Is the Market Calling Trump’s Bluff? — ft. Aswath Damodaran
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Today's number, $1.8 million. That's the average amount attendees at Trump's crypto dinner spent on Trump coin. Ed, what do you get when you cross Viagra with Donald Trump? What? Erection fraud.

A little ED, a little ED humor, a little... You're young. You really don't... You haven't been introduced to ED drugs yet. Don't worry. It's waiting for you. You start with Cialis and you think, oh, that's plenty. And then you realize, well, yeah, that's not working. And then you go to half of Viagra and it's as if you have a surfboard and you're worried about...

Going to the emergency room, and then that goes away, and before you know it, you're crushing up Viagra, snorting it, and sticking it up your ass. How are you, Ed? How are you? When were you introduced? In my early 50s, mid-50s. Okay, so I've got a good amount of time left. When the winter solstice happens and my partner decides it's, you know, a sexy time, Daddy needs to bring it. Daddy needs to bring the wood. I don't know how we got here. Get us out of this, Ed. Okay.

Get us out of this. As usual, I'm going to let you sit there, wallowing it. Do kids your age partake in ED drugs for, I don't know, be like Superman? No, I know it personally, but I know it's becoming a thing. I know that it's these...

ED pills are skyrocketing and erectile dysfunction is increasingly an issue. And actually, we have a headline in here that we might maybe that will go down that route. But before we do that, what's going on? I haven't seen you in a while. How's your Memorial Day? My kids are home, so I did nothing with them because they don't want to hang out with their dad.

So that was nice. You watched the football, final day of the Premier League. Yeah. Good news for Chelsea. Great news for Spurs as well. Yeah, oh, that's right. Everyone's going to the Champions League. And you're excited about Chelsea? I'm just laughing.

See, I've invested in this relationship. I know you're a Chelsea fan. Just seeing you rub your eyes and sigh as you ask the question, it just leads me to believe I'm not sure you care about the answer. But yeah, I'm very excited. I'm very excited about Chelsea. I know you're into Chelsea and I know that you're addicted to erectile dysfunction drugs and I'm wallpapering over that. You nailed it. Well, that sounds like a good Memorial Day. Get to the head. Oh, I'm sorry. How was your Memorial Day?

How was your Memorial Day? I didn't do much. I did go to Princeton reunions, which was... Another one? Hectic, as usual. Yeah, this is what we do. We go every year. It's like eugenics. They want you to marry each other, right? So you can have little orange babies and you all go to Princeton and... The stats are that half of graduates marry each other. You're kidding me. Half? That's what I was told when we matriculated. I'm

Unbelievable, right? That is crazy. But I think it's because they invest so much. I mean, these reunions are unbelievable. I think I've told you it's the second largest single beer order in the United States every year behind the, I want to say like the Kentucky Derby or something.

they really invest in getting everyone back drinking together and then half of us get married to each other. It's cult-like, but it's a great investment. Well, don't soon you all start losing your teeth and having...

Genetic disorders, all that inbreeding. But actually, is your girlfriend, did you guys meet at Princeton? Oh, yeah. Oh, wow. Never thought I'd be part of that 50%. Now, 50% of you getting married, that's crazy. It's unbelievable. And then the other big news for me was I had my second MSNBC hit. That's right. It was good. It was good fun. Were you as good this time? I think better, actually, because I think it was more in my wheelhouse. Yeah.

talking specifically about

what the GOP bill would do to young people. Let's play the clip. You look at this tax plan. I mean, this is seriously targeting young people, at least when you look at it from a deficit perspective. With this tax plan, we are essentially implementing a policy that will continue to transfer wealth from young people to old people, because that is what deficits are. It's free money now for the rich old people to continue living their lives the way they always dreamed of,

and that will ultimately be paid for and subsidized long after they're dead, by the way, by us, by the young generation. We're going to foot the bill. How's Katie? Did she ask about me? No, she didn't ask about you, unfortunately. You don't have to play coy.

You don't have to play clock. Let's get into this episode. Okay, here we go. Quick favor to ask from our listeners. We're planning for the future of this show and we want to hear from you. So please visit voxmedia.com slash survey to give us your feedback. And we'll also leave a link in the description to make it easier for you. And with that, let's get into the headlines. Now is the time to buy...

President Trump threatened to impose a 50% tariff on the EU by June 1st, sending stocks tumbling for their worst week since April. Two days later, he then extended the deadline to July 9th, and the EU said it would fast-track negotiations. The major indices rallied more than 1% on that news. BYD is slashing its prices by up to 34%, triggering a broad sell-off in Chinese electric vehicle stocks.

BYD shares fell more than 8% on the news. Nonetheless, the company's sales remained strong. Last month, the Chinese automaker outsold Tesla in Europe for the very first time. And finally, the owner of OnlyFans is in talks to sell the adult content platform at a reported $8 billion valuation. Discussions with investment firm Forest Road Company have been ongoing since March, though other potential buyers may also be in the mix. So Scott,

Let's start with Trump threatening to increase tariffs on Europe to 50%. As a reminder, the current tariff on Europe right now is 10%. We've been supposedly in negotiations with Europe trying to figure out a deal. None of us actually knows what a deal really means, but that's what's been happening. And then Trump comes out last week and he says that the talks with Europe are, quote, going nowhere. So the EU tariffs, the Apple tariffs,

the war on Harvard, all strategically planned weapons of mass distraction, all entirely 100% misdirects to try and get the general public of the United States to look away from the fact that we are about to affect the largest transfer of wealth from the poor to the rich in history.

The secondary objective here is to create moments of opportunity for insider trading for Trump and those around him. I think this is nothing more than attempts to create market manipulation such that Trump-affiliated entities can begin trading against these wild, wild swings. I think billions of dollars have been made, and I think it's going to come out that there was very odd trading patterns before these things were announced.

Because none of these things, in my opinion, and this is our prediction, after all of this nonsense, chaos, and destruction in 80-year economic alliances that have benefited the whole world, but especially benefited the United States, that the tariff situation is going to look remarkably similar to what it looked like before all of this nonsense. This is nothing but a misdirect. Your thoughts? You're saying that this is a distraction, but I mean, the Harvard lawsuit...

totally agree with you, distraction. You're also saying that this tariff on Europe, which I agree is likely inconsequential if we look at what he's done over the past two months, what happened with the UK where nothing materialized, what happened with China where there was just a stand down. He sort of goes up and down and up and down. And then ultimately we come out sort of

flat but with a tarnished reputation. So, agree that it's likely a distraction and that likely nothing will actually materialize that will be meaningful to everyday Americans, or if it does, it'll just be a little bit of a tax in the form of inflation with probably a smaller tariff than 50%. But what you're saying is, it's not just that this is meaningless,

It's that it is intentionally inflammatory to distract our attention away from what exactly. If America and the media were focused just on this tax bill, I think every phone bank in every senator's office would be off the hook saying, let me get this. I'm about to lose my Medicaid. Let me get this. We're about to take...

Yeah, $3 trillion.

So they are smart to say, look over here, look, oh, Harvard. And you believe that Trump himself, that that is the master plan, that the GOP bill, what they're about to do, that is the real goal. And then everything else is trying to make us not pay attention to what really matters and that Trump himself...

wants that GOP bill to go through, and that's his main priority. We are backing down from a murderous autocrat who is invading Europe. That usually doesn't end well for Europe or the world. And we are affecting the largest transfer of wealth in history from the poor to the rich, including the most vulnerable. Those two things are really unpopular.

And so they're coming up with the helicopter crash was DEI, tariff Apple, all this nonsense that will not hold, it will not stand. You watch. Apple's going to continue to produce their phones in China for a long time.

The tariffs on EU, Donald Trump is the world's worst poker player. And that is he shows up to the table and he goes all in and he's very blustery. And then they call his bluff. The EU will impose reciprocal tariffs. It will say, okay, now it's 20%. And then when his economists come back and go, okay, trying to tell people to companies to absorb the tariffs is not going to work. People's costs are going to go up across everything.

And he's going to have to back down. To the second point, the notion that, oh, insider trading, that's a big accusation. Attorney General Pam Bondi sold between 1 million and 5 million worth of shares in Trump media the same day that President Donald Trump unveiled bruising new tariffs that caused the stock market to plummet. Oh, but they're not capable of insider trading? This is the fucking attorney general.

If anyone should be squeaky clean in putting all of her assets in a blind trust, it should be the nation's top cop. But she's trading Donald Trump media on the day he's announcing tariffs that take the stock down. And my guess is those trades went in before he announced it. So the notion that these people aren't massively corrupt

Engaging in insider trading and market manipulation is just an inability to look at basic pattern recognition. This is the GRU strategy.

textbook on propaganda, and that is you flood the zone with so much shit that outrages people, it covers up the one or two things that could get you kicked out of office, that could you reduce your popularity. Because the bottom line is, Ed, the majority of America finds it's very interesting. You know, okay, Harvard, they don't really understand. Fine, rich kids. Most people don't give a flying fuck. But when they finally figure out that their kid who has diabetes is

They're not going to be able to find a doctor for this kid when 40 percent, some 40 percent of kids who are under Medicaid and a lot of them start losing their their Medicaid and end up that more and more families in America that their primary care physician becomes the emergency room.

That shit hits people really hard. So don't look at that. Look at Harvard. We're going after Harvard because there are some people who look at Harvard and are angry and don't really give a shit. It's a great story. It's a great story, and it's nothing but a distraction. In addition, why not take the markets up and down so me and my buddies can make a shit ton of money? That's what they did with the Trump meme coin, and that's what they're doing with the markets right now.

I don't disagree with any of that. And I think we are seeing the insider trading and I think we're seeing the grift and everyone's seeing it. I guess the one part where I'm not so sure, I'm not sure I agree with you on is like, I can't tell if this is the number one priority for them. And I think that's the part where I might take issue with your framing, where I don't know if it's that the main priority for Trump is to enrich himself. And these are all these elaborate ideas

decisions to achieve that number one priority. To me, I view him more as sort of like a toddler or a baby who has a million different things that he wants at the same time, juggling them all, trying to figure out how can I get the best possible thing? And also, how do I look like the coolest and biggest guy in the room? His top three priorities are make Donald rich. I think that's his number one priority.

And the markets and the volatility and the distraction and the tumult and the loss of capital from millions of people and a total puncturing of the trust of any reasonable assumption of fair play in the markets, he doesn't give a shit. He's going to leave this place, in his mind, as the wealthiest man in the world. Let's get your take on what's going on with the tariffs on Apple. Yeah.

I just had this interesting guest on Prop G. I think his name's Patrick McGee, super smart, works for the Financial Times, wrote a book on Apple in China. His book uncovered some things that I found sort of interesting, and that is, I said, a U.S. manufactured iPhone would cost $3,500, and he's like, it's a moot question, we can't.

There's essentially a million phones a day with a thousand parts. That's a billion parts a day being coordinated and assembled. He said the U.S. isn't even capable of that. If the U.S. decided to build an iPhone, it would be like a war effort that would take us a decade to try and produce an iPhone. And that's what it was in China. It took decades for Apple to build out that infrastructure. It was easier for America.

to split the atom and get to little boy or fat boy and get to a nuclear bomb than it would be for America to get to the capability to produce a million iPhones a day. We just don't have, we don't have the people who want to do it. We don't have the technology. We don't have the factories. We don't have the capital. And so I thought that was an interesting observation. And the other really interesting one is that we accidentally, unwittingly, the Chinese are very smart. We have upskilled

of millions of Chinese and factories to make outstanding products. And he believes that this, that basically Apple upscaling 25 million companies

Chinese people and introducing all this incredibly sophisticated supply chain and automation and manufacturing technology has resulted in a series of Chinese tech companies that are just killing it. And one of them, he said, is likely BYD. And to be fair, that a lot of the upskilling of BYD came from Tesla.

that essentially China is very good at making a one-way IP river, right? Come in, let us learn from you. You have superior IP, you upscale us, and then we use our scale and our innovation. It used to be that they were sort of the

The low-end producer doing the, you know, if you think about the product cycle, at the very beginning, it's very high margin. It's development, it's design. Then through the middle, the manufacturing process is low margin. And then on the back end, you have retailing, right, and distribution, which is higher margin. And the Chinese are not satisfied just to be at the bottom of the smile. They're going after the higher margin stuff. They're going after really sophisticated manufacturing. You know, Apple didn't kill Nokia. These other second-tier companies

smartphone makers that were given sort of rise by Apple's manufacturing technology, putting Nokia out of business. And what was interesting is just the notion that it may have been a mistake, if you could go back in time, to

to not make that type of staggering investment. His other big observation is that Apple invests about $55 billion a year into China, which is like a Marshall Plan-like investment, that if we could do it again, we might have been much better off investing in sort of friend-shoring, like doing in Mexico what they did in China, because we have dramatically upskilled the Chinese. And just the last point is that they are getting in the way, the Chinese are getting in the way of this transfer of technology and supply chain investment

acumen to India. They don't want to see it go to India because the last thing they want to do is upscale India. So Apple is in a really tough spot right now. They have China getting in the way of them transferring to India. They have Trump getting angry they're not bringing stuff back to America, which is just a fanciful objective. And Apple's sort of stuck in the middle. Having said that, it appears that the market doesn't believe—the market is betting Tim Cook can wait them both out—

But Apple's just sort of caught, you know, stuck in the middle here or caught between two lovers, if you will. Well, there's BYD news announcing these massive price cuts across many of their vehicles, I think 22 different models.

is sort of proof of that manufacturing prowess because they've reduced costs on one of the models by 34%, and they've reduced the cost on their cheapest model by 20%. It now costs for a fully battery-powered electric vehicle, their cheapest model now costs less than $8,000. Can you believe that? It's unbelievable. Compare that in America. The cheapest fully electric vehicle in America is the Nissan Leaf, and that costs $29,000.

So you've got like a 75% difference there. Now, the interesting thing is they announced those price cuts and the stock fell, fell around almost 9%. And then all of these other Chinese EV stocks fell with it. Li Auto, Great Wall Motor, Geely, all these stocks, maybe you don't know those names, but they all fell more than 5%. And the question I'm asking is like, okay, why are they falling? I think...

what investors are worried about is one, just regular old margin compression, which Wall Street never likes. But two, probably more importantly, I think it's kind of an indication to Wall Street that the consumer situation in China is just...

not great. You have these contractions and all these GDP growth forecasts that we've been seeing. There's still very unstable real estate situation. You've got consumer sentiment, which is still very, very low in China, near record lows. And I think what this move from BYD says to Wall Street is that if BYD wants to stay competitive in China, then they need to meet the consumer where they are. And that means just dramatically lowering prices by 20%, and in some cases,

34%. Now, the part I don't really get about the drawdown is it seems they're not really considering the fact that BYD is sort of leading the charge here, which means they're probably going to capture huge amounts of market share. And according to this analysis by Citigroup, foot traffic into BYD stores increased over the weekend. The weekend they announced it, it increased 30% to 40% in just one weekend.

So I look at this and I'm like, okay, yeah, there are these macro concerns potentially in China. But in terms of the EV market, this is still the number one leader in the country. It's also close to the number one leader in the world. In fact, you look at the numbers, BYD did $100 billion in annual revenue last year, which was higher than Tesla. They're also beating Tesla on profit, $1.3 billion last quarter, also beating Tesla on margins,

20% gross margins last quarter, Tesla at 16%. And then I think the other thing that they're not really considering is like, BYD has the power to reduce prices like this. And that's probably a good signal in my view. So I viewed this as a little bit of an overreaction.

I look at BYD at 26 times earnings. You look at Tesla at 186 times earnings. I mean, I don't get the sense that this company is overvalued at all right now. And to your point, I think the fact that they can produce a car that's

and sell it for less than $8,000 and have that still make sense economically, that is a reality that simply does not exist in America. But it does exist in China. Yeah, so I see it a little bit differently. It comes down to the fundamental approach we take in America, which is a market-based economy where companies focus on profits. And China, which is an autocracy, and basically has decided that the industry, they'll let them

They'll let them garner profits, but the primary objective is control and geopolitical advantage. And also, I think this is a lesson in competition that the Chinese—and to be fair, while BYD declined on the breakout of this price war, their stock's up 80% over the last year.

The ones that are going to get absolutely killed are the ones that don't have the manufacturing technology or the cost advantage. So Volkswagen, which has, I think, become the largest EV manufacturer, the second largest in the world, or it's surpassed Tesla in Europe, they've lost 20% of their value over the last year.

BYD, this price war is just staggering. And just to give you a sense for the brand, my 14-year-old, if you want to believe in nature over nurture, just have two kids. We just haven't treated them that much differently, and they're so different. And one of the millions of ways that they're different is that my oldest doesn't want a car. He's sort of, yeah, whatever. He's going to college next year, and I told him that if he gets good grades or whatever, that I would consider buying him a car. And he doesn't want one. He's not interested. And the youngest one

is, you know, asking if he could drive my car and wants to go shopping for cars, and he's 14. And he's decided the car he really wants is a BYD. He's just fascinated by it. He's seeing it everywhere. There's TikToks everywhere. And he's like, if we bought a BYD, can we get one in the US? If we go to China and buy it, can we bring it back with us? He's just fascinated by BYD. And

If you think about what China's going through right now and what America used to go through, this full body contact violence of competition where they are figuring out a way to eke out some margin on an $8,000 car. God help every other auto manufacturer when they show up on your shores. I mean, how the fuck does General Motors with unions and people making, you know, 35 and 38 bucks an hour.

compete with a BYD vehicle that is $7,800 and even the kind of one that's comparable to the Model Y is $25,000. And at some point, tariffs do come down because consumers care more about low costs than they care about national security, typically. But China is optimizing for control and also loves the competition, loves the one-way flow of IP into their nation. They upskill everybody else. And

I think BYD is delivering on Tesla's promise, if you will. But by the way, the way that General Motors competes and doesn't deal with BYD in America is we have a 100% tariff on vehicles from China that come into America. That's why BYD doesn't exist in America. So it's such a funny dynamic where China is letting the market prove BYD's success. And then over in America, we're going isolationist mode and saying, we're not going to let you in. And that's why electric vehicles in America cost, what,

four times more than they do in China. It's a really remarkable turnaround. Let's move on quickly to OnlyFans here before we have Aswathan. OnlyFans is in talks to sell for $8 billion.

I just want to highlight what that number means. That means that OnlyFans is more valuable than Dropbox, more valuable than Sunoco, as valuable as Paramount Global, and my favorite, more valuable than Match Group, which of course is the company that has a near monopoly on all the dating apps. It owns Hinge, Tinder, OkCupid, Match.com, etc. And OnlyFans, the app where you pay money to creators,

to receive explicit adult content and basically pretend to have a relationship, that company is now more valuable than Match Group. That company is now valued at $8 billion, according to these reported sales talks. Scott, I'm sure you have a lot of thoughts here. Any reactions? So I have a little bit of information here. Someone I know was approached about potentially putting together an investor group to buy it.

It looks like the number, if it trades, is going to be closer to $4.5 billion. That $8 billion number was a number put out by the company. It's probably going to trade for, if it trades for just a little over half that, it does about, I think, $700 or $800 million in EBITDA off of $1.2 billion in revenues. And I think what's pretty obvious here, Ed, is the current owners realize AI is an existential threat.

And that is, I don't know if you saw Google's AI release of those products, but they were so lifelike and so incredible. You just got to think that AI is going to be able to crawl the most popular OnlyFans content creators. And I think we're 12 months away from essentially OnlyFans-like creators or content creators that offer you 80% of what they offer for 5% of the price.

I think probably the first company, multi-billion dollar company that gets absolutely disrupted all in caps is OnlyFans. The margins are enormous here. There isn't a lot of IP that's protectable.

The smartest acquisition, quite frankly, would be for OpenAI or Anthropic to buy this company and then have a hybrid model where you can say, okay, we're going to let content creators, the most popular ones, have an AI version of it at a lower price point where you can have the real thing at whatever they charge. I don't know what they charge per minute or I don't know how they charge. My credit card won't go through. I can't figure it out. They don't take Apple Pay. Yeah.

I don't know what the pricing model is, but if there was like a distant number three or four AI company, I would absolutely... I think this might be a failed auction because I think a lot of people are going to be very afraid to get near this thing. I can tell you how the pricing works, and it's very simple. It's just OnlyFans takes a fifth of all of the transaction revenue that happens on the platform. And the pricing is totally up to the creator. And we keep on calling them creators. It's basically...

being a porn star is essentially what's happening. They say that, oh, we have athletes on the platform. No, this is all porn, essentially. And they charge however much they want. And some people, some creators are saying that they've been making millions and millions of dollars. I think one said she made $43 million last year. And you can set it up any way you want. You could do exclusive members access. You pay this amount per month.

You can pay on a per-message basis, like pay me $100,000 and I'll send you a picture of my feet. I mean, that's hyperbolic, but I wouldn't be surprised if that has actually happened. That's the way it works. And then OnlyFans takes a fifth of that. And that's what that $1.3 billion in revenue means. And by the way, which...

tells us that $6.5 billion is being transacted on the platform every year, which is just unbelievable. Also, 300 million users on the platform. Totally crazy to me. That's almost the population of the US. So I agree with you. AI could come in and disrupt this. I guess I'm just trying to think, what would that actually look like? What you're basically saying and putting forward here is that you can...

deepfake AI porn? If AI is allowed to crawl, if LLMs are allowed to crawl my books, and in any question you can ask for a response in my voice, and it does a pretty good job, and it cites specifics, there's absolutely no way the porn industry can defend itself against LLMs. And with the innovations I've seen from Gemini and OpenAI, it's

you're going to have a company basically, and those companies don't want to be in the adult business. You're going to have several startups. I'm sure they're already there and already have funding who are going to offer you a near similar, and in some instances better, because they'll be trained to tell the customer exactly what he wants to hear. And let's be honest, 88% of the time or 90% of the time it is a he, and they'll be able to do it for, you know, a dollar an hour.

I mean, the incremental, the marginal costs are absolutely zero. It's the dream of autonomous driving, but you don't even have the expense of the car. I mean, it's already happening for me or in my life. The submarine sandwich shop by my work had moved to a new location and was replaced with an adult sex shop. And I didn't realize it until one day I walked in and asked for a 12-inch salami on an Italian. That was a big lead up for that joke. That wasn't easy to maintain.

Is that it? That's it. That's my analysis. That's how you're ending that conversation. That's how I'm stopping. Look, I'm trying to bring it back here. I think that AI is going to do to OnlyFans what OnlyFans and the web did to Playboy. Or let me put it this way. With that kind of EBITDA and profitability, why would they want to sell? That was the question. It's like, okay,

The guy who owns it took home almost $700 million in dividends. It's like, yeah, why is he selling? He's got to be selling for some reason. I think you're probably right. I think the question then would be on the other side of the transaction, what is this investment group, Forest Road Company, going to do with OnlyFans? And maybe they see opportunity in the AI world, and maybe they want to infuse it with some AI porn update. I mean, the whole thing is really just...

disturbing to me, to be honest. And, you know, the stuff you talk about where one in three men under the age of 30 haven't had sex in the past year, up from one in 10 in 2008, the fact that one in three men in America are watching porn regularly and then one in 10 say that they have a porn addiction and that number continues to grow, the fact that we've got more than 300 million users in

on this OnlyFans platform. I know I'm not going to buy that they're paying for original content from their favorite sports stars. They're paying for porn. The whole thing is just very depressing. I think porn and low-friction relationships are an enormous threat to the well-being of young men.

And that is that relationships are very rewarding, the most rewarding thing in life, because they're very messy and they're very difficult. And it's hard to get to friendship. It's hard to find mentors at work. It's hard to establish really great professional relationships with people. But once you have them, they're incredibly rewarding because they're hard to navigate and establish. And these deep-pocketed companies with incredibly talented individuals with godlike technology are trying to convince young people, specifically young men, they don't need to engage in

in that two-hour romantic comedy. They can do it in 15 minutes with a reasonable facsimile of some AI-driven relationship. And it's not only a huge threat and sad for the young men, it's bad for society because we're going to have a lack of household information, you're going to see a birth-birth because people aren't connecting, and you have...

this entire new species of asocial males coming into society that don't have the skills to be good citizens. And they start blaming women for their problems. They wake up at 30. They have no skills. A lot of the skills you have to develop socially to find friends, to find jobs, and to find mates are the same skills you need to be economically viable or to be a good citizen. And when you have a ton of people engaging in increasingly lifelike porn from AI, you

You're going to have a set of incompetent young men who just don't have the skills to be good partners, to be good co-workers, to be good husbands, to be good fathers. And then they're going to wake up at 30 and be depressed and lonely and realize that this is a low-calorie toxic replacement or substitute.

I see this as terrible. I don't know the answer. I don't know what you do about it. I would probably try and tax the shit out of it and reinvest in third spaces and vocational training for young people. I think you could argue that if we can tax alcohol the way that we tax it and the way Europe taxes it because of the external damage it does to the industry or the way we tax cigarettes, I would like to see us start taxing—I'm talking myself to a solution here—I think we should tax the shit out of AI porn.

We'll be right back after the break for our conversation with Aswath Damodaran. If you're enjoying the show so far and you haven't subscribed, be sure to give ProfitGMarket a follow wherever you get your podcasts.

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Welcome back. Here is our conversation with Professor Aswath Damodaran, the Kirchner Family Chair in Finance Education and Professor of Finance at NYU's Stern School of Business. Aswath, great to have you back on Profiteer Markets. Glad to be back. It's been three months since we had you on. And by the way, we've been recording this podcast every time I've been thinking, I really just want to know what Aswath is thinking right now. So

I'm very glad we finally got you because a lot has happened. I'm just going to run through it. We had Liberation Day where the markets went into crisis mode and we went into bear market territory. We had this huge sell-off, particularly in U.S. markets, which led Scott and I to believe that we might be witnessing this great rotation out of America. Then we had the tariff reversal.

And the markets picked back up. Then we had the China tariff reversal, and then the markets rallied once again. And now, as of the end of May, the S&P and the Nasdaq have completely recovered their losses since Liberation Day. They're basically flat since then. In fact, I think a little bit up now.

And it's almost as if the markets are telling us that nothing has actually happened. So what have you learned in the past few months? What has surprised you? What are your takeaways? I suggested to somebody yesterday that they run a thought experiment, which is read all of the news stories of what's happened this year without knowing what's happened in the market and guess what the market would have done over those months.

Because my guess is almost anybody reading the news stories of what's happened in March, April, May, without knowing what the market is, I would be convinced that the markets would be down 20, 25, 30 percent. Because the stories have been horrifically bad, not just in terms of short-term impact, but potential long-term impact.

But just as in COVID, and that's what I kept going back to. I remember March 23rd of 2020, when people said, this is the end. The economies are going to collapse. And markets magically found their way back. Markets somehow seem to be much more resilient than any of us could have been, or any group of experts could have been. So if there's a word that I take out of these months, it's resilience, that there's something that's keeping these markets afloat.

in the face of news that normally would bring them down. And I think it reflects, I think, a fundamental shift in markets away from 20, 30 years ago.

where if you got a bunch of portfolio managers in Boston and New York get together and say the markets are in bad shape, they're going to go down, you had that collective letdown. There seems to be a spreading of influence, whether it's good or bad, we can debate, of what drives markets. Maybe it's social media. Maybe it's the fact that we get so much of our news from places other than financial journals.

which has made markets almost separate themselves from what people think about the economy and what experts do. And it's not just markets. If you look at corporate earnings, again, if you look at the news stories, you'd be convinced that the first quarter earnings for this year are going to be horrifically bad. But they weren't.

something is holding up both the economy and markets in a way that I can't quite see in the news stories. But that's something we've seen for the last four or five years. So maybe it's something we need to get used to in markets, that markets have a mind of their own. What you're kind of describing here is a diversion between the reality that we're seeing in the news and in the headlines that we read and the stuff we see on CNBC versus what is actually happening in the markets. And it sounds like

you believe that there is a diversion in the narrative between investors and between broadcasters that is wider now than ever before. And that 20 or 30 years ago, if we were hearing these headlines and hearing these stories, we would see a way larger reaction from investors. And so my question would be, what do you think has changed? I know you're not claiming to know the answer, but if you could hazard a guess...

as to what is different now, different in 2025, and why this has been the case. I think it's the difference between going to a restaurant at the 1980s and reading the New York Times review of the restaurant and looking up a restaurant review on Yelp right now. I think in a sense, why are markets going to be immune from what's happening with the rest of our lives? We're picking movies based on Rotten Tomatoes, we're picking restaurants based on Yelp, and guess what?

Markets are being driven by social media judgments more than by what experts claim will happen. And I don't think we should be surprised by that. I think it's something that, you know, we talk about the wisdom of crowds. We can talk about the madness of crowds. But we live in a time when crowds drive almost everything we saw. We saw this in the last election, if you remember.

It's the political betting markets that essentially led the game rather than the experts making judgments based on looking at the polls. And you see that same phenomenon, I think, with markets. And I think experts have lost that credibility because increasingly investors are saying, you told me this would happen, but it doesn't seem to happen. Would you say then that

and the media overreacted to these tariff proposals and to the Liberation Day tariffs? I mean, I look at those tariffs and I thought, holy shit, this is a big deal. And then I came on this podcast and I said so. And perhaps under that framing, it would be like I, Ed Elson, overreacted. No, it's not an overreaction. I think we think through logically as experts. We look at an action. We say, if this gets carried through, what will the consequences be?

And I think the experts are right in making that judgment when that Liberation Day announcement came out saying, this is not just a problem. This could be a catastrophic problem.

I think what they failed to recognize was that that was an opening act. And I don't know what this drama is, to be quite honest, where every day you wake up at the drama as a new move to it. And crowds, the market seemed to be more attuned to that kind of behavior than experts were. So maybe this is a reflection of the fact that what you see as actions don't seem to stick as the final actions. They seem to be revisiting and revisiting. And that in the process is

is very difficult to then estimate what the end game is going to be. So I wouldn't blame the experts for that initial judgment,

But if you remember, the initial judgment didn't stop Liberation Day tariffs from going into practice. The market behavior that actually is the only thing that seems to have acted as a check on this administration, to be quite honest. It wasn't experts. It wasn't economists. It wasn't Nobel Prize winners. It was the market saying this will not stand. And that seemed to be the only message that got through. My interpretation right now is that the market is basically saying that Trump is

And the administration are just so much smaller than we think in terms of their actual impact on the economy that the market really doesn't believe at the end of the day, over the middle and the long term, when you discount back the cash flows, that their actions have much ramifications and or that.

that Donald Trump is not a serious person, that whatever he says, okay, the stock market pop goes crazy, then it comes down, but the volatility or the swings seem to be decreasing as the market no longer believes anything he says to the upside or the downside. I mean, if you don't carry through on what you say, eventually your message becomes muddled and it becomes diluted.

And you can see that even if you compare April to May, during April, I computed the price of risk in the equity market every day because it was so incredibly volatile. In May, I stopped doing it. I mean, basically, I said, look, you know, the market's beginning to look like a normal market in terms of its ups and downs. So I think you're right in the sense the market is not taking, even last Friday, when the EU announcements came out, the effect was muted. It wasn't a big reaction that you'd expect a news story that big.

So I think that if the administration is not careful, it risks diluting its message so much that people stop even listening to what it's saying. They're effectively going to assume that this is just a kabuki dance that you're going to go through, you're going to go through the motions and eventually nothing changes.

So let's see, I mean, if at some point in time that changes. But right now, I agree with you, Scott, that that's basically what's happening in the market. And one of our key themes for 25, Aswath, is that some of the underpinnings of the U.S. markets that global investors have come to expect, including rule of law and consistency, are no longer ever present or can be taken for granted.

that we're going to see the rivers of capital reverse flow and that we'll see multiple contraction and that that is a very negative forward-looking indicator for U.S. stocks. That is kind of one of our key themes for 2025. A, do you agree with that? And do you see evidence of that? I don't think it's that extreme a withdrawal, but I do think that for the last 20 years, the arguments for international diversification got weaker.

I know a lot of portfolio managers telling me, why would I want to invest outside the U.S. when I make so much higher returns investing in the S&P 500 than the FTSE or the Euro indices or the Asian indices? And they drew the conclusion that therefore international diversification did not make sense. This year, I think,

is a reminder that 20 years in stock market history is a very short time period, that these things reverse. So I wouldn't be surprised if over the next decade or two, with or without what we've seen this year, we'd seen a reversal back to more normal times, where you see ups and downs, where some markets do better than the US in some parts sometimes. And so I think we're going to see that. I do think that

The US for a long time had a buffer where it was allowed to do things that most countries could not do and get away with it because the largest, most powerful economy in the world is assumed that could get away with running a deficit 40 years in a row, having debt levels rise to levels that would terrify investors in most of the countries. I think we've lost that buffer now. So the Moody's rating by itself to me was not a surprise when they downgraded it.

But the signal it sent of you're not special anymore, we're not going to treat you as a country that runs by its own rules, is, I think, a lasting message. And I think you're going to see it play out in other actions that the U.S. takes where historically it might be given degrees of freedom, that it's not going to get those degrees of freedom anymore.

Aswath, I think, and I agree with you, someone on the other side of this might argue that we saw that. We saw the ratings downgrade. We saw this GOP tax bill, which is going to, by many estimates, increase deficits by $3 trillion. You know, we saw reactions in the treasury market that were not great.

There are a lot of, I mean, we've seen what's happened to our reputation as a reliable trading partner, many of the stuff that Scott has mentioned. And yet the markets opened this week up and we're up since Liberation Day. And I guess that's the part that I'm struggling to put together where, yes, we are seeing flows away from the U.S.,

And that was very, very pronounced after Liberation Day. We're also seeing inflows into ETFs that exclude the U.S. stock market. And we're seeing record inflows that we saw that in the first quarter. But now since Liberation Day, it's almost like...

all of that's forgotten. At least if you were just to look at the S&P and if you were to look at the NASDAQ. And I guess that's the part that I'm struggling with, where I saw this rotation happening. I wasn't hallucinating it. We saw it in the data. But then suddenly these markets in the US rose again. And I don't know where we are in the rotation, if it's on hold or if it's just totally canceled or if it's just going to come in the future.

Well, remember, a lot of the rotation into the U.S. didn't happen in the 1980s or the 90s. It's happened in the last 15 years. It's post-2008.

And some of that rotation came from the fact that the U.S., more than any other country, kind of retooled itself to become a 21st century economy, right? If you look at the largest companies, young companies, technology companies, we're in a sense benefiting from that very real advantage we derive by being first in the game into the 21st century. I mean,

I mean, Europe can try as much as it wants, but the reality is it's still a 20th century economy struggling to find its foothold in the 21st century in terms of technology, in terms of the shifts in economies. So I don't think you're going to see a rotation back to pre-2008 levels because there have been real changes in companies in the economy that are seeing reflected in markets.

I mean, the U.S. was 33% of global equities in 2008. It was 50% of global equities at the start of this year.

That happened in spite of the rise of China, which tells you how much the U.S. has benefited from allowing technology to become as dominant a force as it has become. So I think some of the protection that the U.S. gets is from that adjustment it made to the world changing around it that other countries have not made. China might be the only other country that's tried hard enough to do it.

but the U.S. has been almost unique in its capacity to readjust to a new 21st century economy. Yeah, it sounds like if we all sing a rotation, it's going to be sort of

Probably slight. And then at the very least, it'll take a long time because of just the size and scale of this. But I just want to go back to something you said there about how the market doesn't take what Trump says seriously. If that's the case, what matters anymore? Ultimately, government actions other than taxes don't directly show up in cash flows. That comes from how the economy does and earnings are

So I think the reality is at some point the market is going to say, I'm not going to watch what the government is doing because it seems to keep changing its mind. I think you're going to see almost a laser-focused return to earnings and the economy as we get further into the year. So I think more than anything else, I'm looking at the second quarter earnings because that's the quarter where you're going to see the effects of tariffs and uncertainty play out. And if earnings hold up in the second quarter,

then I think we're in a sense in safer territory. If you start to see serious damage to the economy and earnings start to show up in the second and the third quarter, then I think the market will notice because this has nothing to do with the government anymore. It's got to do with what it's paying for and saying this is not going to continue. These earnings are not going to continue. The growth is not going to be there.

So I think more than anything else, this will force the market to look at real things happening with earnings in the economy and try to adjust to those rather than government policy decisions on what they think will happen in the future. Stay with us.

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We're back with ProfitG Markets. I want to go through some individual names, but first I want to start with one, a company we've been talking a lot about. Do you cover BYD? I own BYD, actually. It was one of my limit buys during April. I put limit buys in three companies. I got one of the three. I got BYD at a limit buy at 80. MercadoLibre, which is the Latin American Amazon fintech company.

At 1600, I got close, but I didn't get quite. And the third was Palantir at 85 or 80 or 85. And I didn't get either of those, but they got close. And I think the reason I picked BYD is historically I've avoided BYD because it's a political stock. Any big Chinese company, Beijing is in the room.

So my argument for owning Tesla in 2024 was, hey, I don't want to have a political stock. But Tesla has now become a political stock in many ways. So to me, there was nothing separating BYD and Tesla in terms of the politics of it. So I said, might as well go with the company that seems to be much more focused on the electric car business.

Because to be quite honest, Tesla seems distracted by automated driving, by robots, by other things on its plate. It doesn't seem to be that interested in being the dominant electric car company. And I wanted a good electric car company in my portfolio. So I was in Europe a couple of months ago and I went to a BYD showroom and I was really impressed.

with some of the cars, you know, with the way they were made and the way they were sold. And I think that it's a company that is, I mean, it's bounced back up. It's again gone back to being fully priced. It's a company that I think is worth thinking about. You know, I'm generally leery of Chinese companies in my portfolio, but BYD was my exception.

Thoughts on Apple? Apple's the most exposed, I think, to the Mag 7, to this tariff issue because it is an iPhone company. It's not a computer company. It's not a software company. It's an iPhone company with a services business on the side that's a cash cow. And unfortunately or fortunately for Apple, its iPhones get made elsewhere in the world and brought into the U.S. And it's not going to be easy to move that production to the U.S. in the near term.

So that exposure is what makes Apple particularly susceptible to any kind of tariff talk. So more than any other company, Apple's hoping and praying that people stop listening to what Trump says and look at the economy and earnings.

Because I think that it is, I think, the company that could be punished the most if there's punitive action that follows from those tariffs. Follow-up on Apple. Stock's up nearly 40% over the past three years. It's down 19% year-to-date. It's gone crash this year. But still trading at 30 times earnings.

And we were looking at Apple's most recent course where they announced their big announcement, their big innovation is, wait for it, $100 billion buyback. And what we've been saying largely based on all of the work you've done on corporate life cycles is that this is a mature company that's being valued as if it were a growth company. I just want to get your thoughts on that thesis. I think it's a mature company which goes between being valued as a growth company every time an iPhone update goes well.

And being a mature company, every time an iPhone update crashes and burns. So this is something we've been seeing since 2011, which is when I think it started approaching middle age, 2012, when the smartphone market started to level off.

But you see the market kind of get overexcited when an upgrade goes well. And it's back to being a growth company. I bought Apple because it was 7% to 8% growth company. That's the greatest cash machine in history. I've never seen a company generate as much cash as Apple has been able to generate, return that cash, and still manage to increase its cash balance. I mean, it's bought back $500 billion of stock just in the last six to seven years, $500 billion.

and still increased its cash balance while doing so. So you buy it as a, it's a middle-aged company. It's a really healthy middle-aged company. You buy it for reasonable expectations, then I think you can get away with it. But if you build an expectations of double-digit growth, you're going to be disappointed. It's going to be ebbs and flows in this company because it can't maintain that kind of growth rate. Do you think that 30 times earnings is...

reflective of high expectations or is seeing that's you know what its cash flows are almost bond like in terms of how predictable and stable they are

So I don't think of it as a risky stock in the sense of equity risk. So the reason it's being priced at such a multiple of earnings is the cash flows from the iPhone, even in a bad year, are so immense and so predictable that people have gotten used to those cash flows. That is the stability that will be at risk if their production comes under assault and you have to move the production.

So that's going to be the real test for Apple is can they keep their earnings and cash flow stable while dealing with the demands that the production be brought back to the US? Because much, I mean, the cost of an iPhone is not 70 or 80% of what their revenues are. Luckily for them, their gross margins are large enough that their buffer

But that buffer doesn't mean that they won't be hurt if they have to move their production elsewhere. Alphabet? I like Alphabet. I mean, I think of all the companies, Alphabet is perhaps the most viable of the max seven companies, and here's why. I mean, you could justify what you're paying for it based on just its advertising revenues.

I know there are threats from AI and, you know, and ChatGPT and other, the AI entities, which might put their search engine at risk, but they're an advertising company. They're priced as an advertising company. I know we've been waiting a long time for some of their bets to pay off. You know, I still hold out hope that one of these days, one of those bets is going to pay off. If it does, it's icing on the cake for me.

But the market seems to have given up hope, and that's the reality. The market is not pricing in expectations that any of these bets are going to pay off. And to me, that is the upside of buying Alphabet. If they can get one of their bets to pay off, I think it's going to add to their return. So if you are going to buy a MAC 7 stock,

Alphabet would be it. - And we'll just round out the other four, Amazon and Meta. - Amazon is gonna be the canary in the coal mine in terms of whatever mine they put the canary in of what the economy is doing. To me, that's the company whose earnings I'm going to watch, 'cause more than any other company, it's going to capture the uncertainty that consumers face about their futures.

and the costs that are added by tariffs. You can try to hide the cost in the prices somewhere, but it still is not going to take away the effects on earnings and revenues. So I own Amazon. To me, it's going to continue to be the company that I watch this year to see if this year leaves a lasting impact.

on earnings and revenues of the company. Now, Meta and Microsoft, I think, you know, they're expensive, you know, companies, but you're paying for that AI hope that shines through in both those companies. I'm not sure that the hype will get delivered, but you're paying a premium for both those companies. I'm just wondering, in your view, do you think it's possible that even in Q2, right,

we won't see the full effect of tariffs? And is it possible that what maybe we need to be looking for is the quarter after that? In other words, at what point in the schedule can we look at it and say, okay, this was the effect of tariffs? I think it's going to get staggered out. I mean, it's not going to happen in one. It depends on the kind of company you are.

I mean, for some companies, especially companies that are nimble and agile, the effects will be short-term. It'll be near-term. The adjustments will happen fairly quickly. For companies that are manufacturing companies, infrastructure companies, it'll take a while to play out. So I don't think it's going to be a particular quarter for every sector. It's going to be different sectors. The effects are going to play out at different points in time.

I think the real wildcard here is where the consumer sentiment comes back, because that has nothing to do with how companies react. It's what consumers feel about their future. If you don't see real damage in the second quarter, that's good news, because that you should start to see the effects fairly quickly of people feeling uncertain about their future, starting to pull back on big purchases.

So that's where you're going to see the effects, I think, first is in consumers pulling back on big purchases, not so much in sentiment, but in actual purchases, in big appliances, in automobiles. Those are the places you're going to see the first impact. And if that doesn't happen, as I said, we're running a resilience test of three groups. You've got markets,

You got companies and businesses, and you got economists and experts. Economists and experts, we've kind of given up on. This is going to be a contest between market resilience and economic resilience as to whether, in fact, the markets are overestimating the resilience of the economy. And that's what the actual numbers are going to deliver is maybe the economy and markets are a lot more resilient than we gave them credit for.

In which case, we'll come out of this year just like we came out of 2020 and 2022 with much less damage than we thought would be created by what we saw happening on the ground. It looks as if this new tax bill goes through somewhere between $3.5 and $5.5 trillion in additional deficits.

Does that concern you with respect to ultimately its impact on the equity markets? Ultimately, default is both an economic and a political action, right? Historically, the reason the U.S. has been given so much slack is the acceptance that this is a huge economy that will choose not to default because it has the resources to pay its debts. And that's still true.

What I think might have changed is that political component, which is, are we still the kind of country which will choose not to default because we are the U.S., we are the dominant, we are the largest economy in the world? So my worry is, no matter what the markets might have said about the last few months, there's been some lasting damage done to the reputation of the U.S. as a country that stands behind its obligations, political as well as economic.

And that's going to show up in the way markets assess these deficits, debt. And that's why I said the U.S. has lost that protection it had for decades of being viewed as a country that no matter what it's... I mean, we've had this debt and deficit problem for 40 years now. I've been hearing about it since the 1980s. It's not new. But for much of the time, investors outside the U.S. looked at it and said, you know what? Large debt, large deficit. But the U.S. would never

put its credit at risk by defaulting on its debt. In the last decade, we had that politically driven debt cliff. Every time you got to a debt ceiling, Congress would threaten. And I think that started to put a dent. And that's why I think this entire process, I would trace it back to that day in 2011. I think it was August 5th of 2011 when S&P was the first ratings agency to downgrade the U.S.,

Fitt joined them in 2023, leaving Moody's as the outlier. And now all three ratings agencies have effectively come to the same conclusion, which is there is no longer the political or they don't believe that there is enough of a political will in the U.S. to actually guarantee that the country will never default. And that's something that you can't claim back. It's very difficult to get back a AAA once you've lost it.

And that's, I think, what you worry about the most is, is that long-term erosion of trust going to play out, not just in politics, but in economics, and how will that affect markets going forward? Final question from me, Aswath. You recently became a grandparent.

My question to you is, what is it like to be a grandparent? And has that taught you anything about parenting, about being a father, or just about life in general? Perspective, basically. I mean, you hold a baby in your hands and

You stop thinking about markets. You stop thinking about the Mag7 stocks. You stop thinking about the economy. But ultimately, this baby will have to grow up in a world that's very different than the world that you and I grew up in. And I think that, you know, so at one level, I am incredibly happy to be holding a baby. At the other level, I worry about what

this world would look like 30 years from now and what kind of job prospects and whether they can, you know. So I think it kind of reminds you of the things that ultimately matter. Markets are just a manifestation of real things happening on the ground. And for a long time, we've let the fact that markets are doing well

blind us to the fact that on the ground, people are struggling. Younger people are struggling. They're struggling to own their first house. They're struggling to pay their student loans. The fact that our portfolios are up 20% has allowed us to look the other way. And I, you know, when I had my baby, that my thought was, I need to pay more attention to those things happening in the ground because this baby will have to live through those things before he or she can enjoy a portfolio.

that makes them wealthy. Aswath Damodaran is the Kirchner Family Chair on Finance Education and Professor of Finance at NYU Stern School of Business, where he teaches corporate finance and valuation and is a first-time grandparent. Is this your first grandchild? Third. Oh, this is your third. I thought it was your first. And by the way, Aswath, you can say that it's not the world that you and I grew up in, but...

Young Ed here grew up in an entirely different world. He's 40 years younger than us. Anyways, congrats for a third time. Always appreciate your time, Aswath. Thank you.

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Salverio is our research lead. Isabella Kinsel is our research associate. Dan Chalon is our intern. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday. I've time. I'm in.

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