Are We Headed For a Recession? + How Tariffs Hurt Housing (Live at SXSW)
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Today's number eight. If Texas was its own economy, it'd be the eighth largest nation in the world. True story. Last night, I got a little fucked up, went upstairs, took an edible Sunday night. I was bored, so I went down to the bar, and I met this really hot guy. And I just kind of slipped out. I said, I have an enormous dick. And he said, but I don't like big dicks. To which I responded, how do you feel about liars?

By the way, the reason I make so many dick jokes is not because I'm profane, but we really need to show more empathy for dicks themselves. I mean, think about it, right? Their hair is always messed up.

Don't clap.

By the way, can we talk a little bit about your dress? Please. It sort of says, I surrender. You know, I got, dude, Brunello, little rag and bone, little like, your kids are likely to survive with me. This says, you know, aging skateboarder, but rich, right? But rich, that's the most important part. I guess, Kent, this morning you stood in front of the mirror and said, that works. Yeah.

I just point out, this is my mentor. This is all I've got. And this is how we start the show. Unpaid internship. Unpaid internship. Career experience. Let's get to the headlines. Let's do it. Now is the time to buy...

I hope you have plenty of the wherewithal. Apple is postponing new AI updates for Siri after engineers failed to resolve bugs in the project. Originally set for release next month, the updates are now delayed indefinitely. Sony has removed more than 75,000 deepfake AI recordings of its artists, including Harry Styles, Queen and Beyonce.

Executives argue these AI songs cause "direct commercial harm to legitimate recording artists." And finally, the White House is considering restricting access to DeepSeek over national security concerns. Potential measures include banning the chatbot from government services, removing it from app stores, and limiting how U.S. cloud providers can offer the AI models.

Scott, let's start with your thoughts on Apple with this product delay. They are postponing their new AI updates for Siri. So people love to hate Apple. I don't think, I mean, just a couple of weeks ago, think about it. We were complimenting Apple for how smart they were to not go down this rabbit hole of massive capital spending in AI. That they decided that rather than develop our own search engine, we're just going to charge $20 billion a year in rent and

to a bigger, better search engine. And $19.8 billion of that will hit the bottom line. I think it's about 20% of their market cap is derived from this relationship of renting search instead of investing themselves. And we were saying just a few weeks ago that them not making these extraordinary investments in AI was probably the way to go, that to rent the infrastructure or leverage it, and then at some point put themselves in a position where they could extract unfair rents

from an open AI or an anthropic to be the default AI on Apple devices. People will pile in because I think what you're going to see is, and you talked about this last week,

We're about to see, in my view, a serious destruction in the value of Apple's equity. And a stock can stay elevated based on story for a while, but it's a little bit like gravity. At some point, gravity and fundamentals and valuation, I do think, tank over. And I think that's starting to happen to Apple. Just some numbers. If you look at growth relative to price earnings, right? If the growth is bigger, you would think the P multiple would be bigger. So you have NVIDIA, right?

which grew 114% this year. And it trades at a PE of 40, which actually looks quite cheap given that it doubled its earnings. And then you have Meta, Alphabet, and Microsoft that are growing somewhere between 14% and 22% at the high end for Meta. And their PE multiples are somewhere between 20% and 30%. And Amazon, PE of 38, grew 11% last year. Apple,

has a PE of 38, despite the fact it only grew 2%. So relative to its growth, it just looks really overvalued. Now, the most overvalued company in the world

There's a company that grew 1% last year and is trading at a PE multiple of 134, despite shedding a third of its value over the last 30 days. And that's the company I love to hate, Tesla. Yeah, I think we should point out that this is highly unusual from Apple. I mean, they almost never delay their products after they've been announced. I think it's only happened maybe twice in the company's history. So it's especially bad, especially given the conversation we just had last week with

about this lack of innovation at Apple, where you had, I mean, the biggest product has been the headset, which so far has been a flop.

You look at the iPhone, which hasn't really changed in the last 10 years. The iPad hasn't changed, nor has the Mac. And now it appears they are falling behind on AI. And supposedly within the company, employees are questioning the management of the AI division. Apparently there's a bit of a loss of faith there. The question I would pose to you, at what point does that loss of faith move up the chain to Tim Cook? I mean, I think...

Everyone loves Tim Cook, and they have done for many, many years now. But we're seeing a lot of questionable decisions. You know, they did not invest in data centers. He canceled the Apple car. He decided to launch this headset. We'll see if it works. I don't think it will. But at what point, Scott, do you think shareholders and the board will start questioning Tim Cook's leadership? Could we get to that point? We could in about 10 or 15 years of underperformance. You know,

Keep in mind, Tim Cook has added more shareholder value than any individual in history, maybe with the exception of Jensen Huang. And that is, since taking over Apple, the stock's up 19-fold. So this is what that means. This is how that distills down to practicality around governance. Everyone on the board...

that is responsible. You have two jobs when you're on a board, if and when to sell the company and hiring and firing the CEO. Those are basically the only two important things you do. And also make sure the chairman of the audit committee makes sure that there's not fraud. So the people who would have to make that decision, this is the reality. The majority of those people on that board have probably been there for a while and have made somewhere between 10 and $300 million.

under the leadership of Tim Cook. So they feel a lot of goodwill towards Tim.

And the idea that one bad quarter or a strategic misstep is going to all of a sudden get them to decide, these are people, this is the conversation right now. Don't worry, Tim, we're 110% behind you. Tim Cook probably leaves when Tim Cook wants to leave because he's done such an extraordinary job. And I brought a prop here. People talk about, I mean, the headset, which is fucking stupid. The headset was a call option to make sure that little cocksucker Mark Zuckerberg, probably the wrong term,

Was not going to get too far ahead with this attempt to make vertical distribution with a headset. So he said, spend a billion or $2 billion, maybe 10, which is chump change for us, to make sure that if headsets and spatial computing really are the future of tech, that we're at letter D, not letter A. They're already killing it.

It already doesn't work. People assume that Mark Zuckerberg is a genius, so everything he does, people rush to that end of the aisle. No, he hasn't been able to develop a product. The smart glasses will probably work. The headsets make no sense. The most underrated product are these.

This on its own. If you're listening to the podcast and you're not in person, he's holding up an AirPods case. Has less gravitas in audio. AirPods. This item would be a Fortune 50 company on its own.

It is an extraordinary item. But the stock, it can be an amazing company. Tim Cook can be lauded as a fantastic fiduciary for shareholder value. And the stock could come down 40% because it's just become way too expensive. But the notion that Tim Cook or management is under any threat here,

No way. This guy arguably has been one of the most thoughtful fiduciaries and managers in corporate history. He's a first ballot hall of famer. He could literally screw up for 10 years. And just the last piece of data, Apple's percentage of its top line that goes into R&D is less than IBM's and less the rest of big tech.

So the question that I think they should be having at a board level is, are we making the requisite investments in R&D to inspire new product development? Because if you look at it as a percentage of their top line, it's actually lower than it was at IBM in their heyday and much lower than some of the other big tech. Let's talk about this news from Sony. So Sony has taken down 75,000 AI deepfake recordings of their artists. Scott, I'm interested to get your view because...

Last week, you yourself were deepfaked on a mass scale. I don't know if anyone saw this, but on Instagram and TikTok, there were several deepfake videos surfacing of Scott recommending stocks, recommending cryptocurrencies. The strangest was Scott recommending a supplement, except it was Sam Harris's voice dubbed over you. I didn't see that. Very strange. That one was the least convincing.

You have some experience with this, with being deepfaked. What is your reaction to these deepfakes and how are you personally dealing with being a victim of it? Oh, I'm drinking. This brings up a larger issue, and that is...

Imagine a commercial on CNBC that showed me recommending a WhatsApp group to recommend stocks and charging you to be on it. And it ended up that CNBC had been fooled into running a deepfake ad that was fraudulent. What do you think would happen to Comcast?

Well, first off, it would never happen because they have implements and friction and moderation and fact-checking. But also, they would be liable. I would sue them and I would probably win because I'd be able to show damages. But because this happened on Meta,

Doesn't matter. They have Section 230 protection. And all of this fraud and all of this incredible damage to intellectual property, essentially what the GRU does is that they not only spread misinformation, but they'll actually put out correct information. It was like in the movie The Exorcist when the priest says the devil will mix in truth and falsehoods just to totally confuse you. And

If we don't put in place, in my view, really stringent penalties to the host platform for not ensuring or making the requisite investments such that people's personal IP is not protected, the level of trust, not only in institutions, but in our individuals and our leaders and the people we look to for advice, the people we look to for a general reasonable voice around whatever it might be, health or politics,

We're just going to be so confused as to who's actually saying what that, again, it'll be a further erosion in institutions and a further erosion in trust. Because when you see Esther Perel, you should be able to think she's been thoughtful and has some brings the research and the credibility and the empathy that she brings to her work.

But all of a sudden, if there are a ton of fake stairs that you just get confused and overwhelmed and don't know what to believe and what not to believe, I think that really continues to fray at the fabric of America. And again, it shows why 230 needs to be redrawn. If you algorithmically elevate content, you should probably lose 230 protection. I think this is a big deal. I think people should have very severe kind of protection around their digital twin, right?

Thank you. And more importantly, just as the only way you're going to have digital protection is if one of these firms gets economically hit very hard. And they will plead what they always plead, complexity. We can't stop this stuff. This is impossible. Well, on the eve of the passing of the Kids Online Safety Act, COSA, all of a sudden they figured out how to age-gate.

They're like, oh, we can use AI to figure out that you're 15, not 19. And then if we figure it out, we're going to ask you to upload a federal idea. In about 48 hours, they figured out the impossible. So this will continue to happen unless we remove Section 230 and we hold these companies liable. For effectively, if someone damages your reputation and makes it such that no one can trust you about anything you say, that is immense economic harm to you and your economic well-being for the rest of your life. So-

This is just yet another example of a transfer of wealth from traditional media to new media and new media getting to do things that, again, just erodes our trust in people and institutions. Yeah, there were an estimated 8 million deepfakes or estimated to be 8 million deepfakes shared online this year. That's up 16x from 2023. Very interesting, though. Nine out of 10 deepfakes are used to promote cryptocurrencies.

That's the main use case. So I agree on the Section 230, but it also seems that we could maybe reduce the deepfake industry or take it down by 90% if we simply regulated crypto as well, because that's the main thing it's being used for. Let's talk about DeepSeek. The U.S. is considering banning DeepSeek.

This is coming a few weeks after South Korea made a similar decision. They said no downloading DeepSeek on our app stores. They said it was a security concern. I talked about it on the podcast. I said I think most countries will follow suit, and my prediction is that the US would be the first to do it. It seems that is probably going to happen, though we don't have confirmation. This is only rumors swirling around.

What do you think, Scott? Should we be banning DeepSeek? Is this the right move from government? Oh, of course we should ban it. Yeah. Just the same way it was obvious and still is that TikTok should be banned. Right. So let me list all the media companies and AI, US AI companies, just in terms of trade symmetry, who are operating in China.

So just in terms of trade symmetry, it makes no sense. But it's also a security threat. The fact that we are letting the CCP implant a neural jack into 70% of our future business, nonprofit, civic, and military leaders, such that they can make you feel shittier and shittier about America, one dance video at a time, that's just insane.

TikTok has more impact and control over young people or exposure than ABC, NBC, or CBS did during the Cold War. Would we have allowed the Kremlin to own NBC, ABC, and CBS? But this is the problem. No one fucking takes this seriously anymore. When South Korea says they're banning DeepSeek, I think DeepSeek and the markets go, yeah, they're going to ban it. Anyone know if the tariffs are back off or on right now?

We have lost so much credibility. We passed a law. We banned TikTok. Trump didn't like it. Then the U.S. Congress and senators and the president signed a bill saying they were banning it. And then Trump said, whoa, hold off. So we have no credibility globally in terms of doing what we actually say we're going to be doing. So the way to summarize right now threats of banning technology, Chinese technology in the U.S., is simple.

Ignore them, they'll blink. At the end of the day, ignore them. And on the eve of the banning, maybe the president will extend it. Maybe we get a donor to give him a bunch of money to extend it. It's no, is it an accident that one of his biggest donors, Jeff Yass, is also one of the biggest investors in TikTok, and all of a sudden he's decided he likes TikTok and is trying to figure out a way not to ban it? You can't have serious negotiations, economic, geopolitical, even arms treaties, with a nation

that has no credibility. What is happening now and will happen with what's indicated by our lack of credibility around DeepSeek and TikTok is the same thing that's happening with the tariffs. And that is as we sit here right now, the world's largest economies that trade with each other to create incredible prosperity

are redoing their alliances with people other than the U.S. because they can't count on us. It would almost be better if we actually implemented the tariffs and kept them in place for a while. People would at least go, it's a bad decision, but it's a decision. So right now, everyone is going, figuring out different supply chain routes, different alliances to exclude this partner from

this kind of bipolar, unstable, inconsistent partner where the rest of the world goes, we don't know who we're waking up next to when we work with you. Yeah, I think there's a question of will it be banned? We don't know. And then there's the question of should it be banned? I think I'm in total agreement with you. I mean, DeepSeek has, according to almost all the research, the weakest encryption in the industry. It's four times more vulnerable to hacks than

We'll be right back.

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With an audience scale of 36 million, Intuit SMB Media Labs puts your brand in front of the small businesses that need you most, targeting key decision makers by industry, size, maturity, and location. More than just an audience, it's your SMB media partner. Learn more at medialabs.intuit.com. We're back with Profit Markets. The big banks are forecasting an increased risk of a recession in the next year.

A model from JP Morgan estimates a 31% probability. That's up from 17% at the end of November. And Goldman's model also ticked up to 23%. On top of trade war fears, warning signs are flashing across the economy. Unemployment came in unexpectedly high. Consumer sentiment hit a 15-month low. And Atlanta's Federal Reserve expects US GDP to contract this quarter.

Meanwhile, an increasingly volatile S&P 500 just posted its worst week since September, and the Nasdaq is down more than 7% year-to-date. A lot in there. Scott, I think probably the most

alarming piece of that is just this recession forecast from these big banks who are increasing the probability of a recession. Given what you're seeing in the markets, given what we've seen in, I think we're now on day 48 under Trump, how concerned are you that we're going to see a recession in America this year? So recessions, the joke that economists have predicted nine of the last three recessions,

It is very difficult to know what's going to happen. What is obvious, though, consumer confidence has fallen further faster in the last month than it has since COVID. The economy is contracting faster than it has since COVID. The Atlanta Fed has this model to try and predict GDP growth, and it was running at 4% about 45 days ago, which is great growth. It's already fallen to negative 2.8. So growth...

Growth and productivity aren't everything, but they're almost everything. Because the only way we're going to grow out of this deficit, the only way we're going to grow into a greater tax base to start making some of the forward-leaning investments we need to ensure continued prosperity for young people and technology and education is through growth.

And the way that we've been able to rack up these massive deficits and not crash the dollar in our economy is that the U.S.'s growth has been remarkable over the last 30 or 40 years. It's been consistent, it's been strong, and it's been pretty steady. The thing on a more meta level, and granted, and I think anyone who listens to the pod knows, you know, I'm a glass half empty kind of guy, but I go much more meta on this. And that is, I see the most progressive, enlightened people

society over the last 200 years in terms of an embrace of academics, art, music, an embrace of immigrants, gay rights, is Germany. But it had this 11-year descent into darkness. And what it had was a leader who was fascist. And I wanted to find what fascism is. Fascism is extreme nationalism that ignores the courts,

is willing to take off the gloves in terms of not condemning violence against your enemies, demonizing immigrants, and deciding that it's Germany first. I think our leadership literally defines the term fascist. So we have fascism, we have intimidation,

where people are calling for podcasters to be sued by the Trump administration if they call him a rapist, which I did. Morning Joe has to stop the show and say, "It's not rape, it's sexual abuse."

There's a chill. When Bob Iger bends a knee and pays the Trump administration $10 million, I mean, there is a chill across media right now. Not to say anything bad about this guy. The most powerful wealthy people in the world are bending a knee and giving money they don't want to give to the inauguration campaign and then being show-poding around like fucking whores at his inauguration. Not that there's anything wrong with that. I'm a fan of sex work.

We are one thing away from true demonization of a special interest group and going to a very ugly place. If you look at how things have spun out of control in societies and gone really dark, and that is a severe economic shock. And so the Democrat in me likes to think, okay, if the economy gets really bad and people see just how ridiculously stupid these decisions are, I kind of deep down think, okay,

Maybe that'd be a good thing. I am worried that America has this cold comfort that we couldn't go there. Oh, bullshit. We could absolutely go there. Keep in mind, just a short 80 years ago, we were rounding up Japanese Americans, some of whom had kids serving in our military in the European theater, and we put them in camps.

To believe it can't happen here is, in my view, totally ignoring history. And I think we have all the steps in place, if you look at what's happened in the past and other nations that have gone really dark. What we're missing, quite frankly, and the reason I'm so freaked out about this data, is a severe economic shock. Because the people in power aren't going to take responsibility for it. They're going to find a scapegoat.

So I think that America is very vulnerable to a series of dark steps right now. It is on a path to something very dark. And I think the missing piece to go even darker would be a severe economic shock. And this looks like we are not only setting ourselves up for recession, but potentially something worse. That was awful, wasn't it? Sorry. Take everything I say with a grain of salt. Yeah. The crowd's going wild.

When we look at how the stock market is reacting to these policies so far, it hasn't been good. And what's so interesting is that if you look at the global stock market right now, minus the US, so take all of the stocks, exclude all of the American companies, the global stock market is up 7.5% year to date so far.

So basically, we're having a uniquely American problem in the stock market right now. Now, what's interesting has been Trump's and his administration's response to this. And I just want to read you a quote that he said to Congress in his address to Congress. He said, quote, there will be a little disturbance, but we are OK with that.

And Scott Besant, the Treasury Secretary, he went on CNBC, he gave one of his first big public speeches on TV, and he said, quote, the market and the economy have just become hooked, and we've become addicted to this government spending. There is going to be a detox period. So in other words, the markets are not liking what's happening.

But, you know, I'm a little surprised that Trump isn't actually pointing fingers and blaming Biden, as I would have expected. Instead, he's actually owning up to what's going to happen. And they're saying, yes, this might hurt. We might feel some pain in the economy, but ultimately it's worth it. This is necessary. This is our medicine and we're going to do it. I'd like to get your reaction to that, Scott. Is there validity in that argument? Is it fair to say that

that America maybe needs this shakeup, they need this pain, and will suffer in the short term, but that's worth it. So there's a lot to unpack there, because the notion, the Dow Jones Industrial Average and the NASDAQ are two of the most damaging metrics ever invented, because they create the illusion that America is doing well if the NASDAQ is up. 90% of stocks run by the top 1%. A more important number would be deaths of despair.

or rates of self-harm among teens, or life expectancy. Our life expectancy has gone down. It's just started to go back up again. But we're obsessed. If the NASDAQ and the Dow are up, we fall into this false or this cold comfort that America is doing well. The bottom line is the Dow Jones Industrial Average and the NASDAQ are largely indicators on the well-being of the top 1%. And spoiler alert, they're doing really, really well.

So if the stock market goes down, you're right, it's not the end of the world. The key is what is the issue that's bringing the stock market down. Natural corrections are really important. The reason I get to lead the life I lead from an economic security standpoint is just as I was coming into my prime income earning years in 2007 and 2008, the economy crashed. It got overvalued. And the government decided to bail out banks for $700 billion, but they didn't bail out the economy.

And just as I was finally starting to get some money, I was able to buy Apple, Amazon, and Netflix at seven, eight, and $12 a share. And I was able to buy Florida real estate at a really good price because we let the markets drop by not artificially pumping them up with deficits. COVID comes along, greatest intergenerational theft in history was COVID. A million people dying would be bad, but people my age losing wealth would be a tragedy.

So they flushed $7 trillion into the economy, 85% of which wasn't spent, not needed, wasn't spent on medication, wasn't spent on housing. It was saved, which means it went into the market, which took stocks to new unnatural highs, took housing from an average of $290,000 to $415,000, which basically is nothing but robbing opportunity from young people that need disruption and an entry point at a good value, such that my stocks and my houses stay elevated.

So everything we have done over the last 20 years is essentially ensuring cementing my prosperity on your credit card. So the market's coming down because we're not going to artificially inflate them with deficit spending, which is nothing but a tax on you that's delayed.

fine, or they're overvalued. But the reason stocks are coming down now is because people realize that we are destroying very prosperous alliances. We are being very inconsistent about our economic policy. Last night at Vox had a party and a lot of our advertisers are there. And there was two automobile companies. And they both said, and I've talked to a bunch of media companies, they've said, ads are down.

Because auto companies and housing in different parts of the economy are literally in a state of paralysis. They don't know if the average car is about to increase in cost by $12,000. There was an exemption yesterday. Now there's not an exemption. Who gave money to Trump? Can you call him? What can we do here? Right? Right.

So that is having a huge impact on the real economy. So the stock market coming down because it's overvalued or because we're not willing to prop it up to keep me rich on your credit card, fine. But the stock market is going down now, not because it's having air let out of it. It's coming down now because America is making really bad decisions that's similar to Brexit. We're trying to figure out an elegant way to raise costs while reducing our productivity. Yeah.

So it's like, how could we elegantly reduce the quality of life, the purchasing power, and the prosperity of Americans really elegantly? And we are figuring it out. It's so funny because often the question is, okay, you have the losers and you have the winners. Who are the winners? Who are the losers? It's very, very difficult to identify a single winner in this. But I have identified one, and that is options traders. Yes.

So zero-day options trading is exploding right now. And this is what a zero-day option is. It's basically an options contract that expires within 24 hours. And they've reached a record high. I really had to scrape the barrel to find a winner here. But it is striking that on this technical level in the stock market,

The people who are being rewarded here are not the value investors. It's not the people who are investing long term into the real economy in America. In fact, they're getting burned. The people who are winning in the stock market are the traders, the gamblers, the speculators. It's basically the people who want to make a quick buck off of

volatility, because volatility is one of its highest ever right now. So I kind of look at what's happening in our economy right now, where we have an explosion in crypto, we are seeing record sports betting. And now I'm looking at what's happening to the stock market, it feels as though we're devolving from an investment economy into a gambling economy. Would you see it the same way? And does that concern you?

Our economy used to be run, I would argue, people say that we have an attention economy, right? That we try and figure out algorithms to keep you engaged such that we can sell you more ads. That's how the economy runs. I would go one step further and say that our economy is actually an addiction economy. And that is the most valuable companies in the world essentially are trying to figure out your addiction.

anthropological weaknesses tap into those and keep you glued to your phone by a series of indignance negative feedback positive feedback enraging you get you addicted to your phone because there's so much money in addiction now we talk a lot about young men men are much more inclined to be risk aggressive and by the way risk aggressiveness comes in really handy right

If Russian soldiers come pouring across the border, you know, you want some of that big dick risk-taking energy. Yeah.

You want aggressiveness. The power of our economy, I think, is risk capital and people willing to leave their job and start a business or approach a stranger. This is a key component of our society. But unfortunately, that risk aggressiveness among young men is being exploited by gaming companies. The net income of every company with a major presence in Vegas is off 40% this year.

Why? Because that risk aggressiveness is being served up on people's phones with gaming apps. 50% of college males bet on the Super Bowl. Zero-day options are nothing but gambling. And if you look at the overall stock market, we don't like to admit this, the stock market was initially meant to be a source of financing for companies. And about $300 billion of it, traditionally a year, is for IPOs and secondary offerings. It's a place to access capital for growth.

But the number of trades each year is $3 trillion. So 90% of the stock market is me thinking, I'm smarter than you, and I'm going to bet against you because you're selling me a stock at a price that I think is under or overvalued. So we are becoming, effectively, if you look at the economy, the most valuable companies in the world, the way we design public policy, our economy is really based on addiction. And the most

Most valuable companies in the world are trying to give young people, mostly young men, a sense that they can have a reasonable facsimile of life on their phone and get them addicted to gaming, get them addicted to the affirmation of others, get them addicted to porn. And also, I learned this from my mother who was a docent at the Bellagio when she lived in Las Vegas in her senior citizen years. The addiction that has the greatest suicide rate is gambling. Because if you have a meth addiction, people are going to notice.

And friends and loved ones are going to weigh in and try and stop it. If you have a gambling addiction, you can get in so deep and no one has any idea. And you get to a point where you feel the only way out is

And I worry that essentially all we're doing again is tapping into our worst instincts, trading off our worst instincts for shareholder value. And this is another example of that. I don't know what to do about it. You can't infantilize people. I think if they want to eat themselves to death, that's their right.

I think if they want to gamble, that's their right. But be clear, we are essentially trying to figure out a way to convince young men that they should just stay home, not go through the pain of getting a job, not establish real relationships, not establish real friendships because they have Discord, they have Reddit, they have Robinhood, and they have YouPorn. That doesn't end up in a good place. This is nice. Sorry.

Sorry. Well, let's talk about housing now. Stay with us. Support for this show comes from Smartsheet. Okay, be honest. How many times today did a DM or email send you on some wild goose chase when you should have been focusing on being productive?

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Smartsheet customers know that Smartsheet is a distraction-free zone. Smartsheet is the place where work flows. Learn more at smartsheet.com slash vox. We're back with Prof G Markets. Home builders are warning that tariffs could increase the cost of building a home by up to $10,000. Here we go. Rising lumber prices will inflict most of that pain. About one-third of the lumber used in the U.S. is sourced abroad, and 70% of that lumber comes from Canada.

Given our dependence on our neighbor to the north, the threat of tariffs has sent the U.S. home construction ETF down 19% since December. Scott, I just want to put you in my shoes. I'm 25 years old. I would love to— Scott, yo. Can you believe that? Literally, can you believe that? Seriously. Let me make my point.

When I was his age, I was like, what was I doing? I was driving a Rhinola car thinking about going to see Squeeze at the Greek Theater. And like, anyways, well done. Well, ignore that part. Well done. My point is I would like to own a home someday. Got it. But the average price of a home in America today is $420,000. It's near a record high.

In New York City, by the way, where I live, it's $1.3 million. That's the median. The average age of a home buyer today is 56 years old. In 1980, it was 30 years old. So I see this headline and I see housing costs are going up even higher because

What would you say to someone like me, a young person who's trying to have a good career, is trying to make it, who wants to own a home someday, and then I see this news that home prices are only gonna go up? - Well, look, I think people who are successful and have been blessed with some economic security have a right to try and make things cheaper. So I'm gonna commit to you that if you continue to work this hard and demonstrate this kind of talent, that I'm gonna buy a second home.

I love that. I love that. You can always tell because his face gets very morose and serious. I know when it's coming. I'll tell you what. It's going from an unpaid internship to a paid. Look, the first thing is, this is a complicated issue. The first thing is, and I think as Democrats, I think we need to transition from being the party of indignation to the party of ideas.

And if you look at right now approval of Trump, it's somewhere between 50 and 60 percent among every age group, except it's 23 among 29 to 44 year olds. In some, America isn't working for people trying to establish traction economically and think about starting a family. And to a certain extent, that's the most important age group, because 40 years ago, 60 percent of 30 year olds had a kid. Now it's 27 percent.

And people say, "Well, you don't have to have kids to be happy." I'm like, "I agree, but you should have the option to have kids." And as someone who had no desire to have kids, I have found that raising a family with a competent partner is sort of the whole shooting match and does give you purpose. And it's also really important for an economy.

The GDP of economies is directly related to how young their populace is, and our population is getting way too old. So back to advice for you. I think first off, we need to stop this zeitgeist promoted by the National Realtors Association that you need to own a home.

I don't think it's the best. It is not the best way to build wealth. If you count phantom costs, housing has gone up 4% to 6% or increased in value 4% to 6% a year because of all the costs of maintaining and owning a home. The market has gone up 8% to 11%. The reason why it is a great wealth builder is because it's forced savings. Because generally speaking, people will make their mortgage because they don't want the shame of being evicted.

So what I would argue is a couple things. One, just in terms of bringing the cost of housing down. Austin is actually a model. They passed a YIMBY, Yes In My Backyard, that took the height limits off of construction and said, all right, you can go higher than whatever it is, 450 feet.

In Minneapolis, they said, all right, we're not going to demand—they got rid of regulation—we're not going to demand that you have to build a parking spot, which costs about $50,000 per apartment. In Minneapolis, where they've increased housing supply and lowered the cost, rent is flat. In the rest of Minnesota, housing is up 14%. So one, it's just increasing housing stock, and there needs to be more of innovation. Manufactured houses—

that you drop on a lot cost between 30 and 50% less than houses built on site.

So one, do away with the notion that you have to own a home to be an adult or commit to a relationship. So I think we need to get rid of that, but we need to replace it with other opportunities for young people to develop economic security. I would go the other way, and that is try and encourage people to have a smaller home. Homes keep getting bigger. And my advice to younger people is that your success is going to be inversely correlated to the amount of time you spend at home.

And that is, I'm not saying don't have a nice home, but what I'm suggesting is that we would be better off in terms of building economic prosperity for young people and giving them the opportunity to have families if we said to them, okay, we're going to figure out a way for you to have less expensive housing and then give them opportunities that incent them to invest in the market through some sort of forced savings program where we say, like they do in the UK, if you put up to 10,000 pounds in this retirement account, we'll give you, we'll top it up by another 20 or 25%.

So the notion that you failed if you don't own a home, we need to get rid of that. Two, we need a massive increase in building. And secondly, the housing crisis is not only a housing crisis, it's an affordability crisis because we aren't paying young people enough. So why... But so I think it's getting rid... It's Yimby, yes, in my backyard. The biggest mistake we've made in housing is...

is similar to the mistake we've made in higher education. And that is our culture has become a rejectionist LVMH culture. And that is once I own a home, the biggest mistake we made in housing was taking housing permits out of the hands of bureaucrats who looked at the whole picture and made decisions based on what was good for the community. And we put it into the hands of homeowners.

And homeowners love the idea of coming up with reasons for why there's too much traffic and too much density and asking for more information and basically slow balling and slow rolling and killing new housing development. 75% of the zoned real estate in America is for single family housing. It shouldn't be that way. 24% of the cost of a new home

are in permits. So when you put permits, housing permits in my hands, my incentives are to sequester new housing. So to the value of my home, which I already own, goes up. The same thing's happened in education. Once you have a degree from an elite university, you just love that it's now impossible to get in because it takes the value of your degree up.

So we need to flip it and realize that a massive overabundance mindset of freshman seats at good universities, and it shouldn't be drill, baby, drill. It should be build, baby, build, and also massively increase, in my view, through tax credits, universal pre-K, $25 an hour minimum wage, such that we go from one-third of you can own a home to two-thirds. It's not anyone's birthright to own a home, but you would like to think that the majority of people would at least be able to afford housing, and then again,

I think the key is to make it less expensive, give people additional income, and then create a better way to save and build economic value than the message from the National Association of Realtors that you never go wrong investing in housing. Because people believe that. They become house poor. They overextend themselves.

And then it creates an illiquidity in human capital where they can't move because they don't want to give up their mortgage or they're underwater and they don't move to where their human capital would be best spent. So I think we need a total change in mindset around housing, massive more building of homes. Yes, in my backyard legislation. And also simply put, people between the ages of 25 and 40 figure out economic policies that just put more money in their pockets.

Yeah, I think Austin is a great example. Just some data here. The housing supply in Austin has increased 14% in the past two years. As a result, rents have declined 22% since 2023. That's the largest rent decline in America. So I think that's a good place. Off a big number though. Come off a big number. Yeah. But yeah, let's clap.

At least try to end on a little bit of optimism. That's pretty much our show, but I want to end here with one of our favorite segments, which is the algebra of wealth. And this is where Scott tells us how we're all going to get rich. Yeah. Yeah, no problem. Be born a straight white male in 1964.

Scott, let's keep it quick so we can do the Q&A. But based on everything we've talked about, is there any advice you would give to our audience on how we can build wealth ourselves? Well, just along the lines of housing, if you're fortunate enough to be with a partner and you're thinking about how do it, the key is, the key is, I think, how do you develop economic security for you and your family? And try and ignore the instinct that you're going to die at 35, because 99% of our time on this planet is

we've died before the age of 35, we have a tough time actually believing that you're ever gonna be my age. And that is, if you're 30 sitting in this audience, it means you're probably healthy, it means you're probably wealthy, it means you're probably gonna live another 70 or 80 years. And so the key is, I mean, here's the good news. I know how to get you rich. The bad news is the answer is slowly.

And what I would suggest is that you adopt the forced savings of a mortgage, but you create a mortgage around another investment class, and that is stocks across the U.S., low-cost ETF funds, and non-U.S. markets, because I think the U.S. is going to underperform international markets over the next 10 years.

But try and figure out a forced savings plan that is tax-advantaged, commit with your partner, and rather than making a mortgage payment. So rent in Austin is about $1,500. The average cost of a home is about $3,000. I think a reasonable way to economic security is to say to your partner, all right,

We're going to have a fairly modest home. We're going to try and spend as much time with friends, with family, outside of the house. And we're going to take that incremental $1,500 a month in housing savings, and we're going to force a mortgage on ourselves, hopefully through some sort of tax advantage vehicle through our employer or through the state or through the federal government. And we're going to create a mortgage, and every month we're going to pay our mortgage, but our mortgage is going to be low-cost ETFs.

because over the medium and the long term, those return 9% to 11% versus 4% to 6% in housing. So buy into the notion of economic security and a forced savings plan, but create a mortgage that forces you to invest in the markets and realize you're not failing if you just have a modest place to live and try and spend more time outside of the house. Create a mortgage, but instead of putting it into housing, put it into the markets. Thank you very much, Scott.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. We got to do the credits. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Big list of people, and they're all over there. Thank you for joining us.

If you liked what you heard, give us a follow on Prof G Markets. And now we've got a little bit of time for some audience questions. I think we have some mics up here. If anyone would like to ask a question, we've got about five, 10 minutes. Awesome. Thanks guys. I'm Justin, Orange County, California.

For folks who might be lucky enough to have kind of their house in order with the low-cost ETFs, et cetera, et cetera, what are some of the things that you can get like a little riskier on that you would suggest in like a 40-ish year old person? 40-ish? Look, so let me be clear.

I have most of my money, I'm very diversified, but I buy and sell options. I buy individual stocks 'cause I can't help myself, 'cause I'm under the illusion that most people are under that I can beat the market. But what I do is I sequester that to 30% of my total portfolio, and then I'm not gonna tell you how to risk up. Just buying individual stocks that you think you have insight into, or whether it's crypto, small amount of money in Bitcoin or whatever,

I'm going into Latin American and European ETFs because I think those markets are going to vastly outperform the U.S. market. And because I'm still a bit of a dope addict, I'm doing these 2X funds that put leverage on them. So you are going to have no trouble finding additional alpha and risk. Or I don't know if you can find alpha. You can definitely find risk. Even buying an individual stock is risky. But what I would say is sequester it to 30% of your portfolio. Your base...

Your go bag is 70% in low-cost index funds. And also my big piece of advice around that is if you're just in the S&P in American stocks, be careful because there's a crazy stat. So we've all heard that 50% of the market capitalization globally is now represented by US stocks. And oh my God, half the world's value is in the US. It's worse than that because if you include debt,

The value, the enterprise value of a company is its market capitalization plus its debt. So if you're a company worth a billion dollars in terms of your market cap, but you also have $500 million in debt, the market is saying that company is worth $1.5 billion because they're taking into account that it owes $500 million. If you count debt, if you incorporate debt into the enterprise value of U.S. companies, the total value of all publicly traded companies globally is

If it was $100, 70 of it is the US. So think about this just as a shopper trying to buy value. Right now, you can buy the US for $70 or you can buy the rest of the world for 30. That to me says that the US is probably overvalued and the rest of the world is undervalued. So I'm not only suggesting you be in ETFs that diversify you, but that you're geographically diverse.

Because if you look at under or over performance of the U.S. versus international stocks, it's cyclical. There's usually 10 to 15 year under or over performance relative to international stocks. And U.S. stocks have been over performing international for 16 years. And if you're like me and believe everything is cyclical, it means that

that we're probably going into a decade of underperformance in the US and overperformance abroad. In terms of risk, you'll have no trouble finding risk. And then in 10 years, you'll come back and say, I was stupid. I should have just done ETFs.

Thank you. Thank you for the question. Hi, my name is Corinne Hurt. I'm a doctoral candidate and researcher at the University of Southern Indiana. I completely agree with your comments on the young generation being red-pilled, basically. What are you getting your doctorate in? Education. And my dissertation is on historical revisionism and fascism. So my question to you is this. Did I get my definition of fascism incorrect? You're going to forget my best. No, I think you did great, actually. That's why I'm asking the question. Go on. Like this already. What practice?

What practical insights do you have for educators? I mean, maybe not just related to young men, but for how do we stop this? How do we stop when you say this, where this slow roll into fashion? Yes, the democratic backsliding. Well, first off, thanks for what you're doing. I think education, by the way, is a really wonderful career.

I'll just go on a rant about education. The problem with education is too many old people won't leave. And that is you're going to go hopefully get tenure and there's going to be a bunch of 85-year-olds who were the bomb and gap one accounting in 1983 and they won't fucking leave. And the problem is it creates a lack of upward mobility for young academics. Now, having said that, I think academia is a fantastic way to make a living. It's a fantastic way to

add value, be around young people. It's the only thing I've done for this long. Anyway, so I think you've picked a good career. I think that I'm going to go more to a strategy around how, quote unquote, those of us moderates, moderate Republicans, moderate Democrats and Democrats, how we sort of push back on what are some emerging themes that you understand history if you're alarmed by it.

What I would say is what not to do is to be emotional incendiary and wave your cane and interrupt State of the Union addresses. I just think we look like idiots. I think we look emotional. I think we look reckless. And it tickles the sensors of the right, and it turns off moderates. I think what we need to do, if in fact you're not comfortable with what's going on right now—

is realize you don't need to respond to every issue on Twitter or TikTok. And to also recognize the DEI causing helicopter crashes, the gulf of cheaper eggs, even the male versus female bullshit in terms of semantics, that is all a weapon of mass distraction to get you to look away from obvious things

incoherent, ridiculously bad government decisions. Specifically, what I would suggest is focus on one or two issues. You're obviously an expert or have real domain expertise around fascism. So focusing about writing about that, the similarities, try and resist the temptation to talk about

I mean, all the outrageous shit, because what is going on right now is they want you to look over here and get upset and angry and not talk about the fact that, let's be honest, this is all a distraction from the following. We are surrendering to a murderous autocrat. And two, we are about to explode the deficits $800 billion a year such that I can have a tax return.

So the most powerful people in the world have this unholy alliance with the Trump administration right now. And that is even though they quote unquote care about democracy and everything, your rights are strictly, unfortunately now, entirely correlated to your wealth. Roe v. Wade doesn't impact me. I can get mesofestron for any woman in my life. If they start rounding up people, I can shove Bitcoin up my ass and peace out to Dubai and have a really nice life.

I will always be able to vote. I will always have access to politicians. Why? Because I'm rich. And this is exactly what's happened, and this is what happened in the 30s, is Hitler had these unholy agreements with the rich and corporations that if you back me, I will give you favorable treatment, I'll destroy the unions, I'll go company by company and not pass systemic laws, but say whoever kisses my ass and gives me money makes more money. And that was part of the key descent into fascism. Long-winded way of saying it.

Don't have an emotional reckless response. Focus on the one or two things you're really passionate about. Bring experts, bring data, bring the adults in the room. And then, you know, I would say for wealthy people, the spinelessness of wealthy people who have this cold comfort that they'll always be able to buy rights, which is unfortunately true. They'll always be able to protect their daughters. They'll always have access to family planning. They will always have rights.

is really frightening right now because the powerful among the U.S. are not speaking up. Look at how many Fortune 500 CEOs have said anything, anything about what's going on. They were really happy to shitpost Biden because they knew Biden wouldn't come after them, that Biden respected free speech and rule of law. Now they're succumbing to this chill that's been put across and that there'll be a reward if you just pay these people.

So anyways, I think what you're doing is important work, being disciplined, fact-based, putting out content, being fearless about it. But I think as Democrats, we need to have a less emotional, reckless response. It is not working. Thank you. Thank you.

I think we could do one more. Thanks, guys. Chad from New Jersey. I believe we need to normalize talking about personal finances amongst our peer groups and with our parents. Do you agree? And how do we start doing that? I think so. I talk about my money all the time. I'm very transparent about my net worth in taxes. And I think some of it is I really...

examine myself is it makes me feel important and masculine because I'm economically secure. So let me be clear, I'm boasting a little bit. But most of it is I think we need to have, do you think, I met Randy Roddick last night

You don't think Andy talked about tennis all the time? If you're not talking a lot about something and sharing ideas with your friends, you're not going to be very good at it. And there's a real issue among, it's the genders don't talk about money for different reasons. For women, it's considered not sexy, right? You're not supposed to talk about money. Like it's uncouth or not good manners. And for men, you're supposed to be accidentally rich, right?

Like, I don't even try. I'm just such a fucking baller. I don't need to think about money. I just make so much money because I'm such a man. And I think it's really important that people open up and talk about their taxes, their net worth, their economic stress, such that they get much better at it. And

It's hard to read the label from inside of the bottle. I mean, the wisdom of the crowds is incredible. I guarantee you, if you get together, I love investment clubs, with a group of people, one, don't feel shamed, right? Oh, shit, I just lost 80% in investment. I'm wondering if my apartment's too expensive. Because what you'll find is, one, other people are struggling, too, right? The people who are economically secure are traditionally the people you don't know.

And two, you'll get ideas. You'll start learning about stuff and you'll think about and you'll hear from a friend that, okay, you know there's a program at work or this is why you should negotiate for options instead of more salary with that job offer because options and equity grow tax deferred. That's how you build wealth.

I constantly talk to, I think we know a lot about the markets. I constantly talk about money to my friends and I constantly get really good ideas around how I preserve wealth, how I make wealth, how I'm more tax efficient, which is Latin for tax avoidance. But for God's sakes, just as we started talking about cancer,

40, 50 years ago. That was really good. That made people feel better and less alien and less like a failure if someone in their life had cancer. Just as we started talking about mental illness just 10, 20 years ago, which is a wonderful unlock for people to reduce shaming and learn that other people are struggling too. One of the last taboos, we started talking about sex. I think that's a wonderful thing. One of the last taboos is talking about money.

So being very open. Also, just in terms of blathering on here, a really key discussion you need to have with a potential romantic partner is money. The biggest source of divorce is economic strain. It's not infidelity. It's not a lack of shared values. It's economic strain. So making sure you have alignment. I don't make a big investment without telling my partner. That way, if it fucks up, losing money doesn't strain relationships. It surprises you.

Wait, what did you do? And we lost it all? Well, okay, that's bad. But what upsets me is you didn't tell me.

So I think sharing with your partner very early conversations, where do we expect to live? How much money do we expect to make? Who's responsible for making that much money? What's your approach to spending? Every big investment decision, even if the other person, even if the husband doesn't quite understand that stuff and says to his wife, you're in charge of that stuff. I'm in charge of money in my relationship, but I always talk about our approach to spending, what we're investing in. I also find it's a great way to develop intimacy with people.

Money is so important to capitalist society. It's way too important, let me be clear. But it creates a bond. I remember talking to my partner early on, just saying, this is what I have. This is what I'm worried about. This is what I'm thinking about in terms of kids. And I'm worried we can't stay in New York. And then she told me how much money she made. This was kind of early in the relationship. And it really made us feel like closer together. Because here's one of the most rewarding things about partnering with someone and why I really believe

We need to figure out a way to get younger people to hook up more and mate more and drink more. Let me be clear, having money is wonderful, but you know what was even more awesome? Was the making it. And specifically, making it with a partner.

Like having economic shocks, being worried about money, both of us working hard, both of us saving, and then both of us investing, and then both of us together getting to economic security. That's so bonding and it's so like rewarding to build that with somebody. So I absolutely think on a lot of dimensions, sharing and opening up and being vulnerable and talking about and sharing best practices around money. I think it's an enormous unlock.

I wish we could do more, but we are unfortunately way out of time. Thank you so much.

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