPO fees, that it would be a career limiting move to put out a cell reporter to say anything bad about these businesses there's sort of a corrupting influence in there anyhow. And you know, when you look at the list of analysts, like you know I'm not familiar with that many of them, but you know you kind of look at the CV's online, like they're It looks to me like some of the banks were recruiting at the circus rather than at Harvard Business School in order to hire some of these people in Well just looking at the underwriters of the SpaceX IPO. It is basically everyone. I mean, I mean Goldman Sachs, Morgan Stanley, JV Morgan Deorgia bank Raymond James, like everyone who is putting a buy on this thing that They all had a financial incentive within The bank So it seems hard to assume it's anything Other than that and just going back to like the dot com bubble When you look at mid two thousand You look at all the recommendations on the stock research, seventy four percent of stocks had a buy recommendation, only two percent. How'd sell. which It kind of makes me think that if there's If ever some IPO boom, which there is happening now, it automatically or if ever there is you more deal making on the table It incentivizes the entirety of Wall Street to suddenly say These stocks are great And if they all say these stocks are great at the same time, then We startw getting into bubble territory now. Yeah, well it's funny because you know, the IPO business was huge in the late nineteen nineties, then the dot com bubble And you stock issuance really dried up. There was sort there' been a bunch of articles about sort of almost where have all the stocks gone, right? Because you had companies been taken private, you had these unicorns that were know worth billions of dollars in private. And there was an argument that the public are not getting stocks to invest in. You know, There's a smaller and smaller group And so now we flipped, you know, suddenly IPOs are back. it's rather interesting to see the other echo of the past as well, which is, you know Q questestionable recommendations coming out of research at banks that are probably hoping to get you know IBD business. Yes, it's fewer IPOs than we saw before, but the size of the IPOs are gigantic and what do you know the ones where the size of the IPO is gigantic, those are the ones where all of Wall Street is unanimous in his view that this is a buy. And not just IPOs also like secondary offerings, right? Be even I think Google issued a huge amount of stock recently raising more capital than SpaceX rised in their IPO, you know, So there's a bunch of big technology firms at the moment that it's probably wise to keep happy if you're hoping to participate in those flows. To what extent do you worry that this is causing like a real systemic risk in terms of overvaluations across the stock market. In other words, that it is causing a bubble. It's an interesting thing because I think that while You know, there's a lot of crazy stuff. I also think there's a lot of people talking about it. You know, it's not I don' know, like any sophisticated investor I speak to, like they're not really suckkered into sort of thinking that these things have been issued at bargain basem and prices. And you know, the FT and the Wall Street Journal are filled with opinion pieces of people worrying about, you know, concentration in technology and high prices and you know, what if all of this stuff goes wrong? So I'm torn. like I do think there's possibly a retail audience who haven't sort of been through this already and they don't recognize You know what a really hot market sometimes looks like. But you know, I'm torn like I do think and especially nowadays, you know, where people get their information. like back in the nineties, you know, those analysts were all over CNBC all day long. and also everyone like the dot com bubble had everyone involved like you'd be down at your dentist's office and they'd be talking about stocks, you know. It's not really the same today. and I think also the analysts don't have the power they used to have. To a certain extent, I view it as embarrassing. I always think like for these guys, in you know maybe you get big enough bonuses that who cares, But I just sort of think, goosh, wouldn't it be embarrassing like in years' time, you know, you're at parties and people are like, you're the guy who said three hundred. Is that what you say It's a really interesting change where it's like They're saying the same things that they said back in ' ninety nine, but this time around, people are informed enough to say, well, that's a fucking joke. That doesn't make any sense I do wonder if maybe we're seeing almost like a bifurcation of the suckers versus the non suckers. Maybe there's one part of the market where the bubble' really working because people are actually listening to the eight hundred dollars price target and they're really believing it. And maybe there's another part of the market who listens to Patrick Boyle and watches Patrick Boyle's YouTube videos, they see those price targets and they say, that doesn't make any sense. and that itself is an entirely different ecosystem. And it's a good point, mayaybe that is sort of the downside protection. in this bubble, mayaybe Maybe Maybe you're single handedly preventing the bubble. Well, I don't know. I also think that people kind of do what they're going to do anyhow. you know you can tell people something's a bad financial you know, you can hang big signs outside a casino telling people, you know you'll lose all of your money here and they kind of go that's other people, not me, you know, I feel lucky today. so We'll be right back after the break. and if you're enjoying the show so far, send it to a friend, then please follow us on YouTube, Spotify, or wherever you get your podcasts Theore for the show comes from Vanta. Every new tool your team signs up for, every vendor that turns on AI features, every new integration has a chance for something to go wrong And most security programs weren't built for AI space to growth, Enter Vanta Banta is the number one Aentic Trust platform used by over sixteen thousand fast moving companies including Ramp, Cursor, and Harvey. to ensure they're always audit ready. 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There is an interesting trend that we have been monitoring and which I wrote about a couple of weeks ago in my newsletter, simply put We're starting to see a rotation out of crypto which has been hit very hard over the past year Ethereum is down thirty three percent. Bitcoin is down forty two percent And some of the people driving that rotation are the crypto bros themselves. Meanwhile, AI has become the new frontier. It is the technology people are most excited about. and it has captured the same sense of disruption and possibility that crypto once represented. and it has been on a tear. The roundhill generenative AI ETF is up forty eight percent year to date The Philadelphia semiconductor, ETF is up seventy five. percent year to date. So here's the thesis The same investors who once chased crypto as the groundbreaking technology are now moving towards AI as the next big thing. And perhaps that may explain why crypto is performing so badly. Patrick, I mentioned Ethereum and Bitcoin, which are not doing well. Bitcoin's been cut in half since its' peak. Also the meme coins are way down. I should just point out Dogecoin, which was all the rage COVID It's down forty seven percent in the past year. Trump coin is, of course, down eighty one percent in the past year. It's down, I think Almost ninety nine percent from its highs What do you make of how crypto per The once very hot asset class which is now looking not so hot. Well, it's my opinion that the only you know there's no analysis you can do on crypto, right? You can't sort of sit down and build any sort of pricing model on it because it just sort of has a price driven by what people will pay for it. And basically its only selling point is that the line is going up, you know? And basically what gets people excited? peopleople want to buy crypto because they know someone who bought it for you know a dollar and now it's worth fifty or sixty thousand dollars. And they sort of say, you know, that'll happen again, but for me. And so it's really just a very trend based asset You know, now you look at it and you know over the last few years, I mean, you know, an index tracker that your grandfather invests in is outperforming Bitcoin. It's no longer exciting because even I think some of these investments are things that people want to talk about when they're at a bar or at a party. you know, o, I bought this thing and it's up huge. Well now you know you say you own Bitcoin, you're not really exciting. It's also it was like an anti establishment thing. It's not an anti establishment. we've Politicians all involved in it. The SEC guy is a crypto bro, you know, that's what's his name? Howard Lutnik is a crypto bro. L I mean, you know, this is not all of Epstein Island were involved, you know? So it's just not it's not exciting to tell you're doing this, you know And so you, I don't know, if you want to be exciting, you're now probably saying that you're making exciting bets on polymarket on you what when the strait of Hormz will reopen or whatever. But it's you know to say that you're a crypto investor today is going to put people to sleep And so I wonder if there just is, you know, I think a few people have been calling it the great rotation, you know, where where if you're a crypto bro, you're moving into AI, into prediction markets, into into just something that kind of seems exciting to you. Yeah, I think the an the establishment point is a very important point because I mean o was the cool kid. It was the cool kid in town And part of why it was cool was because one, its price was going up. so everyone wanted it. so it felt exciting And Two, it had sort of like a technological like financially forward feel to it And three, it was Anti establishment, it was punk rock, it was sort of sticking it to the man Now it's the teacher's pet because President Trump loves it. and President Trump is the crypto president So all of that rock feel has evaporated. And at the same time, if you have no fundamentals The only thing that makes it Cool and I think cool is the right word here is the price. And so now it's lost the one thing that made it cool, which was the line going up. It also lost the anti establishment tank And if you have no fundamentals, if you have no underlying cash flows, then there is no floor of value. Yeah. And all the claims of use cases have evaporated as well. likeike it just, you know, no one is really telling me that I'm going to throw, you know, Chamat a few years ago was saying that Visa was going to go to zero because of crypto and it's like, well, I think Visa has done just fine crypto is performed like one of Chimat Spacks on Fortune Just looking at like what's actually happened. So I went through the Bitcoin numbers, Bitcoin ETFs have seen eight billion dollars in outflows in the past eight weeks alone Crypto since its peak has lost two point three trillion dollars. in market value. The entire crypto industry has essentially been cut in half It does seem like the new hot thing now, if you're a crypto bro, if you're looking for those crazy lines going up is AI, specifically kind of these more niche AI names, these semiconductor names, Western digital Bloom energy almost one hundred percent y today. Seaagate, Sand disk. These are sort of the sexy new trades. And in addition, what we are starting to see is a huge amount of leverage being taken on to buy these stocks. And we're seeing a massive upt to. Yeah, devered ETFs, exactly. Yeah. Lvered ETF's which are becoming very, very hardot right now. More than two hundred le ETF's have been launched over the past six months are now worth more than one hundred fifty billion dollars I mean this this has a perfect analogy to Bitcoin because of course we also know about Bitcoin that almost seventy percent of Bitcoin trading volume last year were these perpetual futures, these kind of leve it up options contracts It seems like now they've just switched over to the other side I guess what does that say about the investment community that we're basically just yooing into these stocks without, I assume, really looking at what they're even doing or what the fundamentals even are. I guess this is always life though, is that you know, people are always excited about whatever they you know The average investor hugely underperforms the stock market and this is well known because they always buy the wrong stuff at the top, they liquidate at the bottom, they you know, it's the switches that kind of kill them. But this is just like your emotions as an investor are your enemy. L the more emotion, the more strongly you feel, whether it's fear or excitement These are these are emotions that are leading you in the wrong direction. But this is this is just the oldest story in markets is just that most investors, it's not just that they underperform, but that they lose more money than is even naturally explainable by the returns in the market. You were mentioning when we were speaking offline this term, I forget who came up with it. this term financial nihilism that is becoming kind of pervasive. Oh yes, that's Dmitri Caffinis is the guy who came up with that idea. He's a very interesting guy. Yeah, what does that mean? Well, it's based around this idea that there's a lot of young disillusioned people and they sort of feel they can't afford a house, they, you know, are not getting the kind of jobs they want. a list of difficulties, you know, and they basically want to reach escape velocity. You know, they're on Instagram and whatever and they see these people who've made masses of money through basically an all in gamble on something, be it meme stocks, be it crypto, be it you know, Nvidia. Do doesn't matter what it is But it's just this yellow idea where they've decided that nothing matters, all the numbers are made up, it's all a con. And you just have to look after yourself, You have to make a big bet on something, know, hopefully make a massive, massive amount of money, and then you're out. That's kind of the idea And I think that is an idea that has been building really over the last decade or so and I think really picked up during the COVID period when people were locked at home. It's sort of an interesting thing because I think it really took off then as well, because a lot of people they had no money to spend on stuff. Some people were getting stimulus checks and so on. so they had You know, a couple of thousand dollars. manyany people, if you're sort of working at Walmart or something like that, you probably never had as much savings as you had at that point. And you're sitting there looking at this thousand dollars check and you kind of think, well, you know, well I do buy clothes with it or go all in on something and try and turn a thousand dollars into a million dollars. And that's sort of the The financial nihilism mindset It seems like this awful combination of economic opportunity for young people in America at least has really never been lower, at least relative to other generations. You just look at housing prices today as an example and we'll get into this. but housing prices relative to income. have never been higher Housing prices have sevenexed over the past fifty years. They've way outpaced wage growth. Costs of college have tripled since nineteen eighty. That's adjusted for inflation Cbined with, I think, as you say, social media And the fact that we're constantly on our phones looking at all of these rich people who supposedly made their money on Dogecoin, on Trump coin, Ppe coin, Kum Rcket, you name it. Andrew Tate is out there You know dririving his seven either rented or not Lamborghinis that he supposedly got because he went all in on crypto. I mean, this culture of levering up, borrowing money, trading options, trading crypto, getting into gambling, and then the illusion that that is actually going to lead you to a place of financial success and well being really seems pervasive and it seems like it is having a substantial impact. on the structure of equity markets I mean And all you could assume is that we're going to see crypto overver and over again in different types of asset classes. It goes up, everyverybody gets excited, then it just boom goes down as soon as the excitement fades which makes me think weve got to see the same thing again in some of these AI names and these semiconductor names. Perhaps we're already seeing it. We have already seen that in the past week, it's been pretty bad for the semiconductor stocks. At least there are some cash flows there and at least there's actually a thesis fundamentally behind those trades. But you have to think this is just going to keep going over and over again, now. Well the only thing is once people get in fact, the worst thing about this bubble busust cycle is that a lot of people their introduction to investing is sort of putting their money into some crazy thing that their friend told them was a good idea. It gets totally wiped out and then they're sort of scared for life. And there were a lot of people I knew Because I sort of I was in my twenties during the dot com bubble, and so many people I know were really, really excited about all these internet names piled into them. they wiped out. and then you know I'll talk to these guys you know thirty years later or twenty five years later and they all say, no, no, I never invest. It's all a con The thing is had you put your money in the S and P five hundred or even actually held on to the NASDAQ or whatever from back then, you would have done quite well while you know, you put your money all in government bonds You know, you'll have looked smart for about three years at that you know, because the stock market fell for three years after the bubble burst. But then in the long run, you don't. And so the real the problem sort of is financial education. It's that people don't understand sort of what normal expected returns are like it's not, you know, it's not like you know, three hundred percent return in a year or whatever that can happen. You can buy a thing and that can happen. but you should recognize that you were probably lucky and you didn't necessarily predict it. And that in the long run, like you know, if you're twenty years old right now when you're going to retire in forty, forty five years time, you should hopefully just harvest the general market return,, because for every lucky win you'll have, you'll probably have another unlucky loss and it probably balances out to giving you about the return of the S andP, assuming you don't too crazy and like leave her up at the wrong time or you know cut all of your losses at the bottom or whatever. So Yeah, it seems as though the financial education point is basically the entire fix to this thing because I mean, it's not just that these Eesssentially gambling products are out there It's the fact that we're kind of convincing No that those gambling products are not gambling products, that they are investment products I mean, if you look at the way we talk about, you know Zero day options and how that has exploded Aong young people and perpetual futures, these options contracts that have basically no leverage cap, no expiration date, It's just a bet on whether it goes up or down. I mean, the prediction markets are what you're buying is called an events contract and it's regulated by the CFTC as if it isn't gambling as if you're actually trading, not even trading investing in an actual commodity when you bet on whether The New York Kicks are going to win. That's even the thing is that the whole argument behind like if you listen to people defend prediction markets, they say, well, you know, what's happening here is that it's sort of providing information.'s, you know, it's kind of real economic events been bet on, but I believe some like ninety percent of the gambling is just on sports. like it's just sports betting, you know And it's wild the idea that the CFTC is now a sports regulator of sorts regulating sports betting in states where sports betting is illegal. I mean, it has to crumble at some point. My view is I like the events contracts on the financial and economic events I find it interesting and useful to look at that data, but then to make the argument that that should also be a venue to be betting on the outcome of sports games and World Cup games, that's just taking everything a step too far. But even one of the problems even about using it to bet on events like if you want to bet on a smaller election or something like that, is it possibly becomes worthwhile for a marginal candidate to sort of put their you know to put a bit of money behind it. and suddenly the journalists all get on the air and kind of go like, o, and this guy is really coming up from behind. No one expected this, but the prediction markets say that he's now the leading candidate O did he just drop a million bucks on a contract, you know? Yes, if the insider trading on those platforms isn't addressed, then the entire thing is compromised. The entire thing has no place. So that's again M reason for strong regulation related to what we talked about with the SEC and how the regulation preventing the equity research and the investment banking guys from collaborating, that's evaporated. The SEC's essentially been gutted over the past year. I mean, you look at the amount of enforcement actions, it was an all time low, at least for a transition year fifteen percent of the workforce is left. I mean, the reason you need all these things is so that people can believe in markets. I'm not become financially nihilistic because that's where we're headed. It's worth noting there's a requirement for balance. like I felt A few years ago, there was, I think the what was it? the FTC blocked a merger between two handbag brands by claiming that there would be sort of a monopoly in mid prriced, I don't know, I forget it was Coach and Michael Cors or something like that. And they said, no, this would be a monopoly. and it's like I'm sorry, but there's no such thing as a monopoly in the fashion industry. like there's always someone willing to make a bag at a different price point. There's arguments. the regulation thing I'm always on the fence about because there can be too much regulation and there can be not enough. And the problem is that both of these things can be harmful. We'll be right back and for even more markets content, sign up for our newsletter at profgmarkets. com support for the show comes from Granola It feels good to walk away from a meeting that actually felt productive But our brains can only hold so much info You might look back and realize you either A got caught up in your notes and missed some important stuff, or B you couldn't even take notes, and now you're trying to reconstruct it all from memory If that's your dilemma. Veranola can help solve it Granola is an AI powered noteepad. built for the way real people actually meet. You can take rough notes like you normally would in the background while granola securely transcribes the meeting And then after you wrap up, it turns everything into clean, structured, actually useful nodes can walk away knowing exactly what was decided Who's involved and what comes next If meetings are eating up your day, granola is a no brainer. 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Homeownership is becoming increasingly out of reach for the average American In fact, seventy five percent of homes currently on the market are unaffordable for the typical household. Patrick, been talking about this researching the housing market, explaining it over on your channel Uh It's always something that's just befuddling to me, like how it continues to go up every year despite the previous year being a crazy record. It still keeps happening What's the deal with housing? Why does it keep going up? Yeah, I mean, it's a big problem in B parts of the Western world. It's interesting because not there's certain parts of the United States. like if you look in Texas, there's not really the same problem as you'll see in New York City and Massachusetts and whatever. And it's because it's just easy to build in Texas. And you essentially a home there price is more tied to the cost of building materials and know interest rates than anything else Everywhere else you go, it's often it's that the land value is the core value And you know some of it, it's things like know growing populations, which are starting now to reverse. But it's know an interest rates coming down, will have made houses more expensive because people typically buy what borrowed money. You know, in the very long run, if you look at a very long history of housing prices, there's no reason to think they should go up. It's become sort of an investment class. You know, years ago, if you speak to your grandparents, they'll never talk about the concept of real estate investing. They bought a home that they needed to live in Once it became an investment, and we'll say in places like the UK where it is by far the biggest investment, like it's what people do with their savings to sort of either buy their own home or buy to let a property, you end up with this situation where the government have incentivized people to buy homes They want prices to go up or at least stay steady And so, you know, in an election year or whatever, you know Are you going to sort of permit a load a new building that'll hit house prices? Are you going to allow you know changes that would make it affordable to young people? And for the last twenty, twenty five years, the answer has been no And so we've seen prices go up and up And, you know, the political motives are all there. and you see politicians saying, you know, we want affordable housing for young people, but we don't want to hit you know the home values of retirees who are relying on it. And it's like, well You get one or the other? Yes. You said in your video, I think this quote really sums it up. You said, quote, Once a country decides its houses are supposed to make everyone rich, it has to keep prices rising forever, which means restricting supply, blocking development, and quietly pricing out each new generation which works until it doesn't And I think what I appreciate about that view and I think is right is the fact that it is a choice I mean, it is a it is an intentional policy decision to decide that if you're starting from a place of've People expect the value of their homes to go up. then we going have to do whatever we can to make that happen. And I think this was really crystallized for me earlier this year when the president who had sort of said that he wanted it wanted housing to become affordable, I thought we had all agreed that that was something we all wanted to figure out He said the following, and we'll just play this clip and get your reaction. There's so much talk about, oh, we're going to drive housing prices down. I don't want to drive housing prices down. I want to drive housing prices up for people that own their homes And they can be assured that's what's going to happen. This is the problem, right? Be that's who votes, right? Like that's who votes. you know, homeowners, the elderly vote, young people don't vote, so they they don't get a say. Something you were saying is that We shouldn't necessarily expect the price of a house to go up. That's not a given which I thought was an interesting comment because I've been trained to think that it should Why do you believe that? Well, if we just look at a regular home, you the example I was saying to you yesterday was if we look at a home near a hospital that a doctor lives in, right? And we've got to assume that when the doctor bought that home, it was affordable for someone on a doctor's salary. If we move forward fifty years, the hospital is still there That home should probably be filled by another doctor. It's not going to be a Russian oligarch, a crypto billionaire or whatever. It's going to be a regular person who works at the hospital. And thus, it must be priced such that the doctor can afford it. And the rate at which wages go up is roughly in line with the rate of inflation believe that house prices should go up significantly more than inflation in the long run doesn't really make much sense. It's you know, we can't live in a world. There's a lot of scaremongering even, you know, where you see people out there and they say, well, no one will ever own homes again. They'll all be owned by billionaires and blah blah blah. It's like, But even if billionaires own them, they have to rent them out and they have to rent them out at a price that we can afford. And if they overpaid for them and are renting them out at a low price, they're losing money on that. If you're buying an asset an all time high and it seems really unaffordable to a regular person like you, it might mean that that's not a great investment We seem to take it as a given, especially in America, that if you buy a home It's going to go up It is an investment. That is the way people see it. And it's sort of like, have your caking unit too. I get to live in this home, I get to have a roof over my head. and at the same time, I am making like a financially responsible decision that's going to pay out Over the long term, And I guess doesn't you made it clear to me that There's no reason we should assume that or why anyone should assume that. Like the only reason you should assume that your house is more valuable five years from now than it is today is if you invest in renovation and make it nicer orr if you believe that the specific locale that you have bought your house in in the neighborhood is going to become a hot neighborhood and everyone's going to want to live there To me those are the only two reasons. Yeah, if it's suddenly boomed because a very profitable business opened down the road or something like that. But yeah, there's no reason to think that a regular person's house should explode in value, that it should go up like the stock market does. you know the stock market is companies who are you know making and selling goods at a markup. Your home is just sitting there. and in fact, it needs a roof repair every once in a while and new siding and you know the kitchen wears out. Also if you just look at a long term return on housing versus the stock market hing grossly underperforms the stock market. like it's not the best. I understand the emotional urge to own the place you live, but An emotional urge is different to an investment decision, you know And the investment decision is, you, is this going to go up at a higher rate or with a lower risk than other assets I can invest in It almost has parallels to our conversation about the crypto where the reason the price of crypto is staying up or was staying up was because people just fundamentally believed that it would keep going up, and that was the proposition And when I look at the price of housing today I would imagine that a large reason Wh I mean, of course, there's the supply problem, which we have obviously have to get fixed. But I think maybe in addition, there is the fundamental belief among Americans and current non homeowners, that the price will go up And if you believe that, then there's more incentive to go out and buy a home as opposed to investing in anything else. And I wonder if your point If we were to philosophically change that mindset in America and in the Western world, then it does seem to be kind of a Western world thing. This doesn't really exist in Singapore as an example. It doesn't really exist in Japan. They don't think of these houses as investments per se. If we were to eliminate that mindset and treat it as this is a place where I live and it's a cost. And if I want to invest And I go and I invest in stocks and I invest in businesses, I invest in the S andP Perhaps that would Solve the problem mayaybe that would shhift things? I mean, what would it take prices at a reasonable place. It's so interesting though, because even you know, we've seen in New Zealand, there's been a fall in house prices and what ends up and even in the United States, home affordability has collapsed in recent years, even though house prices haven't gone up that much, but because you know a few years ago you could borrow at, you under three percent to buy a home and then when it goes up to, you know seven percent or something like that to buy the same home, the same cash flow does not buy that prike it's almost like the house price is up, you know sixty, seventy percent or at least the cost of funding the purchase is up a lot. Now you would say, well, who are all the people who can suddenly afford to pay this much more? Like they haven't had pay raises or anything? And the answer is they don't exist, but the sellers are not willing to mark down their homes, right? They've locked in at a low mortgage rate. And so you see in the United States just transactions have collapsed know sellers aren't willing to mark it down and take a massive loss. and it's totally unaffordable to buyers. So you just end up with this frozen housing market. In other parts of the world, in England where your interest rate is usually variable. You can only lock it for a few years, you actually feel the pain like when interest rates go up, your mortgage bill goes up And you have to ask yourself, you know can I afford to keep paying this? And so you're more likely to see a squeeze on homeowners in places with variable interest rate mortgages. But in the United States, you just see the market freeze up. And that also it's worth noting like it's kind of lucky, but it's not always because for example, if you had I don't know, a great job and you're offered a promotion, but you have to move across the country, you know, You think, well, gosh, you know if I sell my house now and I get five hundred thousand dollars and I buy a home in this other place for five hundred thousand, the mortgage me, you know the cash flow, I can't do that. likeike I'd have to buy a three hundred thousand dollars home in order to you know to finance it with the same cash flow. And so I won't take that job promotion. And so it sort of harms people, you know work or mobility and careers and things like that all just sort of clinging on to this investment Let's take a look at the week ahead Next week, we'll see inflation data from the consumer and producer price indices for June