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Right now we're going to start with the best way to start each morning. It's what you're all here for. The sharpest and most entertaining takes on the news that's moving markets. You listen and watch them every morning, and now you get to see it live. Please welcome Scott Galloway.
Dad joke or dick joke?
I heard dad joke. That's my vote personally.
German. What does a German say to you at South by Southwest?
Audi.
So, on my wedding night, my new bride says to me, "I've got some really good and really bad news for you." And I said, "Okay." She said, "Oh my god, they're so much bigger than their brothers."
All right, live from the Vox Media podcast stage at South by Southwest. Welcome to Prof G Markets, everyone.
The worst of it is over. Thank God. Dad joke, two dick jokes, but it's pretty good. How you doing, Ed? I'm a little insecure because you look very handsome. The whole blue linen thing. I don't like this. We did a tour around the lobby. And of course, everyone's like, "Hi, Ed. Hi, Ed." And asking if Ed's got a girlfriend, all these parents showing up. It's awful. By the way, I got really excited. There's a big line. I'm like, "Oh, that's so exciting." And then I found out it's for The Audacity of Joy next door. Folks, no one's coming to save you. This whole therapy thing, they're the new supplements. Let me just summarize The Audacity of Joy. It's THC on Netflix. That's joy. All right. And let me summarize 20 years of therapy. Your parents did their best. Just don't be such jerks, too. No one's coming to save you. And everything you think is trauma, there's a word for it. It's called life. Back to you, Ed.
This is an impeccable start. We're making fun of other shows. We're feeling depressed. I love it. Okay, so today we're discussing some slightly heavy news because we have to. Today we're discussing the Iran wars, the Iran war's impact on global markets. We're also discussing the future of AI according to the leaders of AI. And we will also have some time for some audience questions at the end. But first, Scott, let's get into the episode.
Good enough. All right. Today's number, how am I doing so far? Today's number, 15. That's how many venomous snake species live in Texas.
Wow. Then I should have done the dick joke. Anyways, welcome. Welcome to Prof G Markets. We're here in the great state of Texas at South by Southwest.
Ed, how are you? Welcome to Texas.
I'm doing very well. Good to be here.
Got the cowboy hat on. I'm probably gonna take it off when we start to talk about Iran. But for now, I'm gonna rock it. I'm going to rock it while I can.
And I loved the horse head. How did that feel?
I felt like I was going to slip and break a hip. And I thought that everyone is generous with my dignity. Everyone thought it was a great idea for me to wear a horse head. It's nice at 61 to be pimping yourself for social media.
All right. Well, I'm going to get us started here because we don't have all the time in the world. So, we're going to start with our first story.
The war with Iran has changed the global landscape in a very short time. And it appears there is no end in sight. On Friday, when asked when the war would be over, President Trump said, quote, "When I feel it, feel it in my bones." And now investors must reckon with the new reality of war. In America, stocks are selling off, but not as much as other nations. European stocks, for example, have fallen 5% since the US struck Iran. Japanese stocks have fallen 8%. South Korean stocks, 13%. And so if the markets are any signal of what is to come, it would appear that the economic damage of this war might be felt most acutely outside of the US, which raises many questions for both investors and governments alike. So Scott, one of the big themes that we were discussing over the course of last year was this potential rotation out of America in the global markets. It really started with tariffs. Then it seemed to continue as DEI occurred and as we sort of launched these attacks on Greenland and our NATO allies. And yes, the US stock market performed quite well last year, but notably every other market outperformed the US: emerging markets, global markets, Asian markets, etc. And it seemed that that was the trajectory of global capital flows. Now a wrench has been thrown into the whole system, and that is Europe appears vulnerable, Asia appears vulnerable. It appears that everyone else is more vulnerable than America, which raises questions for investors and perhaps that might reverse the flows of capital around the world. So what do you make of what this war has done to global markets and how global capital is moving at this point?
So the best metric for tracking flows is just the strength or the weakness of the US dollar, because people have to convert into the dollar to buy treasuries or to buy stocks. And last year, while the Trump administration will claim it's been a great year, 14% up in the S&P, if you adjust it for the dollar, because people were getting out of the US, I would argue because of rule of law, inability or a lack of trust that all companies were going to get to play by the same rules, a feel of an autocracy, an emerging autocracy, all of the things that we did not have that resulted in a much higher multiple on earnings in the US than anywhere else. People were transitioning out of the dollar and into other markets. And while 14% sounds like a lot, if you dollar-adjust it, if you're a foreign investor last year, out of 23 major markets, the US came in 21st. So we outperformed New Zealand and Denmark, and every other market beat us last year, was up more. Now, in terms of winners and losers, and there's always unexpected winners and losers, let's stack rank it. Let's talk about the winners. So Norway, probably Canada, the big oil producers, probably Saudi Arabia, which won't have much infrastructure destroyed and will see elevated oil prices, which will probably be good for them. The big winner, hands down, is Russia, and that is Russia now has a lot more capital to fund the war, and also there's a distraction from the Western world on the war in Ukraine. So if you were to look at everybody, they're the biggest winner. What's interesting about the US, I think it's important that we all understand what infects the US infects tech CEOs and tech, quote, for lack of a better term, tech bros. And that is in the US we don't realize a lot of our success is not our fault. And that is we're just the smartest thing that can ever happen to you is to be born in America, or the smartest decision you've ever made is if you were born in America, and you did make the decision if you immigrated here. Because just on a very meta level, we have two oceans protecting us. We have friendly Canada to the north, harmless Mexico to the south. We have more natural resources than any nation in history. We're energy independent. We produce more energy than we consume. We produce more food than we consume. You know, other than rare earths, there's sort of no... every single country in the world, whether it's oil or foodstuffs, has something that they're dependent upon someone else for. We literally don't go out of business. We're pretty self-sufficient. About 15% of our economy is imports, and it's mostly luxury goods and or disposable things that we can do without. So our S&P is only, I think, off one and a half percent since the beginning of the war. Is that right?
Close to 3%, but certainly lower than everyone else. Yeah.
And then if you look at who's... so the US, I would argue, reputationally is going to take a huge hit here because we're under the impression that with a third of the world's GDP we can control the world. And the reason we've had so much dominant influence is through cooperation that essentially has created the operating system upon which 60 or 70% of the world's GDP rests and mostly cooperates with us and says, well, I'm not sure about Iraq, but you're our ally so we'll follow you in, as did a bunch of nations. So reputationally we obviously take a very big hit, I think, over the medium to the long term by kind of going at it alone, not incorporating European nations or our Gulf neighbors. But economically it's sort of ironic and a little bit sad, we don't get hit that hard. Now who gets hit really hard? The Asian nations. So 20% of the world's oil flows through the Straits of Hormuz, but about 70% of Japanese or Korean oil comes through that strait. So you've seen the Korean index down double digits. So if we woke up tomorrow and the S&P was off three or 5,000 points, that's what South Korea's gone through, because it ends up making semiconductors, is very energy dependent, and this country has none of its own oil. China has made a very strong move to renewables, ton of economic power. It has not been hit as hard, but Japan and some of the other Asian countries are really feeling it. The most vulnerable. And this is where I think we could have... it's always the thing you're not expecting to get to. No one knew what a subprime loan was. No one thought, you know, 11 men were going to find planes and slam them into buildings. It's always the thing you're not expecting. I think the string that could get pulled here that could put us into a fairly serious recession is Bangladesh, Pakistan, Sri Lanka, maybe the Philippines. They're energy dependent, very sensitive to skyrocketing oil prices, and also their debt is dollar-denominated, meaning that they take out a billion dollars in debt, they have to pay it back in dollars, and then when their currency crashes, when their currency gets cut in half, which is happening in some of these markets, they essentially owe double, and they can't sustain that, and they get thrown into chaos, IMF receivership. And then the contagion is in places like BNP Paribas or what's the other big European bank? I'm blanking. Basically they say, okay, we have all these bad loans on our balance sheet, and potentially it starts to infect other big banks. So I think you could see a contagion if the S&P were to be down 20 or 30% this year, which wouldn't be unusual. I think the NASDAQ lost about a third of its value in 2022. I think it starts in these smaller markets that are very energy dependent, have currencies that are crashing, and have dollar-denominated debt. So unfortunately we in the US, when we come out, the collateral damage, I mean it's unfair but it's true, the collateral damage we cause has a much bigger impact on other nations than it does on us in this sort of zone of empathy, if you will. Like no one's talking about dollar-denominated debt in Bangladesh. But if they can't pay their debt, it's going to be pretty ugly. So winners and losers. Another winner is probably, I talked about Canada, Norway, the energy guys. But we actually, despite the fact that we should be the biggest winners or the biggest losers based on the outcome here, we have dramatic shock absorbers in the form of our, again, these unearned advantages we have.
But I think that this comes back to a question that was raised during tariffs, which is how independent are we really? There are certain things that we can measure, and we can look at how energy independent we are, which we are, but does that really mean that we can go out and cause chaos all around the world? And because we're protected by these two oceans on either side, and because we have oil, because we have energy, as you point out, we didn't really think about the rare earth thing, but I thought before we got into this, but does that really mean that we're going to be okay? And I think that this is now becoming the big question here. And I'm a little bit more skeptical or a little bit more concerned about it. I think, for example, about our relationship with the Gulf States, with whom we have become actually quite dependent on their investments for our startup and tech ecosystem. Gulf States invested $70 billion in American companies last year. Trump comes out and he says these guys are going to invest $2 trillion into the US economy in the next few years. I don't necessarily believe him, but that's what he said. That is a very, very significant relationship. I would also argue that our relationship with Europe and with NATO allies has been historically quite significant for our success. And now we're saying that we're going to scrap all of that. And I guess my question for the administration, my question for Americans, my question for you: if the Gulf States are seeing their houses and their hotels, their luxury hotels and their desalination plants being blown up every week or so, every day as we're seeing, are they really down to invest in America in the way that they have? Are they really down to collaborate with us, to trade with us, to form the alliances that we've had? Will Europe be okay with a relationship with America if their inflation is three times higher than it is in the US because of their dependence on the Strait of Hormuz, which we went and bombed? It was our fault. What does that do to our relationships with these other regions? And does that not come back to bite us in a big way?
I've never seen you this animated. Look, there's no getting around it. The reason why we have had the greatest inflows of not only financial capital, but before the flows of financial capital are the flows of human capital. Right? You get the best and brightest, team with the best players wins, and financial capital follows. And there's definitely something to the notion that if you drop an individual in the forest, one individual, within three days they're either eaten by a bear or they starve. You drop 12 individuals into a forest, and this is one of my heroes, Jimmy Carr says this, within a couple generations, you know, they're the apex predator. And our core advantage as a species is cooperation and communication. And it's also been the core advantage of the American order in America since 1945, is we have, generally speaking, we have 780 military bases overseas. We have embassies that are hugely staffed with very competent people trying to avert problems. And we're generally seen as obnoxious, flexing our power, but our heart's in the right place. And we came up with this amazing idea that if we can help your economy be successful, you'll buy more of our SUVs and, you know, more of our Coach bags, right? So the cooperation or the feeling of trust or feeling of benign big brother that's sort of obnoxious but whose heart's in the right place, that going away is going to have all sorts of unintended consequences.
But at the same time, when you talk about capital flows, capital flows are totally amoral.
Yes. And that is the money will go where it thinks it can get the greatest return. And, you know, I thought Meta stock was going to get really hammered when all this research came out, that internal research showed that they had done their own research showing that one in seven British girls was citing Instagram as the cause of suicidal ideation. I thought, oh my god, the stock's going to crash. Money has very little morality. And that is distinct of the US throwing its weight around, making decisions that are bad for the world, have much greater ramifications for the most vulnerable. Money will go where it thinks it can get its greatest return. Full stop. And the money, remember, when I got out of business school, there were all these funds called the Calvert funds that were socially responsible. And that's a nice idea, socially responsible investing. Those funds have consistently underperformed. Money is totally amoral. So as long as capital believes it can come to the US and find entrepreneurship around whatever the hot thing is, renewables, AI, I think it's going to be space next, we'll register those capital inflows. Where I think it begins to hurt us is that we no longer attract. Young people are more moral, if you will. They're more moral than capital. And the best and brightest will think, I'm going to go study at INSEAD, or I'm going to go to Singapore, or I'm going to maybe think about moving to Japan if I want something different, instead of coming to the US. And I think that has huge long-term impacts if the best and brightest think, you know, I don't feel as good about moving to the US. But so far, I mean, when you think about what's happened here and the fact that the S&P is only off, you said 3%. I mean, here's the reality. Other than the oil market, if you looked at our markets and you didn't know what was going on, you wouldn't know what was going on. You wouldn't say, oh, there's clearly some sort of dramatic exogenous event of a war in the Middle East, which could destabilize everything. So, America, unfortunately, and this is what it means to have grace. This is, in my opinion, what it means to be mature, and quite frankly, what probably, you know, I talk a lot about masculinity, what it means to be a man is that you recognize your strength is to protect others, not to throw it around and be reckless with it. And you could argue, I think, make a tangible argument that we have become the big, strong, wealthy guy at the bar who, quite frankly, gets fucked up and becomes violent.
Anyways, back to you, Ed.
Well, I guess my question is, what happens to the big drunk guy at the bar who gets violent by the end of the night, or maybe in the morning? I don't think it necessarily ends well. And I guess this is the part that I think, as you point out, money wants to move to where there is a return, but right now in 2026, money wants to move where there is safety. Money wants to move where it's not going to get completely wiped out. And that is the question everyone's asking themselves: how do I make sure that I'm not at risk with my capital? And perhaps that means that American markets are the new safe play. Maybe that's true. But I do think about some of the downstream effects here. I think about what we're seeing with oil. The fact that if oil remains at the prices that we're seeing, which is basically $100 a barrel, we're going to see inflation tick up nearly a full percentage point in America. You combine that with the fact that we have a labor market that is worsening as we speak. That is definitionally a recipe for stagflation. That is a stagflationary crisis on our hands. And we're already seeing that the Fed is saying that actually we're not going to keep cutting rates. Or at least that's what the markets are beginning to tell us. There's a possibility that maybe they're going to have to raise rates. At which point we've got rising prices because of what's happened in the Middle East, and with no real end in sight, despite the fact that he says that he feels it in his bones that this is going to be resolved, combined with concerning job market conditions. I think that there are issues for pretty much every region that we're seeing play out right now. But I worry that we're too confident in our feeling of insulation in America, that everything's going to be fine, that we're not going to experience perhaps some sort of cyber warfare attack, which we know that Iran is very interested in pursuing because that's what they did to Israel when Israel struck them last year. I think that there are issues, as I mentioned, between our relationships with a lot of these regions and our dependence on their investment. But as it stands, you're right. I mean, the US is the most protected, and that is what the markets are telling us.
But some of it also comes down to perception, and that is life isn't about what happens to you, it's how you respond to what happens to you. And remember, Masa Son, the CEO of SoftBank, still the CEO, he had kind of an interesting statement. He said, would you rather be in a fight with someone who's really smart, or who should you be more scared of, someone who's really smart or someone who's really crazy? And his point was you should be scared of someone who's really crazy, and that was somehow a justification for making crazy big investments. Well, sorry I made the lead there, but the reality is in America, we're fairly sensitive. You know, the largest disruption or the biggest calls to customer service and 911 was when at the end of the season-ending series of The Sopranos and it went black and people thought their cable was out. What seems like a tragedy to us is on a different level. And also Europe. Europe's being invaded right now, and essentially no European nation has even come close to putting a boot on the ground in Ukraine. We have lost, and this is a tragedy, I don't mean in any way to diminish it, we've lost 12 or 14 service people so far. Russia's losing a thousand people a day. We had lost 58,000 people in Vietnam, they had lost a million. We pulled out. We lost 400,000 people in World War II, Russia lost 20 million. Our tolerance for pain is very, very low. And so we will respond. I mean, to a certain extent, Russia's core competence is their ability to endure suffering. I mean, that is their core competence. Can you imagine us entering a war and losing 1.2 million people and continuing to fight the war? We just wouldn't do it. So the vulnerability is that our perception of what is difficult or tough or damage is much... our bar for pain, our tolerance for pain is what a man's is versus what a woman's is. Right? Women have to endure childbirth and menstruation, so they have a much higher tolerance for pain. This is scientific, it's not an opinion. Men get a cold and think like, you know, call 911, right? So America, as men, our tolerance for pain is very, very low. Now, how that might trickle down economically is because of income inequality. The top 10% of income-earning households now control 50% of the consumer economy. We're now a consumer economy. Two-thirds of our GDP is consumer-led. So if the very wealthy all of a sudden start seeing, you know, a level of pain that we are just not used to, which is much lower than the level of pain most countries endure every year, you could see a significant drawdown. I personally, I never want to see the markets go down, but the two worst indices in history are the Dow and the NASDAQ because they create this false comfort that we're doing okay when they go up. The Dow and the NASDAQ are effectively a proxy for how the rich are doing. And spoiler alert, they're doing really well. But I think we could see a pretty dramatic drawdown in the markets. But I personally think there would be an upside to that, and that is, you know, and this has been my big rant for the last two years, you are meant to have exogenous shocks. That's a natural part of the economic cycle and it's healthy. War, famine, economic shocks do have a healthy part of the cycle. And what is it? Capital gets destroyed. The guy that owns the factory, the older person loses a lot of their wealth and advantage seeds back to labor, who you need to rebuild the factory. Right? These exogenous shocks are typically a recalibration. Housing prices crash, their recalibration or retransfer back of wealth from owners to earners. But for the last 40 years, what we've decided is whether it's a virus or a financial crisis, rather than let assets collapse and take money from the owners and give advantage back to the earners, we're going to pull out your credit card and ensure in the form of debt and stimulus that I stay rich. So a certain amount, quite frankly, the people in this audience, it looks pretty young, you want the Dow probably to go down 30%. Because if you're going into your earning years, you want to buy real estate and stocks for as little as possible. The reason I'm economically secure is because in '08, they bailed out the banks, but they did let the markets collapse, and I got to buy Apple, Amazon, and Netflix for 8, 10, and 12 bucks a share, respectively. Like, where do you find value right now? So I hate to say I want the markets to go down, but at some point, we have to stop propping up the markets with young people's credit cards. A certain amount of disruption and drawdowns in the market is a healthy thing that transfers and seeds power, leverage, and capital back from owners to earners.
We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us if you haven't already.
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We're back with Prof G Markets. This year at South by Southwest there is one topic that will be discussed in 89 different sessions, we counted, and that topic is AI, a subject with no shortage of hype, controversy, and also concern. Everyone wants to know, how will AI change my life? Well, if we want to understand the future, we ought to look at the people who are building it. So for today's discussion, we have collected some quotes from notable AI leaders on what they think the future of AI will look like. So, let's begin. We're starting with the job market. Scott, according to Dario Amodei, AI could wipe out half of all entry-level white-collar jobs and spike unemployment to 10 to 20% in the next one to five years. According to ServiceNow CEO Bill McDermott, this was just from this weekend, he said, quote, "Unemployment for new college graduates could easily go into the mid-30s in the next couple of years." According to Elon Musk, quote, "Probably none of us will have a job." Scott, what will AI do to jobs in America?
In the short run, there'll be a dip, and in the long run, it's going to create more jobs. You have new business formation, 550,000 new applications for jobs this year, 150,000 in 2000. When I graduated from business school in 1992, there were only two entrepreneurs in my entire class. Two people starting companies, and the second was my co-founder. There just wasn't a very entrepreneurial nature. So there's just so many opportunities to use AI to do what would traditionally take 10 or 20 people, takes two or three. So I think it's going to create more jobs than it destroys. I've been saying this for a long time. Also, you got to keep in mind the gestalt here, and I'll come back to the technology that I think is going to create more shareholder value and represents opportunities. I don't think it's AI. If you're laying off 20 or 30% of your workforce, or 10%, what's a better narrative? "I'm not very good at what I do and I overhired, our business isn't growing as strong as we predicted," or "I'm leveraging this new technology because I'm part of the Pepsi generation called AI and I'm going to continue to grow with much fewer costs"? What's a better narrative? Everybody is blanketing their incompetence or inability to project demand or a slowdown in their business with, quote-unquote, AI washing, right? What makes for a better press release? When you announce you're laying off people because your demand is slowing, what happens to your stock? But if you lay off 10% of your workforce because you said, "I no longer need them through the use of AI," what happens to your stock? So a lot of layoffs, I think, are going to be couched in, quote-unquote, under the auspices of AI. And if you look...
Actually, the number of job ads for programmers, which is supposed to be ground zero, is actually up because as technology becomes cheaper, more people use that technology. So despite the fact that supposedly we no longer need coders, the job listings on job boards for software engineers has gone up. And then the other dynamic is the following, and this is the one that really chases me: I coded this thing, I'm Dr. Frankenstein and I'm such a genius and I've created such a powerful menace that it's going to ruin the world because I'm such a [__] genius. And everybody says this after they vested their shares and sold it on the secondary market and they're piecing out to Cotswold with Russian [__]. So, no disrespect to Russians. It's like, you know what? I am sick. Anyone who tells you, 'I'm so awesome and I've created something so incredible because I'm such a baller that it threatens the world' — it's like, [__], that's not helpful. That's not — your nihilism isn't there. There's something that infects academics and CEOs, and that is: if we catastrophize, we sound smarter. Saying, 'You know what? I think AI is not going to have the impact it's going to have. Incrementally, things will get a little bit better every day' — that doesn't get you invited to conferences. That doesn't get you front-page coverage in the Wall Street Journal. So the catastrophizing is, one, a form of narcissism in my viewpoint. It is not helpful to say you've created something that could destroy the world, but you have no tips. You can't tell us what that peril is or how you can uncode it. And also, it's sort of a way of saying you should invest in my company at an $800 billion valuation because this is so scary and so powerful. Why not make money? So, let me get back to the technology that will be big. I get invited now — first time in my life, right? Ed gets invited to them. I've just started getting invited to these fancy, very fancy dinners and events. And I got invited last night, and I'm going to name-drop because I'm desperate for your affirmation. And I saw and talked to Michael Dell and Mark Cuban. They look like a version of themselves that the old version could eat. They have lost so much weight. These guys — and my favorite is like, I come up, you know me, I'm very delicate and very nuanced and very social, and I'm like, 'I'm like, which GLP-1?' And they're all so full of [__]. They're like, 'No, I'm just playing paddle every day.' Oh yeah, right. F*** that, and you lost 70 lbs. The agonists — the bottom line is the investment strategy I'm doing. I'm going long Lilly. I think GLP-1 is a much more important technology than AI. And I've said this for a while. Talk to someone who uses AI every day in their job, and talk to someone who's on a GLP-1 drug, and ask them what's having a bigger impact on your life. I think GLP-1 is going to be more transformative to our economy and more important for the world than AI. And almost anyone with an IQ over 90 totally disagrees with me. So I'm not suggesting I have a monopoly on this, but when I look at what GLP-1 is doing — and the thing about GLP-1 is every new thing we find out about it, it's a good thing. Oh, it can help with social media addiction. Oh, it brings down your blood pressure. And every new thing we're finding out about AI, it's like, no [__], right? So, anyways, bringing this back to the markets: AI dramatically overvalued, and the technology can outlive the market capitalization, right? And that is, the value may go way down and the technology will survive. I still think it's going to be huge. I think it's going to increase productivity, especially in drug discovery. But I would argue from a market standpoint or pure valuation, I think AI has more — I'm sorry, I think GLP-1-based drugs have much more upside, both from a sociological level and an economic and a shareholder level, than AI, which has now turned into AI washing — around firing people and saying it's going to end the world because it's such amazing technology.
At the same time, there is an incentive now for businesses and for business leaders to figure out a way — whether it's because of AI actually right now or not — to figure out a way to lay off a bunch of people.
So that's what they're trying to do, and that is what they are doing. We saw Pinterest laid off 1,000 people. Atlassian laid off 1,600 people. Block, which was formerly Square, they laid off 4,000 people in one go — 40% of the workforce. And I think it is very possible that there is some AI washing going on. At the same time, this is now what they're trying to do. We talked to David Solomon, the CEO of Goldman Sachs, who said, 'My mission is to keep headcount flat. I do not want to increase headcount at all over the next 10 years.' That is his mission. So there is an incentive now to not hire people. And we're seeing huge amounts of job cuts — last year, 1.2 million job cuts, the most since the pandemic. So there is a problem here, especially for young people. And I'll just bring us back to that quote from Bill McDermott, who says, 'I don't see the value in a college education at this point,' or at least if you have a college education, it's not going to be put to use in the ways that we have historically known. That is a real problem for young people, regardless of if there is AI washing going on. And perhaps it's something that we will discuss further in this Q&A section, because I do want to get your advice to young people, especially as a young person. But I have some more quotes, but — just real quick, because there was some stuff there.
