Scott and Ed discuss the market’s reaction to Trump’s drug pricing plan, Perplexity’s latest funding round, and Coinbase’s addition to the S&P 500. Then Alice Han, China economist and director at Greenmantle, returns to the show to break down how China views the ongoing trade war. She unpacks the current state of U.S.-China negotiations and why a deal remains elusive. Plus, she weighs in on which country she’s more bullish on in the long run. Subscribe to the Prof G Markets newsletter Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on InstagramFollow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices
Chapter 1: What is the market reaction to Trump's drug pricing plan?
And when Cigna or Aetna or Pfizer give a few million dollars to different people, they can figure out laws that make it such that we have to pay eight times for Ozempic and Humira. what other nations pay for these pharmaceuticals, despite the fact that we invent, manufacture, and distribute the majority of these drugs.
We're number one in terms of IP for pharmaceutical development, but we have figured out a way, or these companies have figured out a way, given Citizens United and the fact that you can buy Elected representatives, you can buy lawmakers a way to charge American consumers more. And then you have an infrastructure where essentially the bill is opaque and usually your company is paying for it.
So what do we have? We have opaque pricing that has no consumer scrutiny. We have regulatory capture and we have profit-seeking companies which are doing what they're supposed to do. So we end up with $13,000 per capita healthcare versus $6,500. And in exchange for that, we're more obese and we die sooner. So these companies had...
they come under any sort of reasonable threat that they might actually have to give Medicare or Medicaid the ability to negotiate these prices would have taken an enormous hit. And that's what happened right after the release. The data hadn't been absorbed and the stocks were down two to three percent. And then people read it and said, oh, this is the president presidenting doing jazz hands.
saying fucking nothing, trying to get in the news, trying to pretend he's doing something with absolutely no strategy. This thing has absolutely no teeth. If you read the executive order, it's that he's suggesting they do it. He's saying this would be a good idea. And what do you know? Stock prices ended up, pharmaceutical prices ended up higher because what this said to the market was,
Congress has the limpest dick in the world right now with their ability to go after health care costs. That even if the president makes a proclamation like this, there's no fucking way that this is actually going to happen. This is, as you can tell, I'm a little bit triggered.
If you look at our deficit, which we have to get under control, otherwise you are just not going to have nearly the prosperity or opportunities my generation registered. The only way we're going to get to that $2 trillion a year is the following. Full stop. G7 nations pay on average $6,500 per capita for healthcare. We pay 13,000.
350 million people times the $6,500 incremental, that's about $2.5 trillion. In sum, just the incremental cost to be more anxious, obese, and die sooner is costing us an incremental $2.5 trillion because of regulatory capture. And this stock market movement reflects the fact
that we have the most onerous, usurious, damaging regulatory capture in history that creates ridiculous, opaque, and insidious massive healthcare costs and a drag on the American economy. And this was the market saying, yeah, nice try, boss. Your thoughts?
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Chapter 2: How is Perplexity valued compared to other AI startups?
Again, we're just going to exclude Bitcoin for the sake of the argument, still $1.2 trillion in assets there. And now you have these institutions embracing them, which means that the rest of America is coming along for the ride now. So if you own the S&P 500, you now own Coinbase. And that's very similar to 2008.
I'm not saying we're going to see this 2008 crash, but the dynamics that are at play here are basically the same. So, you know, as you know, as everyone knows, I have my issues with crypto. I've talked about why I don't like it personally. But thus far, it's not been a huge problem for me because thus far it's been opt-in. Like, if you don't want to own this stuff, you don't have to.
Just don't get involved. But that's no longer true now. Like, I don't like crypto. I don't want to own Coinbase, but I now own it. And to me, that's a massive failure of leadership on the part of the S&P 500, who I believe should hold different levels of standards for that portfolio. I think they have a unique level of responsibility in the investment world. This has to be grounded.
This portfolio has to be grounded in fundamentals. It has to be grounded in value. And you can't just sling these very precarious assets into people's retirement accounts. So... Like, I was against crypto before. I didn't think it was that systemic of an issue. Now that this has happened, combined with microstrategy in the NASDAQ, I believe this is systemic.
To me, it's now turning into an actual problem.
I think you're the problem of the Democratic Party right now, and that is you're more interested in acquiring social status or a political orthodoxy than increasing the material or emotional well-being of Americans. Do you think that... Are you still worried about every American owning fossil fuels? No. That's a real business that has real value in the real world.
Are you cool with tobacco companies being in the S&P?
People like to smoke. That's actual value in the economy.
Actual value. So your issue here is that there's no underlying...
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Chapter 3: What does Coinbase joining the S&P 500 mean?
Chapter 4: Why are pharmaceutical prices higher in the U.S.?
I've always thought Perplexity's core asset is it's got a really clean positioning. It's the search AI, or it's the AI search, right? I think this is an example of kind of the froth here. Their annual recurring revenue has grown from $5 million in January 2024 to $120 million, so obviously it's going like crazy. They registered 160 million visits compared to OpenAI's 5 billion.
So what is that, about 30 times more in Google's 85 billion? So as a multiple of revenues, it's getting about 140 times ARR, whereas OpenAI trades at 25. So I think this is – I think if OpenAI gets public, which I believe they will, I think this is a tuck in acquisition. And they rebrand it as the more pure place search component of OpenAI or of Anthropic.
I don't think this is – let me ask you because you and the team understand AI and the consumer-facing applications better than I do. What's to stop OpenAI from launching a perplexity killer?
I would argue that they already have. I mean, my gut reaction seeing just the $14 billion number was that it actually seemed quite small. I mean, $14 billion for this AI company we keep hearing about, and then I compare that to OpenAI at $300 billion. So OpenAI is 2,000% more valuable than perplexity. My sort of gut reaction was, oh, I wonder if that's small.
And I think the question is, you know, is the valuation accurate? Is the valuation fair when you compare it to just how gigantic OpenAI is? My sense is, yes, it is fair. When you look at the numbers, it's very obvious just how far ahead OpenAI is compared to Perplexity. I mean, Perplexity, they're getting 350 million monthly visits. ChachiBT is getting 14 billion visits.
You look at the monthly unique visitors, Perplexity is getting 17 million, ChatGPT is getting 374 million. You look at the amount of time that people spend on these sites. For Perplexity, it's about six minutes. For ChatGPT, it's seven. So I think on the surface, it might look... possibly undervalued just when you compare it to OpenAI.
But I think it's a reminder again to look at the underlying numbers, which would tell you that, yeah, OpenAI is miles and miles ahead of perplexity. If you were to read the headlines, you'd get the sense that it's a little bit of a race. that it's open AI versus anthropic versus perplexity.
But I think what's happening is open AI, as I've said for a long time, I believe they have for years been running away with it. I don't see any real indication that perplexity can catch up. I appreciate your comment that they were early to say this is AI for search, but I think the whole AI game has developed so much since then to the point where everyone now recognizes ChatGPT is taking on Google.
If I had to invest in one AI startup, it's no question for me, even at 300 billion, it would be OpenAI.
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Chapter 5: What are the implications of crypto assets in retirement accounts?
Does rebalancing the trade deficit really get in the way of those goals for China? I'm just trying to think about what a big, beautiful deal looks like for America, and it sounds like we sort of rebalance the deficit in terms of trade. China just buys more of our stuff. They also get their act together on fentanyl, whatever that would look like.
In what sense does that get in the way of China's goals?
I actually don't think it gets in the way of China's goals because I think it is in China's interest to rebalance. They've said this for over two decades now, but when push comes to shove, they've been faced with some kind of slowdown or economic crisis, be it GFC, be it COVID, be it trade war one, and they've walked back. on some of these rebalancing efforts.
So I think it's in China's interests and policymakers are realizing this. When I was in China a month ago, they were starting to say that overcapacity was an issue and that they need to do more to rebalance. I had never heard them say that before.
In previous days, they were saying this was free market competition and the West should be so happy to have cheap Chinese renewable technologies, green technologies. The fact that they're saying that seems to me to suggest that they need to rebalance. They realize that.
And that actually this is an opportunity for China potentially to buy more American products to address some of that trade imbalance that the U.S. is rightly, I think, complaining about. and find ways to maybe even invest in the U.S., if Trump and the Republicans allow it, to create manufacturing jobs in the U.S. because China has the logistical, the manufacturing know-how.
So I think that the Chimerica relationship has the ability to have a second chapter in its relationship and not go through a full-scale divorce or decoupling. But again, it all comes down to politics, Ed, and that is where I'm not so sure.
Yeah, I was going to say, I mean, the way you lay it out, it sounds like a kiss and makeup between the US and China is actually very easy. I mean, based on everything you've just described there, our goals are not really at odds with each other. So I guess my main dumb question is, what's getting in the way? Like, what's the problem? Why can't we just figure this out?
The problem on the Chinese side is that they cannot countenance a massive slowdown in the economy.
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Chapter 6: Is the current market bubble similar to 2008?
That is a structural bug in the system, and it's going to be very hard to shake for political reasons. On the US side, why they can't kiss and make up is because we have different parties with different interests. As we mentioned, Trump wants a big, beautiful deal. As I've said before, he's the biggest dove in a house full of hawks.
Besson wants to make sure that people around him and Wall Street are happy, that the markets are happy. And Jameson Greer wants to have a more level playing field. People like Navarro and Lutnick are a bit more crazier, I think, and don't really know what they want to do, which is why we saw the April 2nd tariffs.
So we have really heterogeneous outcomes coming out of the U.S., which again is deeply, deeply confusing, not just for us, but for the Chinese as well.
My sense is, I mean, it's pretty clear what my bias is. I'm not an enormous fan of the current U.S. president. But when I have, I've spoken to some, I have some data here. I've spoken to, or anecdotal evidence, I've spoken to some European companies who are contemplating working with not only Chinese companies, but divisions of these Chinese companies, including their cloud units.
And working with these units that they would have never considered before. So distinctive how this trade war calms down. Isn't this just an enormous opportunity and gift for Chinese companies who are now getting meetings they otherwise wouldn't have had the opportunity to get in Europe and Latin America?
I mean, I completely agree. I think Latin America was always going to be under Lula in China's camp. It's not a surprise that Lula is now in Beijing signing a trillion dollars of deals in Chinese investment in Brazil and purchases of Brazilian agricultural products as China again tries to diversify away from the U.S. towards Latin America.
But I think the real winner is going to be the ability to launch a successful trauma offensive with Europe. I think Europe was very sickened by Trump's treatment of Zelensky in the Oval Office and its behavior towards Europe, not just Trump, but Vance, their behavior towards Europe since then. And I think Europe, as is its historical want, is going back to strategic autonomy.
It's trying to hedge between these two superpowers, China and the U.S., And I think in this current climate, it is probably veering more towards China on trade because it sees China as the adult in the room. And I think what's going to be interesting, Scott, at the end of June is two really important meetings.
We're going to have NATO at the end of June and then the China-EU summit at the end of June now in Beijing, not in Brussels, because they ultimately wanted to show respect to Xi Jinping, who originally couldn't make it. So I think this is going to be a real stress test for transatlantic relations.
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Chapter 7: What insights does Alice Han provide on U.S.-China relations?
So Scott, I love this question because I think we always need to look beyond the data. So back in 2018, we saw the US share of Chinese exports being 20%. It's now around 14%, if not under. That is not the full story because the Chinese surplus, trade surplus to the US has increased quite a bit since 2018. So what we've actually seen is that China is rerouting
its trade through other parties in Latin America and Southeast Asia to, again, they call it tariff washing, to avoid some of these tariffs or restrictions that the Americans have put into place. So that number, I think, again, is a bit of a misleading number.
And again, we shouldn't forget that if we just look at the trade imbalances, China is a bigger trade surplus-running country with the rest of the world and the US than it was in 2018.
Again, it's a sign that it doubled down on this export engine because, as you mentioned, Scott, consumption wasn't doing well, local governments were debt-ridden and needed to pay their debt burdens, and the real estate sector was suffering. So I think Chimerica has become even bigger. The divorce settlement has become even bigger.
But what Trump has shown today, or rather yesterday, is that it can't afford this divorce settlement because China keeps increasing the stakes.
Coming out of this war, we tend to talk about who loses or gains more. And I think a lot of people are coming to the conclusion that over the medium and the long term, China is probably going to get the better of the deal. But distinctive what's good or bad for the U.S. or China with respect to this tariff war, who do you think are the other big winners and losers?
It feels like Europe will be a big winner because— It seems like the Chinese are excited or ambitious to establish better relations with them.
But are there other nations in Southeast Asia that vis-a-vis this trade washing, or I think that's the term you used, are just sort of unnatural winners here, are going to do really well, like trade off of selling bullets to the warring parties, so to speak?
Yeah, that's a great question. I think in Southeast Asia, it has to be India because Apple and other companies are going to continue to diversify the supply chains and find alternatives for their components outside of China. And this is already happening. I think this wraps up quite exponentially the plans to, again, move some of the factory processes to India.
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