Prof G Markets: Has a Global Market Rotation Begun? + Inside the Ultra-Luxury Hotel Industry

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Speaker 1 Today's number 63,000. That's how many pages are in the newly released JFK assassination files, but none of them contain any revelations.
Ed, what do JFK and Bill Clinton have in common?

Speaker 12 What's that?

Speaker 1 Both their careers ended with a stained dress.

Speaker 1 Dark.

Speaker 1 That's wrong. Dark and gross.

Speaker 12 Any thoughts on the JFK file, Scott?

Speaker 1 How did JFK break his arm? Oh, a joke.

Speaker 12 Good.

Speaker 12 How did he break his arm?

Speaker 1 By helping

Speaker 1 Jack off a horse.

Speaker 1 Jack off a horse. Break your arm.

Speaker 12 But

Speaker 1 that's not even JFK specific. Yeah.

Speaker 1 Yeah, I don't. I'm reaching.
I'm reaching.

Speaker 12 You're reaching. You're scraping the barrel.
By the way, you know, today is a very special day.

Speaker 1 Special day. You know what it is? I had that same anxiety that when my partner asked me, you know, wakes up, it was like, oh, and I'm like, happy birthday anniversary.

Speaker 1 It's like, okay.

Speaker 12 I'm about to drop a bomb on you. It's my birthday today.

Speaker 1 Oh, my gosh. Ed, that's great because you get your driver's license this year, right?

Speaker 12 Yeah, exactly. I'm finally eligible.

Speaker 1 26. 26.
Constantly, the first thing I say about you when people ask me about you is I'm like, everyone said, people say very nice things about you. And I always say, you know, he's 25.

Speaker 1 And people are like, I know, that's so amazing. So, wow, 26, that's not as impressive.

Speaker 12 Yeah, not as impressive.

Speaker 12 Do you have any advice for me as I enter my 27th year on this planet?

Speaker 1 Advice to you at 26.

Speaker 1 Try and get a great shape. I think every man under the age of 30 should be a fucking monster.
You've still got a ton of testosterone and great double twitch muscle and great bone structure.

Speaker 1 And you're going to spend the rest of your life from 35 on just trying to maintain.

Speaker 1 so get to a really good place physically bulk up okay say yes to everything invest in relationships try and establish as many friendships it gets harder to establish friendships as you get older so try and establish as many friendships as you can and in the meantime work around the clock try and get professional trajectory such that you can have economic security by the time you're in your 40s and 50s and spend more time with your family so any mistakes you made at 26 that I should avoid I made a lot I think my biggest mistake was I wasn't as kind as I should have been I looked at relationships as a transaction.

Speaker 1 If I wasn't getting as much, I exited the relationship. I saw my employees, I started companies from the age of 27

Speaker 1 as kind of a transaction where I thought if I'm not getting more value out of them than I'm paying, I would fire them. Well, you've had a massive turnaround on that.

Speaker 1 Yeah, now I'm like, no, it's just the wrong role.

Speaker 1 I came of professional age in the Bay Area in the 90s, and there was this general zeitgeist that if you were talented and nice, it meant you were talented.

Speaker 1 But if you were talented and an asshole, it meant you were Steve Jobs. It meant you were a genius.

Speaker 1 And there was this terrible zeitgeist or cultural norm that being an asshole somehow indicated that you were super talented. And I adopted that.
I was never mean, but I could have been a lot kinder.

Speaker 1 professionally with people and also

Speaker 1 personally. I looked at my relationships as a transaction, not as like,

Speaker 1 how do I end up on the right side of the ledger? And then something I did right was I spent a ton of time with my mom. And I know that sounds sort of lame, but I was very close to my mom.

Speaker 1 We spent a lot of time together. She constantly came, stayed with me.
I constantly stayed with her. And that was, you know, I'm an only child.
So that was very rewarding. I'm really glad I did that.

Speaker 1 That's about it.

Speaker 12 So I'll work on getting ripped. I will try to be nicer.
And I'll spend more time with my parents.

Speaker 1 I think that's a good, I think it's a good list of to-dos.

Speaker 12 I'll check back a year from now.

Speaker 1 You're at a point right now. So up until the age of like 22, you're basically a total

Speaker 1 draw. You're a total, you know, liability for your parents.
As a young man, I mean, especially think about you. You're literally out of central casting for parents right now.

Speaker 1 And any time you spend with your parents right now, they're just going to get so much enjoyment out of.

Speaker 1 And, you know,

Speaker 1 it's sad, but you don't, it's impossible to realize or really register.

Speaker 1 it's impossible have you ever lost anyone close to you just my granddad lost here yeah but that's natural i would say that's sort of you're sort of expecting that and the fact you even had grandparents no i really i i i am very inexperienced with loss and death i will say that yeah and you don't realize especially with your parents you don't realize how quickly it comes when they're really old and

Speaker 1 i really that was something i got right i spent a lot of time with my mom Okay, I like that. All right, fuck that.
Talk about AI and GDP. Let's get on with this shit.

Speaker 12 Let's get on with tariffs uh i just want to remind our listeners that we have a weekly newsletter now for prof g markets it's the prof g markets newsletter which breaks down key market moves with data-driven analysis from me and from scott and from the prof g team including our fan favorite mir silverio our research lead at prof gmedia and that goes out every monday so i encourage you to go subscribe to that newsletter go to profgmarkets.com and you'll have the updates every monday in your inbox it's a great newsletter.

Speaker 12 And with that, let's start with our weekly review of market vitals.

Speaker 12 The SP 500 climbed, the dollar increased, Bitcoin broke its losing streak, and the yield on tenure treasuries dipped. Shifting to the headlines.

Speaker 12 The Federal Reserve held interest rates steady, but raised its inflation forecast for the year to 2.7%.

Speaker 12 They also lowered their 2025 GDP growth projection to 1.7%. That's a dip from December's estimates.
However, the major indices rose as Fed officials penciled in two rate cuts for the year.

Speaker 12 Novak Djokovic's Professional Tennis Players Association is suing the game's governing bodies, alleging that they operate as a cartel.

Speaker 12 The organization claims that the men's and women's tours, along with the International Tennis Federation, colluded to restrict competition and limit players' earnings.

Speaker 12 And finally, BYD shares hit an all-time high after the company unveiled a new technology that fully charges its latest EVs in just five minutes.

Speaker 12 The charging system will debut in the company's new sedan and SUV, both set to launch next month. Scott, let's start with your thoughts on the interest rate decision from the Fed.

Speaker 1 This is tough because they say that the markets sometimes climb a wall of worry.

Speaker 1 And just as we started saying that the markets were really in trouble, it feels like the last two days have kind of rallied a bit. But I just saw this as a bit of a nothing burger.
What did you think?

Speaker 12 Yeah, I mean, I think you raise rates if inflation is heating up and you cut rates if the economy is slowing down. That's what these rate decisions are about.

Speaker 12 If you don't know what's going on, if you don't have enough data or evidence to support a move in either direction, you don't do anything. And that's basically what Powell said.

Speaker 12 He said, quote, uncertainty is remarkably high, so we're not going to be in any hurry to move and we'll wait for further clarity.

Speaker 12 And this is the same dynamic we discussed last week in the context of companies and the struggles that they're facing where they can't make decisions because they just don't know what Trump is going to do.

Speaker 12 They don't know what the tariffs are going to look like and they don't know how supply chains are going to shift.

Speaker 12 And so what you have now is an economy where from the bottom all the way up to the top, from Main Street businesses, then to corporations and then to Jerome Powell at the Federal Reserve, everyone is stuck in this state of limbo where, you know, it's kind of like purgatory.

Speaker 12 Like, you don't know if you're going to heaven or if you're going to hell. So you just sit around waiting.

Speaker 12 And I think that's one of the big concerns that we've gone from this economy that is very active, that does everything,

Speaker 12 to an economy that does nothing, that has no choice but to basically just sit around and wait for someone else to make a move.

Speaker 12 And I think the other thing to remember here, you know, this was unsurprising that he held rates steady. Most economists and most markets and analysts expected this.

Speaker 12 But if you look back a few months ago, that was not true.

Speaker 12 You know, a few months ago, there were actually a lot of predictions that we would see a rate cut in March because a lot of people believed that inflation was getting under control.

Speaker 12 We were moving towards that target of 2%

Speaker 12 and we might be able to cut rates earlier than we expected. And I think the fact that this was so unsurprising to everyone is another indication of where we are from an inflation perspective.

Speaker 12 We're basically resigned to this notion that prices are going to go up again.

Speaker 12 And I think you have to feel for Jerome Powell, who has done an incredible job so far getting inflation under control, trying to get to 2%.

Speaker 12 He's been doing this for years now, very diligently, and it's been working. And then, you know, Trump makes all these decisions that move everything in the opposite direction.

Speaker 12 He has to be incensed about this. Trump has thrown a wrench in this whole operation that he's been working so long to get under control.
And

Speaker 12 it's kind of remarkable the way he handles these

Speaker 12 press conferences because you know he's pissed. There's no way he couldn't be pissed.
People also about the tariffs.

Speaker 12 He said, quote, with the arrival of the tariff inflation, further progress may be delayed. He's so neutral and so calm.
about everything, but he just has to be angry on the inside.

Speaker 12 But he's done such a good job of just saying, you know, this is is what we're going to do. We're just going to react to

Speaker 12 whatever the executive branch decides, and we'll see what happens. So it's sort of a masterclass in, I would say, objectivity, but also stoicism and not showing your cards.

Speaker 12 And maybe we have something to learn from that.

Speaker 1 I think the Fed chair has basically one job description, and that is remain calm and carry on. It just wouldn't help if he showed up sweating, freaked out, and like, fuck, I don't know.

Speaker 1 It's, I've never, I'm just, I'm totally wake up. I can't sleep.

Speaker 1 I'm, I'm so freaked out and look at this data Jesus Christ I don't know what to make of this and yeah maybe I'm giving him too much credit if you want someone to kind of look non-plussed like they're sleeping fairly well and not to be too alarmed it needs to be the fed share

Speaker 1 like if the fed share shows up you know without his shoes and like he's been on a bender all night it's just like and popping pills like I'm not

Speaker 1 better for us that would be more fun to cover if every 15 seconds he said I'm sorry hold on a second and he like struggled to get his pills out of his briefcase and then like started like throwing pills into his mouth and crunching on these things.

Speaker 1 That would be good. I'd love to see, I'd love for him just in the middle of these questions from senators.
I'd just love to see him just like bend over and just do a giant rail academy.

Speaker 1 What would happen to interest rates then?

Speaker 1 How would the ten-year response then?

Speaker 12 What would happen to the stock market? Exactly.

Speaker 1 You know, I don't know.

Speaker 1 You say you got to feel for Chairman Powell. I feel for the American American people that are

Speaker 1 have to live under a fascist ass clown making decisions that

Speaker 1 no one can discern like which direction we're headed in. This is

Speaker 1 that unfair, fascist ass clown?

Speaker 1 FAC.

Speaker 1 This is

Speaker 1 the silver lining is the following, and that is I do think the American economy,

Speaker 1 the gears just keep turning. And

Speaker 1 people keep innovating. People keep wanting to buy shit.
People keep wanting to make money. People keep coming up with new ideas.

Speaker 1 And I think we probably overestimate the impact that the White House has on.

Speaker 1 It makes for a lot of headlines, but I wonder, I'm pretty sure we overestimate it or underestimate it. We give them too much blame and too much credit.
But I would argue that

Speaker 1 these decisions, it would be impossible, I think, for them not to trickle down.

Speaker 1 And the fact that the GDP estimates have already come down, I think is is evidence these decisions are not good for the economy.

Speaker 12 Let's talk about this tennis lawsuit that was filed by Novek Djokovic and his Association of Tennis Players, also strangely funded by Bill Ackman.

Speaker 12 And I read the complaint that they filed in New York federal court, and I got to say, it is so compelling. I mean,

Speaker 12 issue after issue, I mean, the first main thing that they address is price fixing, the fact that these tennis leagues all collude with each other to suppress the amount that they pay their tennis players.

Speaker 12 And they have many specific examples.

Speaker 12 One of them, which is kind of interesting, is that Larry Ellison, who bought the BNP Paribas Open, which is one of these tournaments, he actually tried to increase the prize money.

Speaker 12 He wanted to increase it by $1.6 million.

Speaker 12 And the ATP Tor and the WTA Tor said, no, we're not going to do that because that means we're going to have to increase the price money for all the other tournaments.

Speaker 12 They also have examples of limiting the endorsements that these players can make. Like if you want to compete in these leagues, you have to forfeit your name and your image and your likeness rights.

Speaker 12 They also control the kind of equipment you can use. They control which kinds of sponsors and sponsorships you can accept.

Speaker 12 And then there's some interesting stuff about the working conditions, which sounds a little ridiculous, like boohoo, professional tennis players, but it honestly does sound quite grueling when they lay it out.

Speaker 12 You have to play in every tournament year-round. And if you don't, if you skip a game, you get penalized, even if it's for like an emergency.
And it's intentionally an extremely packed schedule.

Speaker 12 They overfill the schedule specifically so that other tournaments that might pay the players more

Speaker 12 don't compete. And so that players don't go play in other tournaments.
And so what you have here is an extremely vibrant, clear antitrust monopolization situation.

Speaker 12 But as I think you'll probably bring up,

Speaker 12 the situation with antitrust and sports leagues is quite precarious, and I can go into that in a second. But I do first just want to get your reactions to this lawsuit.

Speaker 1 I love this. I think there are few sectors that are more corrupt than

Speaker 1 sports leagues, and that is they leverage the fact that people feel really benign about them to establish regulatory capture, and they get even legislation that enables them to be monopolies.

Speaker 1 I mean, if you and I wanted to start a football team, an NFL team in Chicago, we can't. The NFL gets to decide they can control supply.

Speaker 1 And the owners love it because that means that they buy $4 billion.

Speaker 1 And if they hold on to it for 10 years, they know it'll go up in value because they know the number of billionaires will increase as the economy increases and there's a fixed set of supply.

Speaker 1 I mean, these things are so corrupt, and they leverage this monopoly power, and they extract rents from the players, from consumers. Ticket prices have accelerated.

Speaker 1 They're essentially legal monopolies. And it's just ridiculous to think that why shouldn't you be able to start a tournament, create another team?

Speaker 1 I mean, think about any business that said, okay, for every city, there can only be two software companies.

Speaker 1 And the governing body ruled by the owners of these software companies get to decide who the entrants are or are not.

Speaker 1 And then if they basically have one league, that means you extract rents from the players where you're the only game in town and you get to decide, how much money to make or don't make. So it's

Speaker 1 and it's especially bad in tennis where the players

Speaker 1 command only 18% of the total revenue generated by the sport compared to basketball where the players get 50% and soccer they get 61%.

Speaker 1 So I love this and I love that Liv came in and basically challenged the monopoly of the PGA.

Speaker 1 So I think competition is a good thing, but this is a perfect example of corruption with this veneer of benign goodwill because people have such affection for sports.

Speaker 1 But these are monopolies and the rents being charged to ticket holders or consumers

Speaker 1 and advertisers who have, you know, have a limited supply of

Speaker 1 games, et cetera, and to the players themselves is bottom line, it's corrupt.

Speaker 1 I love this, Ed. I love it.

Speaker 12 I think the important thing you mentioned there, though, is legal monopoly. And

Speaker 12 this is the very interesting thing about sports and sports leagues. We have very robust antitrust laws in America and in Europe.
We crack down on anti-competitive behavior constantly.

Speaker 12 I mean, we talk a lot on this show about antitrust and antitrust enforcement. There is one exception, both in the U.S.
and in Europe, to antitrust laws, and that is sports leagues.

Speaker 12 They have decided in the courts, both again, both in America and in Europe, that sports leagues are not like regular businesses, that sports leagues actually need monopolization.

Speaker 12 They need these governing bodies to cooperate with each other because their belief is that sports only work if you have

Speaker 12 basically cooperation among the governing bodies such that the teams and the players can compete on an even playing field.

Speaker 12 In other words, their belief is it needs to be rigged in favor of entertainment.

Speaker 12 And this is a long, strange history that goes back all the way to 1922, when there was an antitrust lawsuit against the professional baseball league in America, what is now the MLB.

Speaker 12 And the Supreme Court decided to make an exemption. for the baseball league.
And that is why today the MLB is the only entity in the United States that is not subject to antitrust laws.

Speaker 12 So this will be really interesting to see because yes, they make a great case here. Yes, if you look at all of the details, it's 100% a monopoly.
There's no question about it.

Speaker 12 But if you look at the history of antitrust in sports, I think it would indicate that this is probably not going to go through because every time this happens, the courts review it, they look at the legislation, and they say, Yeah, you know, we see where you're coming from, but sports is different.

Speaker 12 So we can't convict here. So we'll see what happens.
I'm kind of rooting for the tennis players. Maybe that's just because I like Djokovic.

Speaker 12 But if I had to predict, I would say that the PTPA here does not win this case. I would predict that the sports leagues will come out on top.

Speaker 1 You may be right, because I don't know what the kind of established law is, but you want to talk about corruption.

Speaker 1 Start talking about the international bodies that don't even have to abide by anyone.

Speaker 1 They live in this kind of nether-netherland where there's no, essentially, they're not subject to laws of any one nation.

Speaker 1 And they've established such monopolies. And people have tried to take them on, and it hasn't worked.
Ted Turner started something called the Goodwill Games.

Speaker 1 Try and start a competitive. My big idea when the World Cup was going through all of this nonsense, I do work with Nike, Adidas.

Speaker 1 And I brought up with both of them, I said, why wouldn't you basically start a nonprofit and host a competitor or start a competitor to the World Cup and just give all the money back to the, you know, try and break even, but basically try and root out the corruption that about six, eight years ago, the corruption at UEFA went just absolutely insane with paying off local officials and it became about bribes, who what host country got to host the World Cup so anyways I would like to see I hope this works but I trust that you've done the homework here and don't think that you think the courts are going to side with the with the league let's move on to BYD

Speaker 12 remember this is the Chinese electric vehicle company and they've just come out with this new charger for their vehicles which is four times more powerful than Tesla's supercharger so it adds 80 kilometers for every minute of charging there are some technical questions that need to be addressed.

Speaker 12 For example, there are concerns over what this does to the lifetime durability of the battery. It might decrease the quality over time.
Supposedly, it doesn't work very well for older car batteries.

Speaker 12 So there are little questions around it. But the overarching implication here is quite simple.
BYD is pulling away from Tesla, both in terms of the vehicle sales. We've talked a lot about that.

Speaker 12 BYD is now the global leader in EV sales as of last quarter.

Speaker 12 But now, you know, Tesla had this differentiator, this supercharging system that everyone was very excited about. And BYD is now pulling ahead in charging too.

Speaker 12 So, Scott, your reactions to this news and the fact that BYD climbed again. It's now at a record high.

Speaker 1 There's just no getting around it. BYD has surpassed Tesla on almost every level in terms of tech.
And Tesla sales in China have been cut in half in February. They're down 49%, while BYDs rose 161%.

Speaker 1 Their latest vehicle is 75% less expensive, so four BYDs for the price of one Tesla.

Speaker 1 This feels like it sort of is a metaphor for China in general, and that is in the last three months, China as kind of evidenced or indicated or a metaphor for the resurgence is BYD.

Speaker 1 A year to date, BYD stock is up 64% and it trades at 33 times earnings, while Tesla is down 38%, but still trades at 166 times earnings or said differently, and I love this stat.

Speaker 1 The market values each Tesla car sold at $425,000 in market cap and each car from BYD, even after this run-up, for $39,000 a car.

Speaker 1 So even despite the fact that BYD stock has skyrocketed and Tesla's has come down,

Speaker 1 I mean, think about this.

Speaker 1 The market still values Tesla at 10 times the value per car produced of BYD, and BYD is growing.

Speaker 1 So one of these, it would appear, it would appear either BYD is dramatically, and this is the question, is BYD dramatically undervalued or is Tesla dramatically overvalued?

Speaker 1 And of course, I believe the answer is yes.

Speaker 12 Yeah, it is pretty remarkable, the stock performance of this company so far, up 60% year to date. It's up almost 100% in the past year.
It's doubled in the past year.

Speaker 12 And I think there was a great article by Liam Denning at Bloomberg, which I think you shared with us.

Speaker 12 And it basically just plots the stock prices of these two companies in the past three months, year to date, Tesla versus BYD.

Speaker 12 And what is so striking is that it looks like

Speaker 12 it's basically a mirror image. I mean, if you're listening to the podcast, it's harder to describe.
But, you know, for every...

Speaker 12 dollar increase in BYD stock, you see a dollar decrease in Tesla stock. And

Speaker 1 you just plot it out.

Speaker 12 BYD up 50%, 50 to 60%, Tesla coming down 50 to 60%. And basically, what it tells you is this isn't just a matter of, oh, BYD is doing really well right now.

Speaker 12 This is a matter of BYD is actively eating Tesla's lunch. Every time Tesla does not make a sale or their sales decline, you're seeing an increase reflected in the sales of BYD.

Speaker 12 Every time Tesla's stock comes down, BYD's stock goes up. So I think we can only expect this trend is going to continue.

Speaker 12 And it does feel like the market is beginning to recognize that this other company in China that has these cheaper cars, it also has cheaper software, it's got these superchargers that are four times more powerful than Teslas, it's becoming very clear.

Speaker 12 BYD is probably going to be the new Tesla.

Speaker 12 We'll be right back after the break with a look at Germany's defense spending. If you're enjoying the show so far, be sure to give ProfGMarkets a follow wherever you get your podcasts.

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Speaker 12 Yeah, high quality. I keep it at my desk in my office.
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Speaker 12 We're back with Profit Gree Markets. German lawmakers approved a major boost in defense and infrastructure spending.

Speaker 12 The plan removes borrowing limits for defense spending above 1% of GDP and creates a $533 billion infrastructure fund.

Speaker 12 It's a major shift for Germany, which is historically cautious on defense spending and on debt. Previous borrowing limits were capped at 0.35% of GDP.

Speaker 12 Now, this move could drive up to $1 trillion in investments over the next decade.

Speaker 12 We've discussed on this show how increased defense spending in Europe may boost their equity markets, right, as investors are looking for an exit strategy from the U.S.

Speaker 12 It does appear that that rotation is already starting to materialize and I have some data we can go through. But first, Scott, I want to get your reaction to this news from Germany.

Speaker 12 Massive defense spending, a big increase in infrastructure spending too. And also the German stock market on that news hit a record high.

Speaker 1 I think this is overdue. And just to call balls and strikes, I think that this is a benefit that we've derived from the Trump administration.
I don't like the way they're going about it, but

Speaker 1 for a long time, everyone has been saying that Japan and Germany and Europe have been freeloading or free-riding off of the military umbrella and expenditure of the United States.

Speaker 1 And finally, it looks like they're stepping up. And I do think that that is a direct function of Trump's withdrawal or basically saying you can no longer count on us.

Speaker 1 I mean, this will be good, I think, for the German economy because they're outstanding in manufacturing. So you would think that they would make great weapon systems.
And I like the idea.

Speaker 1 I think Germany is a well-run, well-governed place. And

Speaker 1 like I said, I think defense spending could be the stimulus. And also I'm trying to play this trade.
I think the Europe and defense trade is going to be a big one.

Speaker 1 And I've just recently made an investment in a European aviation aviation company that I think has some defense opportunities. And I'm doing it based on two things.

Speaker 1 I'm hoping to get sort of a double whammy of capital flows into Europe and also the increase in defense spending.

Speaker 12 Yeah, if you just look at the stock market, the DAX, DAX, the German stock market, it rose around 2%. It's now up 15% year to date.

Speaker 12 It's one of the best performing stock markets in the world right now. You compare it to the S ⁇ P, which is down 4%.

Speaker 12 It's outperforming the US. It's also outperforming emerging markets.
And, you know, I think the question is, why is it doing this well?

Speaker 12 Because 500 billion in stimulus, it's a lot, but it's not that much. And I don't think it's the sole explanation for why you're seeing this explosion in values.

Speaker 12 And I think what's really driving this rally right now

Speaker 12 is the story that this spending decision tells about what is going to happen in Germany. Because we've discussed discussed this before.
This is a country that hates debt.

Speaker 12 I mean, they have a 60% debt to GDP ratio. It's the lowest of the G7 by far.
You look at the UK, it's like 100%. The US, obviously really high, 120%.

Speaker 12 And in addition to simply not taking on debt, They also have all of these rules and these controls that prevent them from borrowing in the future. This is just the way their economy works.

Speaker 12 And I think a lot of that is sort of a post-traumatic stress from the Second World War, where they realized we can't really trust ourselves. We need to take extreme measures.

Speaker 12 We need to make sure we never dig ourselves into these kinds of holes. And one way we can do that is by stringently limiting our ability to borrow money.

Speaker 12 As a result, as we've talked about, their economy has been, eh, you know, fine, but... compared to the US, pretty sluggish.

Speaker 12 And so I think last week was this pivotal moment in the narrative where the government said, by a huge majority, by the way, okay, we're going to dramatically change our approach to spending.

Speaker 12 And in addition to that spending bill, they also stripped out these debt limits I talked about, these controls that they have on how much they can borrow, which are literally enshrined in their constitution.

Speaker 12 you know i mentioned that 0.35 number it used to be that the deficit was only allowed to hit 0.35 of gdp that was the max and last week they said, nope, we're going to get rid of that.

Speaker 12 We're going to make an exception here. So I think a lot of this is also a turning point in the story for Germany.

Speaker 12 They had this decades-long love affair with balancing the budget, with being fiscally conservative. And they literally just decided, we're not doing that anymore.

Speaker 12 You know, we're going to have this big fiscal spending package today.

Speaker 12 And I think investors are probably believing if they're going to do this now, they're probably going to do similar things in the future. They're probably going to spend even more tomorrow.

Speaker 12 And all of that government spending, of course, is going to, if we're being realistic, it's mostly going to go to German companies and all of that money is going to flow to their bottom line.

Speaker 1 The rivers are reversing. European equity funds registered their largest four-week inflows in nearly 10 years.
And that's the most significant rotation out of U.S. into European equity since 1999.

Speaker 1 And a B of A survey showed that 60% of investors expect stronger European growth in the next year, up 9% from just two months ago. So 9% of people thought Europe was going to grow.
Now it's 60%.

Speaker 1 The thesis I would have going into this is that they're estimating or they're proposing that the European Union is going to go from 1.9% of GDP on defense to 3%, a $19 trillion economy.

Speaker 1 You're talking about $150 to $200 billion in additional capex that the market wasn't expecting just six months ago. And that's annual.
And where is that going to go?

Speaker 1 And what companies are going to be in front of that tsunami of capital? And not only that, with the tension between the U.S. and Europe, it used to be: okay, Europe, increase your defense spending.

Speaker 1 And by the way, please buy our submarines and our missiles. And there's no fucking way they're doing that now.
Germany might say,

Speaker 1 in order to build these systems, we might buy some parts from UK and Italian companies or French companies, but no, we're not going to buy from the U.S. Sorry, guys.

Speaker 1 It'll be an intra-European stimulus.

Speaker 1 I think it's really fascinating. I'm also quite optimistic about it.

Speaker 1 I like the fact that Europe,

Speaker 1 what I think is kind of the home of a lot of progressive liberal thought and really has been a kind of a beacon of light for, I don't know, philosophy and democracy and kind of modern civilization.

Speaker 1 I'd like to see them get their time in the sun outside of just Zara and LVMH.

Speaker 12 Yeah, I just want to emphasize that Bank of America data you mentioned right there, because it is pretty remarkable, especially in the context of everything you've been talking about.

Speaker 12 You've been saying for months that you want to rotate out of the US and into Europe. And I just want to emphasize this data.

Speaker 12 So, this is the survey that Bank of America does of all of the fund managers. It's a very reliable survey to understand how capital flows are moving in the world.
And they found that U.S.

Speaker 12 equity allocations, allocations into American companies in March, so this month, they dropped 40%.

Speaker 12 And that is the largest drop ever.

Speaker 12 Meanwhile, Eurozone stock allocations jumped 27%.

Speaker 12 And that shift from U.S. equities into European equities, that transformation, that is the largest shift since 1999.
So the thing that you've been talking about for months now.

Speaker 12 and which I've been kind of like, okay, maybe, yeah, okay, you're going to rotate out, you're going to trim your holdings. It's literally happening in record numbers now.

Speaker 12 And

Speaker 12 it does beg the personal question.

Speaker 12 How far into that rotation are you right now?

Speaker 12 I think the dream scenario would be that you sold immediately when you said you were thinking about it two months ago. But I know that these things take a little bit more time.

Speaker 1 The answer is not far enough. I started selling down Apple and Amazon.
They started dropping. So I thought, I'll wait till they get back.

Speaker 1 They haven't gotten back.

Speaker 1 And this is one of my many flaws as an investor.

Speaker 1 Apple and Amazon are kind of 80 or 90% of their all-time highs, but because they were at 100% of their all-time highs 60 days ago, I'm kicking myself and I don't want to sell.

Speaker 1 So I wish I'd actually done what I said to do. My biggest investment is in real estate, but my second biggest is with

Speaker 1 a fund run by my friend Orlando Moshant, and he just invests in non-U.S. special sits.
And he's up, it's Atlanta Partners, he's up 12% year to date. And I like him because he's highly diversified.

Speaker 1 The last four years has been really difficult for him because he's not in U.S. growth, but he's been flat because he's good and he's been very diversified.
Actually, we're actually a little bit up.

Speaker 1 I shouldn't say that. I think we've compounded at 8% or 9%, but everything else has been compounding.
And now that everything's going down, he's rocking and rolling.

Speaker 1 The bottom line is I didn't rotate as aggressively as I should have. But what my friend Orlando, who I've been talking to about this, says is that these cycles are usually multi-year cycles.

Speaker 1 And so we're kind of in the second inning.

Speaker 1 If you really believe our thesis is accurate, there's this great rotation of the rivers reversing flow, we're kind of in inning one, maybe we're in the bottom of the first inning.

Speaker 1 And you're going to see, because even if you look at Apple, all right, okay, it's lost 20% of its value in the last, whatever, two, three months. It's still at a P of 31.

Speaker 1 The hard part is when you think about, and the reason I've been a bit reticent, my two biggest equity holdings are Apple and Amazon is that

Speaker 1 I have about a,

Speaker 1 I'm up about somewhere between 8 and 12 fold on each of them. So you got to ask yourself when you're selling a stock, what other equity do I want to buy at 77 cents on the dollar?

Speaker 1 Because I'll take a 23% tax hit. So I got to feel strong enough that there's an opportunity, a better opportunity with 77 cents on the dollar rather than just holding Apple and Amazon.

Speaker 1 And I got to that point a couple of months ago. I'm still going to continue to sell down because while it's not the most expensive it's been, it's still expensive.

Speaker 1 And I am actively looking for European. And I've always been somewhat remiss to invest in Chinese stocks, although I wish I had.

Speaker 1 But where I'm really starting to look now is at Latin America where you haven't seen the same sort of run up.

Speaker 1 And I think there's a lot of great deals, specifically in Brazil.

Speaker 1 But I am going to, you know, I calculate I'm like 80 or 90%

Speaker 1 in U.S. related equities and investments in real estate, and I want to move down to 50 or 60.

Speaker 12 Yeah, I'm sure there are a lot of people listening who are trying to think, okay, what do I do? How do I get some European exposure?

Speaker 12 Well, I would say if you want to do this yourself, when we talk about this a lot, the safest way to do it and probably the smartest way to do it is just to buy a diversified portfolio of stocks in the form of an ETF.

Speaker 12 So

Speaker 12 some of the low-cost options you could look at, Vanguard has VGK, also iShares has one, I-E-U-R. That's their core Europe ETF.
Those are just options that are low cost.

Speaker 12 I'm not saying you have to do those. I'm not being paid by Vanguard or iShares to say that.

Speaker 12 I think the point being, though, I wouldn't go in and try to find all of the gems in the European stock market. Don't go picking individual stocks.

Speaker 12 I think the best thing that you could do here is just look at the European stock market indexes, look at the ETFs and the index funds and find the ones that are low cost and that make sense for you.

Speaker 1 In sum, you're exactly right. Index funds, dollar cost average in.
But keep in mind, if you're 100% invested between your real estate, between your savings, and between your stocks in U.S.

Speaker 1 companies, you might think you're diversified. You're not.

Speaker 1 And Goldman just put out research saying that when stocks get this expensive, it usually indicates almost flat returns for the next decade.

Speaker 1 So,

Speaker 1 you know, we'll see. They've been wrong before.

Speaker 1 But absolutely, I think you want a little bit of exposure to some of the international markets.

Speaker 1 I mean, just think about the sentiment around Europe, how much it's changed in the last 60 days and what it's overshadowed. China, as evidenced by the BYD story, is having a bit of a like,

Speaker 1 don't forget about us between DeepSeek, between BYD. China's like, I don't, you know.
Forget about us at your own peril, folks. We're still the second largest economy.

Speaker 1 We're still very good at what we do. We're still really well managed.
I mean, I'm even thinking about going back.

Speaker 1 I didn't think I'd be back in China for another five or 10 years. And I'm thinking, oh, maybe it's time to do a trip there.
We were talking to Alice Han about it.

Speaker 12 We got to do a trip and we got to do a live podcast there. And we got to meet with Xi Jinping in the Politburo.

Speaker 1 Oh, yeah, that's going to happen.

Speaker 1 We're such players.

Speaker 1 Yeah. Influence.
You're more likely to stop in Seoul on your way back and join a K-pop band.

Speaker 1 I'll be the sullen one. I'll be the sullen one that gets addicted to heroin.
You'll be the front man that everyone's crazy about.

Speaker 1 Anyways.

Speaker 12 We'll be right back after the break with a look at ultra-luxury hotels. If you're enjoying the show so far, hit follow and leave us a review on Croft Umarkets.

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Speaker 12 We're back with Profitry Markets. Ultra-luxury hotel group Arman is seeking $2 billion from investors to drive its global expansion with plans to grow its presence across the Middle East and Africa.

Speaker 12 The funds will support 23 ongoing hotel projects and the development of Arman residences, a collection of lavish homes offering hotel-level amenities.

Speaker 12 Additionally, the company plans to launch a new hotel line tailored to a younger clientele.

Speaker 12 This is not groundbreaking news. It's not earth-shattering from an economic perspective, but we've got to cover it because, Scott, you are the expert, the world-renowned expert on luxury hotels.

Speaker 12 You've stayed at probably every Armand property in the world. And so, you know, anytime that the Armand shows up in the headlines for any reason, I think we got to cover it.

Speaker 12 I think we got to look at the luxury hotel market. So, Scott, please take it away.
What is your reaction to the Armand group going out and raising $2 billion to expand across the globe?

Speaker 1 So I'm fascinated by this industry. As you referenced, I spend a disproportionate amount of my money on...

Speaker 1 I wrote that book on happiness, and one of the things I took away from it, I struggle with happiness.

Speaker 1 And one of the things I took away from writing writing a book on it is that every piece of research says that we overestimate the happiness things will give us and underestimate the happiness that experiences will give us.

Speaker 1 So I spend a disproportionate amount of my income on travel. And I don't travel to cities.
I travel to hotels. I'm obsessed with those hotel lists.
And I just find it. absolutely fascinating.

Speaker 1 And if there's a great new hotel, I'll travel to the hotel. I didn't go to the PSG game with my son in Paris.
I went to the new Cheval Blanc.

Speaker 1 That's how I travel. I go to hotels, I don't go to cities.

Speaker 1 And I'm fascinated by the business. So, first off, the business model.
Let me back up.

Speaker 1 Peter Drucker said demographics are destiny, and that is every major business trend can be predicted by demographics. And what you want to do is you want to get in front of a demographic trend.

Speaker 1 It's like surfing when the waves are perfect, right? It's easy to be a great surfer with great waves or a great skier with great powder, and demographics are the great powder and great waves.

Speaker 1 And one of the biggest demographic trends, quite frankly, is just the wealthy. The number of millionaires in the U.S., Ed, get this, has doubled since 2020.

Speaker 1 So it's just, it's staggering. One in 15 Americans is now considered a millionaire and a projected 16% growth to 25 millionaires by 2028.
So

Speaker 1 the fastest growing demographic group is not even the 1%, it's a 0.1%. And if you think about the brands in the hotel space, the nicest brands were the Ritz-Carlton and the Four Seasons.

Speaker 1 They were kind of the duopoly for rich people. And then Mandarin Oriental kind of saw an opportunity out of Hong Kong, came in, tapping into wealthy Asians and the great brand halo of Asian service.

Speaker 1 And then the explosion in mega kind of centimillionaires and billionaires, not even, but just very, the super wealthy, so to speak. I'd say that's probably people $10 million and above.

Speaker 1 A whole raft of brands have come in above those luxury brands. Rosewood, almond, as we're we're talking about, Cheval and Blanc, Sixth Senses.

Speaker 1 And they basically have come in and they've leveraged a lot. They've leveraged demographics.
They've leveraged the new means of branding.

Speaker 1 And that is only the four seasons of the Ritz-Carlton or Marriott or Hilton had the money to develop very expensive reservation systems and do branding.

Speaker 1 And now branding isn't a function of advertising, it's a function of Instagram. And these hotels are literally an Instagram orgy.
They are so over the top. They have such a beautiful clientele.

Speaker 1 They're in such beautiful locales that basically their entire marketing is on. At the Hotel DuCap at any given moment, there are a thousand

Speaker 1 Instagram postings an hour just saying, look at this place. Look how incredible this place is.
Look at how incredible the food is. If you go to

Speaker 1 you know, whatever it might be, I'm trying to think of the Rosewood Mya Coba. These things are just built for Instagram.

Speaker 1 So they've taken advantage of the new kind of content creation usurping marketing spend or replacing or obviating the need for marketing spend.

Speaker 1 And you have also post-COVID a sort of a YOLO mentality where people are saying

Speaker 1 for the first time, I'll spend $5,000 a night on a hotel. And people,

Speaker 1 even rich people, never would have thought of that. They never would have considered it.
But now they're like, okay, maybe I know someone who's died. Maybe I'm in my 60s.
I've got the money.

Speaker 1 This thing is extraordinary. This place is just extraordinary.
I, you know, will pay $5,000 a night.

Speaker 1 The business model is also incredible because what they do is they find a local billionaire that wants to say, I own the Four Seasons in Hawaii, Michael Dell. They pay for the construction.

Speaker 1 They then enter into a management agreement with the flag of Four Seasons or Rosewood, who manages it.

Speaker 1 does the service, does the training, does the standards, the decorations, the interior design, has the reservation system, and they take, say, between 8% and 12% a year, which doesn't doesn't sound like a lot, but most of it hits the bottom line because the costs of the employees is funded out of the revenue, and then they take an additional 8 to 12 percent.

Speaker 1 So, even in 2008, when the market crashes, the Four Seasons still makes money because they're taking 8% to 12% off the top.

Speaker 1 And they have a services agreement where the owner of the Four Seasons in Midtown Manhattan basically has to declare bankruptcy because he has to maintain certain levels of service per his agreement with the Four Seasons.

Speaker 1 So, the Four Seasons Seasons only actually owns one of their hotels. The rest, they get other people to finance, and they take a very high-margin management fee to kind of run the place.

Speaker 1 So, they outsource the capital risk, they manage, or they train, or they create the service standards, and they just get all high-margin, incredible revenue.

Speaker 1 In addition, they found another way to make a shit ton of money, and that is they said, okay, let's take a $5 million or an $8 million condo

Speaker 1 in a high-rise on the beach in South Beach, and we branded the Amin residences, and we can charge $12 million for it because they get hotel amenities and the branding.

Speaker 1 And the owner, when he or she is not there, can put it back into the rental pool, and they rent it out, and they split the revenue. The owner gets 50%,

Speaker 1 and the brand gets 50%. So I get someone else to finance the construction of something, ridiculously overpay for it, and then it continues to make revenue for me because of the brand.

Speaker 1 I mean, this really is a lesson in the power of brands, a lesson in the power of demographic trends, and a lesson in kind of business models around you don't want to be in the business of owning the capital.

Speaker 1 You want to be in the business of managing it and taking revenue off of the top.

Speaker 12 One thing I often think about, Scott, we've addressed what the world looks like when it's ruled by the mega-rich. You know, we've seen huge monopolies form.

Speaker 12 Money and lobbying power starts to take hold in the government. You start to see these populist movements.

Speaker 12 You also start to see the rise in these luxury brands and these luxury items and these businesses that specifically service extremely rich people where you can charge these incredibly high prices.

Speaker 12 My question

Speaker 12 is: what is going to happen when all these billionaires and multi-millionaires start dying? Because they're all getting old-ish.

Speaker 12 And what's going to happen when all of that wealth is transferred on to,

Speaker 12 I mean, if we had to guess, their children and their grandchildren. What happens to a society that is dominated by people not who made obscene wealth, but who inherited obscene wealth?

Speaker 1 Just to keep it real, I want to talk about a couple other hotel stories.

Speaker 1 When I was right out of business school, I started a company called Profit, and we did consulting, and we would just take any engagement.

Speaker 1 And I took an engagement with a pager company helping them figure out their customer service. And it was in Minneapolis.
And I went with my friend Lee Lotus.

Speaker 1 And it was, I remember it because it was the day of the Clinton-Bush Perot debate.

Speaker 1 And

Speaker 1 we got a hotel for 39 bucks a night, I think, at the Minneapolis airport.

Speaker 1 And we had to go out and try and buy nose plugs or some like weird Vaseline to put under our or weird scent to put under our noses because it stanks so badly of smoke.

Speaker 1 It literally felt like someone had fallen asleep and been burned alive by their own smoke.

Speaker 1 And

Speaker 1 then the other one was I was at, I had a client, I think it was Roots or some Canadian company, the Montreal, in Montreal.

Speaker 1 And it was as, you know, it was my own company. We're a small business.
So it was like, I think it was like 70 Canadian. And I checked in, and it was 1993, and, you know, whatever, I was your age.

Speaker 1 So the first thing that I do, I settle in and I turn on porn.

Speaker 1 And it's not working. So I call down to the front desk.
I'm like, the TV's not working. So this Asian woman comes up.

Speaker 12 It's the white lotus scene again.

Speaker 1 Yep. It turns on the TV.
And of course, the porn comes up and it's like going in and out. So she sits there and starts banging on the TV.

Speaker 1 And occasionally the porn comes in, then it comes out, comes in, comes out.

Speaker 12 Were you not ashamed?

Speaker 1 Oh, it was fucking humiliating. It was like crazy embarrassing.

Speaker 1 And I remember thinking. And then this couple, this family of like five is looking for the room.
They come into my room and start going, where's room 308? Is my porn is coming on and off my TV?

Speaker 1 She's banging on the TV.

Speaker 1 And I looked at the couch. I remember the exact moment.
I looked at the couch and it was covered in plastic. And I thought, this is where people come to kill themselves.
This is that kind of place.

Speaker 1 She said, I want out. I can't fill this void in my chest.
I'm going to go check into this hotel.

Speaker 1 Anyway, so I've had, I've seen, I've seen hotels from all over

Speaker 1 the spectrum. I'm sorry, what was the question, Ed?

Speaker 1 What was the question?

Speaker 12 My My question is,

Speaker 12 what is going to happen when the wealth transfer finally occurs?

Speaker 1 Look, I believe in a really aggressive inheritance tax.

Speaker 1 I don't believe in dynastic wealth. One,

Speaker 1 it's bad for society. So rich kids get into the best schools and also inherit the money so they can start businesses.
And there's a myth that the middle class is a naturally occurring organism.

Speaker 1 It isn't. It requires additional redistribution of income.

Speaker 1 And Republicans and the incumbents would like us to believe that, oh no, the middle class is a naturally occurring organism and it'll come back on its own.

Speaker 1 No, if you don't take money from corporations and the most fortunate among us and redistribute it into the middle class, the middle class throughout history eventually goes away.

Speaker 1 And what you have with dynastic wealth is you're taking capital that should go back into the ecosystem and just creating these dynasties of unproductive rich people.

Speaker 1 Now, the good news is that most of them aren't very happy.

Speaker 1 And so for me, the reason that you can justify an exceptional inheritance tax is that additional capital or inheriting more than, say, 10 million bucks, that doesn't increase the happiness of your kids.

Speaker 1 I know a lot of rich kids, and I know a lot of kids who are not rich, and the levels of happiness are not greater among the rich kids.

Speaker 1 So if the whole point is to create a society where people can have purpose and meaning and live a happy life and they're getting no additional happiness, if you let them inherit more than, say, $10 or $20 million, then what's the point when you could redistribute that capital to

Speaker 1 other people and give them more of a shot? So I hate dynastic wealth, but what you're seeing, and I see it, I mean,

Speaker 1 I think I've always resented rich kids because I'm not one of them and I was always jealous of them, but

Speaker 1 what you're talking about is already happening, Ed. I mean, when you go to these nice hotels, there's people in their 50s and 60s, and you can tell it's probably their money.

Speaker 1 And then there's a whole raft of a younger generation.

Speaker 1 To be clear, some of them, whether it's tech, some of them, you know, whatever it is, but a lot of them are there with their parents' credit card. It's already happening.

Speaker 12 By the way,

Speaker 12 this funding round by Arman, they're looking for investors as we speak, and they're specifically looking for high-net worth individuals to invest.

Speaker 12 If you got the call from Arman tomorrow, inviting you, say, to an SPV into the new Arman residency, would you you invest?

Speaker 1 100% no.

Speaker 1 The returns are shitty because it's a vanity investment. So there's a lot of people that love the I'm sure they have some sort of deal.
People love the idea of investing in Aman.

Speaker 1 So that means they can extract, they can get very cheap capital, which spells shitty returns. So I would bet that it's just not a great investment.

Speaker 1 It's like timeshares or I would I would I don't I haven't seen the paperwork on the underlying dynamics, but because so many people love the idea of investing in Amman, they're going to get a disproportionate amount of capital such that they will be able to offer really shitty terms.

Speaker 1 I would bet the returns will be awful. But maybe there's some psychic return of saying, oh, I'm an owner of Aman and I get to I get 10%

Speaker 1 off of rates. I remember more hotel stories back when

Speaker 1 I remember taking my girlfriend I was trying to appreciate a nice hotel in Cabo, but I signed us up. The reason I got it could go is I signed us up for a timeshare tour.

Speaker 1 And it was at a turn on when I told her we had to take a two-hour tour in the middle of the day to look at timeshare opportunities?

Speaker 1 That's what happens when you roll with a dog.

Speaker 1 That was when I laid that on her, got her down to Mexico, I'm like, oh, I got this like free cocktail thing for us. She's like, oh, I'm not going to go.
I'm like, you need to go.

Speaker 1 It's a timeshare pitch. We have to go.
Otherwise, I can't get this room right. That's so brutal.

Speaker 1 Do you think that's, do you think that's a turn-on? Oh, damn, that doesn't work.

Speaker 12 Let's take a look at the week ahead. We'll see the personal consumption expenditures index for February, as well as earnings from GameStop and Lululemon.
Do you have any predictions for us, Scott?

Speaker 1 Yeah, my prediction is that the flows of capital into Europe begin to infect not just the defense contractors, but start to infect the other sectors in the economy.

Speaker 1 And that we're going to see, I think so far, European markets are up 13 or 16%. I think they're going to be up 30% plus this year.
I think this is a trade, a momentum trade.

Speaker 1 And I think there's probably a lot of fund managers right now thinking, okay,

Speaker 1 I missed this, but it's not too late.

Speaker 1 And you're going to see just an entirely different willingness and promiscuity around allocating big pools of capital to European stocks that haven't been there for 20 years.

Speaker 1 I, quite frankly, I just think we're getting started.

Speaker 12 To that point, we made the point that U.S. stocks have come down, but they're still expensive.
You make the same case with Europe. European stocks have gone up, but they're still cheap.

Speaker 12 I think you're probably right there. This episode was produced by Claire Miller and engineered by Benjamin Spencer.
Our associate producer is Alison Weiss. Mia Silverio is our research lead.

Speaker 12 Isabella Kinsell is our research associate. Drew Burroughs is our technical director.
And Catherine Dylan is our executive producer.

Speaker 12 Thank you for listening to Prof.G Markets from the Vox Media Podcast Network. Join us for a fresh take on markets on Thursday.

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How does F1 update their fans with every stat in real time? AWS is how.

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