Today's number: $85 million. That's how much the US Mint lost producing pennies last year. By the way, did you know that more money is spent on breast enhancement, Viagra, than on Alzheimer's research? At this pace, by 2040, the elderly will have big tits, stiff cocks, and no [__] idea why that makes me happy. That makes me happy.
Okay, and now China expert, welcome to Prof G Markets, and this is definitely not CNBC. Ed, where are you?
I'm in New York as usual. I'm actually heading to Mexico this weekend, which will be fun. Porfirio, my friend, is doing a big birthday bash, so we're all going. A bunch of me and my friends are heading out to Punta Escondido.
I don't know that. It's in Oaxaca, I believe. I'm going to go to Mexico City first, and then yeah, then we're going to hit Punta Escondido and gonna go surfing and dancing, and yeah, it'll be a good time.
Are you guys really going surfing? That's on the agenda?
Um, I'm terrible at surfing. I've done it once, and I sort of decided I was never going to do it again. In fact, I did it for the first time with the Prof G team, and it was pretty, it was a pretty laughable attempt. Claire can attest. So we'll see, maybe I'll try it again.
You're tall. It's hard for tall people to surf.
Exactly, that's what I said. Have you done it?
I've tried. I'm like you. I could actually surf when I was younger. I had, you know, like pretty much my entire athletic life could be summarized as peaking when I was 13. And so I was actually a decent surfer when I was about 13. I lived in Laguna for a while, but ever since then, I go to Brazil and, you know, quote-unquote claim to surf. It's basically me out in the ocean, holding on for dear life to a piece of fiberglass.
Anyways, that sounds like a lot of fun. I think it's nice to spending time with your buddies, socializing with my friends. It's good stuff. By the way, we should just plug this in really quick. Prof G Markets will be live at South by Southwest on March 10th. Again, very excited about that. We'll be on the Vox Media podcast stage. So if you want to learn more about that, go to voxmedia.com/sxsw.
South by Southwest, Vox Media, sxsw. It's going to be epic. Last year was a blast. I mean, I thought it was fantastic.
Yeah, it was really, really rewarding because the Prof G Markets pod had just launched, and we weren't entirely sure if anyone was going to show up. So it was, it was really rewarding, and everything kind of came together. I love South by Southwest. I think they do a great job. All of Austin, it's a chance to see all the team from Vox.
Yeah, so I'm, I'm super excited. It's going to be great.
I'm very excited. Let's get into the headlines. President Trump announced a 25% tariff on all aluminum and steel imports to the US starting in early March. He also plans to implement reciprocal tariffs on countries that impose duties on US goods. Trump has also proposed closing the carried interest loophole, which allows investment fund managers to pay a lower capital gains tax on carried interest, which is one of their primary forms of compensation. His plan would tax carried interest as ordinary income, which could reduce the federal deficit by $13 billion over the next decade. And finally, a group of investors led by Elon Musk has submitted a $97.4 billion bid to buy the nonprofit that controls OpenAI. OpenAI CEO Sam Altman responded to the offer on X. He said, quote, 'No thank you, but we will buy Twitter for $9.74 billion if you want.' Scott, your thoughts, starting with Trump's 25% tariff on steel and aluminum.
We produce 75% of the steel we use, so the remaining 25% comes primarily from Canada, Brazil, Mexico, and South Korea. And I would think that they'd want to have some, some kind of slack supply in the, in the form of imports and not reduce or make imports less attractive. I don't know if it's kind of union or regulatory capture where he did, you know, he promised steel workers a better deal or something like that. And what do you know, the steel industry donated over $10 million to political campaigns in 2024 across both Democratic and Republican parties. Do you have any thoughts here, Ed?
The steel unions are just incredibly powerful. I mean, you mentioned that lobbying power there. You want to get the steel workers on your side, and this is to the benefit of American metal companies. I mean, we saw this in the stock market. US Steel went up, Cleveland-Cliffs went up, Steel Dynamics, Alcoa, all of these steel and aluminum stocks in America rose. Why? Because, I mean, pretty simply, they're going to have more demand now. You're going to have less international metal coming into America, which gives all of these domestic metal companies more pricing power. This is a win for US steel and aluminum companies. Now, who are the losers? Obviously, the international metal companies, and most of those companies that are going to be affected are in Mexico and in Canada and in China. But there are also some companies in Europe and in South Korea and in Japan that sell us a lot of steel, and those stocks all fell on this news. But the most important loser here, which you kind of referenced, is just the consumer, because, you know, this is going to drive up the cost of steel. It's going to drive up the cost of aluminum, which we need in order to build houses and cars. And so the prices of houses and cars are going to go up. But also, we need them to just manufacture everything in America. You know, anything that is manufactured in a factory has an element of steel or aluminum to it. And so if we're going to dramatically increase the price of steel and aluminum, it's just going to increase the price of everything. And the estimation on what it'll do to inflation, the price of all goods, it's estimated this will increase inflation by 0.1%. So, you know, it's not huge, it's not a real, you know, issue, but it's still, it's still increasing the price. So again, it all sounds very pro-America. It's like got this very America First feel to the whole thing. But as we've done with all these tariffs, you know, you do the math, and ultimately you realize this just hurts, and it's for no good reason at all.
Let's talk about the carried interest loophole. You have been pushing for this for a while, actually. Why don't you first just remind us what is the carried interest loophole?
It's the most obscene, ridiculous tax loophole probably in the tax code, and that is let's figure out a way to give an enormous tax break to what is probably the wealthiest or the wealthiest cohort of people in American history, and that is people managing other people's money. So the loophole is the following: there's essentially income is divided, broadly speaking, into two categories: a capital gain or ordinary income. Ordinary income is what the majority of the team here makes, and that is they come to work, they do podcasts, they produce, they edit, they get paid. That's ordinary income, and that's taxed at up to 37% federal. And then if you roll in a state and local, and you live in a place like New York, at some point you could be paying 48 to 52% taxes. And then there's capital gains, which means you buy an asset, you invest, and then you sell it. And if you held on to that asset for longer than a year, I think the highest rate is 22.8%. So you want to have as much income qualify as capital gain as opposed to ordinary income. And really, kind of the secret to building wealth is to make the jump to live speed such that the majority of your income comes from capital gains as opposed to ordinary income. What the private equity industry figured out a way to do is that if they raise a billion dollars and they invest it and they turn that billion dollars into two billion over seven years, that billion dollars in profits that goes back to their investors, they get a 20% carried interest on. So they get $200 million. Really think of it as a commission, right? If you sell something for more than you bought it for, as most salespeople are charged with doing at any organization, if they get a commission on that sale, they get taxed ordinary income. But private equity has figured out a way to weaponize government and through regulatory capture turn those commissions, and that's what carried interest is. It's a commission on the incremental gains from investing other people's money. For some reason, the government decided that qualifies as a capital gain. This is the definition of just inequitable corruption, transfer of money from lower, middle-class people to rich people. I think it's great the president is doing this. If anything, I would argue we need to do what Reagan did, turn all of this into one source of income. And I would even argue in the business of managing other people's money, they should be subject to the highest taxes, especially once they get to the kind of scale that some of these big private equity shops get to.
Yeah, I mean, to be fair to Trump, we both agree this is exactly the right move by Trump. He tried to do this in 2017, it was struck down in Congress, and then Joe Biden tried to do the same thing, and it was struck down again. And so Trump is now trying it again for the third time. It's just so fascinating because it's clearly a bipartisan issue. The only people who don't like this are the people in private equity and the hedge fund managers, and I guess the politicians that they pay and that they, that they back. Everyone else, both in government and in just the general public, is for it. So I guess the question now is, will Congress have the spine to go through with it?
I'm hopeful that this, this thing finally goes away. This is just, this really is a slap in the face of the middle class.
Let's wrap up here with this Elon Musk bid for OpenAI. Let's just, just want to first address this one detail. There's been some confusion over what he's actually bidding for. Some say it is the operating assets of the business, others say it is the nonprofit arm that controls the company. As of this recording, we don't actually know. What we do know, though, is that either way, a successful purchase of either of those two things would mean that Elon has control of OpenAI as we know it. So I think the question here is, would the board accept $97 billion to relinquish control of the company?
The answer is quite simple: no. I mean, this company was last valued at almost $160 billion. They're currently in talks with SoftBank for a valuation of $300 billion, and Elon has offered 97. So he's off by around $200 billion, and that doesn't account for the fact that you're probably going to need an acquisition premium, or the fact that Sam Altman just doesn't want to sell. So I think if you account for all of those factors, you know, this is the hottest company in the world. They're already extremely well capitalized. Sam Altman doesn't want to sell, and he also just doesn't like him. If you account for all of that, I think a serious offer, I'd like to get your take, would be half a trillion dollars at least, and then he's come up with 97. So I don't think this is a serious offer.
I know you've said this is probably just an attempt to slow him down. I would agree. He's also trying to do that in court, so we'll see where that goes. But more than anything, this is just another example of how far Elon has fallen. And I was just thinking, like, I think back to the Elon Musk of 2010, who at the time was sort of an inspiration to people. You know, this was the guy who built stuff. He was the champion of getting things done, of innovating, of making products that are useful to people. He really captured people's imaginations. And I just think, you know, imagine if you told that Elon that in 15 years he would be spending a hundred billion dollars not to build a new company, but to tear down the progress and the innovation of someone else's company, a company which, you know, for all of its faults, it has inspired millions of people around the world. It's inspired trillions of dollars of value in the marketplace. It's created arguably the greatest technology of our time. You know, what would he say about that? Like, would he be proud of this? Would he think that was cool? So I feel like we increasingly need to think about Elon and his role in America. We need to think of him as two different people. There was the pre-Twitter Elon, and there's the post-Twitter Elon, and those are two totally different characters. You know, one is like an innovator, he's an inspiration. The other is a [__] poster. The other one is embarrassing. So, you know, I'm criticizing Elon again, but when I criticize him, I'm not criticizing his past achievements, who he was. I'm criticizing who he is now. And I really believe that the man he is now would be a total embarrassment to the man he used to be. And this, this is just another example of that.
So as far as I understand it, because once they smelled money, OpenAI, which was a nonprofit, tried to pull off this jiu-jitsu move and turned into a for-profit while maintaining some of the governance of a nonprofit. So the nonprofit division has some governance rights. And I think what has happened here is that effectively they're hoping that they have accidentally created a two-class shareholder company. And if they get control of the nonprofit, they get control of the whole company. Because you're right, they could have, if they'd had more money, they would have showed up and said, okay, you're doing, you're doing a raise at 300 pre, 340 post, we're going to offer you 500. This, in my opinion, is just a lot of jazz hands. And basically, I think what happened here was Musk said to his bankers and his lawyers, you know, this is one of the issues where you engage in law for, we have so much money, you can just take an hour. People like, where does he find the time to do this? I literally think he just met with, he shoots his buddy a text. Yeah, this is, he is literally the full white shoe law firm, aggressive law firm and aggressive banker employment act. And that is he can meet with the, you know, his chief lawyer and say, and his chief banker and say, Sam Altman, [__] with him, find any means possible. And the bankers come back and say, well, there's this kind of weird thing we could, we could make a bid for the whole thing. We can't afford that. That's not credible. Well, let's make, there's actually a separate element here that has some governance rights, make a bid for that and try and create a cudgel where the people at the nonprofit want more of their stake of new co, but just slow them down so I can catch up with a distant seventh or eighth. And it was just so hilarious, the statement they put out and just so ridiculously cynical. And I want to read it, or Musk's statement when he talked about it. He said that it's time for OpenAI to return to its open source, safety-focused force for good it once was. Okay, so all these private equity firms and the CEO of WME are going to fork over $98 billion for the betterment of humanity and AI.
Yeah, that's what Ari Emanuel wants for sure. Yeah, yeah, that he's worried about AI, so he's going to come, they're going to come up with $98 billion just to try and, to try and take over OpenAI.
In addition, the difference in governance, specifically your, your ability to basically stick up the middle finger to outsiders, including OpenAI's ability to basically tell the [__] off, is much greater when you're a private company than a public company. And he can sue them, but at the end of the day, he's not subject to the same SEC regulations, I don't believe, as a publicly traded company. So if OpenAI was publicly traded and had a market cap of 70 billion, and he showed up as he did with Twitter and said, okay, I'm paying an enormous premium for a shitty company, the board has a fiduciary obligation to, to accept his bid. And ultimately they did when they saw he was paying 44 billion for something worth 10, and then they forced him to close, right? Because they said, this guy's an idiot and he's overpaying. So fine, we're going to force you to close because we're being good fiduciaries for our shareholders. In this instance, the board, I think, can pretty much dismiss it out of hand. They can say, we represent all stakeholders. This guy is a [__] train wreck. He has a competitive company that's well behind. He wants to slow us down. I mean, they can just come up with a billion reasons, and they don't even really need to because I think it's a fairly closely held company. No employee, I just don't think anyone's going to put up a big fuss here. He'll file a bunch of lawsuits or whatever, but again, I think, I think us, the Marines storming the shores of Greenland is more likely than him getting control of OpenAI at this point. So this is just more, I want to be in the news. And the energy he's bringing here is what I'd call really, really bitter, angry ex-spouse energy. And that is, you divorced me, you kicked me out of the house, and then you went on to be Tom Brady, and I ended up being a waitress at Waffle House. I am [__] pissed off. And even though the guy is remarkably successful, the fact that he doesn't control AI infuriates him. And what's even worse is he used to, he was the largest shareholder here, and he, he wanted to be in charge, and the governance said, no, we don't want you in charge. He said, that's it, I'm out. And he signed airtight legal documents stating, I'm out, I no longer own shares here, it's all yours, I'm gone. And now he's decided now that the thing is arguably on this next financing going to be one of the 20 most valuable companies in the world and is well ahead of his AI efforts. I want back in the marriage and I want my marital assets back. But the thing about Sam and the lesson here is that I do believe Sam takes relationships and friendships seriously and has created a lot more allies than enemies along the way. And I would argue over the last five to eight years, Musk has created more enemies, and that his friends are essentially friends who've made money from him. And when he, when he stops making money for people, I mean, Tesla's, I don't know if you saw Tesla sales in Europe. Tesla sales in Europe, they're off 67% in France, they're off like 44% in Germany. The sales are imploding. We just heard, or we're going to hear what Alice said, Alice said about Tesla and China, which is not doing well. Here's the thing: you don't need friends when you're right. When you're making money, you're going to have no shortage of friends. When you're not doing well, that's when you find out if you have friends. I think Sam Altman has a lot of friends. You want to put yourself through generosity, through opportunities to help people by being a decent person, by occasionally taking a blow and not feeling you got to hit back all the time. You need to put yourself in a room full of opportunities even when you're physically not in that room. And I think Sam has done that. I think there's a lot of people that want, you know, for good reasons and bad reasons, Sam's going to make people a lot of money. But I also think people genuinely believe that. I think he has a lot of real relationships. He has, I just think he has so much more goodwill than Musk right now. Even when they get in front of a judge, I think the judge won't be able to like be like, okay, here's one, ketamine-addled, aggressive [__], and here's this other guy who comes across as like, you know, the gay son we all want, right? He just is like this incredibly likable, smart kid. I've been reading a lot about Napoleon. He really reminds me of Napoleon in the sense that he was, you know, so successful, so prolific, the king of the world, got too high on his pride, crowned himself emperor, and then decided to start making enemies with everyone he met. And ultimately, it, it, it landed in, in a position where as soon as he lost, everyone turned on him, and the guy died alone of stomach cancer in St. Helena in exile. And it's, it feels like Elon is just going.
God, you're so sexy right now with all your history.
Oh, that's a, there, that's why your parents paid half a million dollars for you to go to Princeton so you could talk about Napoleon and St. Helena.
Exactly. I just watched the movie. I just, I love, by the way, I love the actress that plays, was it Joaquin? She was outstanding. Did you see the movie Napoleon?
I did. People hated that movie. I thought it was quite good.
I liked it. Yeah, I thought it was quite good. A very similar, similar character arc, and I could totally see that happening for Elon.
Yeah, she's great. She's outstanding. She's also, I got some, I got some inside, some scoop here. I don't think I'm speaking out of school. She's engaged to one of the great athletes of all time, who is, I'll let people guess. She's engaged to this incredibly, one of the literally one of the most dominant athletes in history, and he's also a very soulful guy that reaches out to professors to ask for life advice.
It's not Tom Brady. No, Tom does not reach out to me for advice. I think greatest, one of the greatest athletes of all time, more as dominant as Tom, as Tom Brady. I'm not exaggerating. He'll send me long voice memos saying, you were talking about love, and I wanted to give you my view.
Holy [__], I'm so intrigued.
