The Prof G Pod with Scott Galloway
00:19:25 · George Hahn
[00:19:25] S3: Earlier in the week, a listener wrote into office hours asking what it would take to actually make housing more affordable. Scott started with the permits.
00:19:34 · Scott Galloway
[00:19:34] S4: What do we get wrong around housing? Probably the worst thing we've done in housing is everyone complains about bureaucrats. The worst thing to happen to the housing market, especially for entrants, is we took power around housing permits out of the hands of bureaucrats, local civic officials, and we put it into the hands of homeowners. Now what are the incentives of a homeowner? They live in a neighborhood, they like the fact there's not traffic, they like the fact there's not construction, and free gift with purchase, and everyone, this is the atmospherics, is they know that the less housing that is built, the greater the scarcity of housing, which creates their primary asset, or incentivizes, or fuels an increase in value of their primary asset. So the people in charge of issuing permits for economic growth and to provide more housing to meet the needs of new entrants who want to have their own house, the incentives of the people issuing permits is totally contrary to the needs of entrants. And that is a larger metaphor for the country the last forty years, and that is the incentives have created regulatory capture such that the incumbents deny admission to the club such that their membership goes in value. This is a supply problem, not a demand problem. And the way we approach it and actually end up making things worse is the government provides tens of billions of dollars in what is a good intention, and that is creating more demand. Low income housing tax credits. Tax advantage on mortgage interest rate, which is tax deductible, right? First time home buyers credit. All this does is create more demand. When we don't address the supply side and maintain a national kind of nimbyism as a public policy, we just again further escalate the price of housing. We need to address the supply side. We need federal legislation and local legislation that says look you cannot access federal funds if you do not, or if you create a NIMBY like situation where it's very hard to issue permits. We need to provide tax credits to developers such that they have greater incentives to build.
00:21:48 · George Hahn
[00:21:48] S3: Anthropic, the company behind the AI model Claude, filed its s one with the SEC this week, the last major step before public listing. It's expected to go public at a valuation of as much as $2,000,000,000,000. That would make it the largest IPO in history, and one of the dozen most valuable companies in the world on its first day of trading. The filing shows 16,300,000,000 in revenue for the first half of the year, up from 1,200,000,000 a year earlier, and an operating loss that narrowed to around $700,000,000. Ed ended Wednesday's Prof G Markets by looking past the income statement to the numbers on the very back of the filing.
00:22:39 · Ed Elson
[00:22:39] S9: The most important numbers in the filing came at the end of the document where we learned that Anthropic has signed more than $800,000,000,000 in future compute commitments, none of which are reflected in the current income statement, but all of which eventually will be. That includes an $110,000,000,000 contract with Amazon, a $115,000,000,000 contract with Google, a $161,000,000,000 contract with Broadcom. What it doesn't include, however, are the billions of dollars in capital expenditures, which they are about to register probably to build out their own compute. That's not something I believe because I had a hunch about it. I believe that because they literally told us that in the s one. In other words, that $800,000,000,000 number is actually probably gonna be a lot higher. And as a result, this company's losses are about to explode. Now did they time this IPO so that we wouldn't have to look at those losses on the income statement? Possibly. But that's a theory. It's not a fact, and this segment is specifically devoted to things that we know for sure. The truth about the Anthropic s one is that the income statement doesn't tell you the full story. It doesn't mean it's a bad company. It doesn't mean they don't have an incredible product. They do. But it does mean that there is still a lot of risk. The business model hasn't been figured out yet. And until it is, we must treat Anthropic with the appropriate level of caution. It's still a highly risky venture bet. Things could still go spectacularly wrong. What it certainly isn't is a proven safe corporate investment, something that it's potentially $2,000,000,000,000 valuation might suggest. In sum, not much has changed. But whatever picture the profitability is painting right now, all I can tell you is that next year, that picture is going to look drastically different.
00:24:30 · George Hahn, Ed Elson, Steve Eisman
[00:24:30] S3: Earlier in that episode, Ed asked legendary Big Short investor Steve Eisman the bottom line question. [00:24:37] S9: The question for investors, the ultimate question is, do you invest in this thing? [00:24:41] S10: Oh, I have an answer for that. That I can answer you. [00:24:47] S9: Tell me. [00:24:49] S10: No. [00:24:52] S9: I I was gonna ask you, are those... I was gonna... You're trying to... Got to the point quickly. I was gonna ask you, would you need to know the answers to the questions that you just brought up before investing? I assume the answer is yes, you would. [00:25:08] S10: Oh, yes. But I think... Look. To me, the bigger... The the the bigger, bigger, bigger question is it just seems, you know, that there are no moats around this business. I mean, if it's the case that they actually did cut prices by 50%, that would reinforce the concept that there are no moats and that the only way you're gonna gain share is price. Being in a business where you are committed to spend $800,000,000,000 where your entire franchise is just simply based on price is dangerous. [00:25:40] S3: That's it for the week. I'm George Hahn. We'll see you next Friday.