Intro
In this episode of “The Prof G Pod with Scott Galloway,” Scott Galloway discusses various market impacts, including the influence of Ozempic on the fast food industry, the surging bond yields, and the future of WeWork. He is joined by Downtown Josh Brown, CEO of Ritholtz Wealth Management, who provides insights and analysis on these topics.
Main Takeaways
Ozempic’s Market Impacts
- Weight loss drugs like Ozempic could threaten the fast food industry.
- Ozempic could dampen addictive relationships with alcohol and cigarettes, weakening demand at companies like Altria and Constellation Brands.
- AI technologies could reduce the $1.7 trillion drag on the economy caused by obese people on flights.
- Reducing obesity rates could have two to four times the impact on the economy as AI.
- Novo Nordisk, a pharmaceutical company, has become the most valuable company in Europe, worth almost as much as Denmark’s annual GDP.
- Ozempic, a drug produced by Novo Nordisk, helps individuals lose an average of 11% of their body weight over six months and also reduces the risk of heart attacks, strokes, and cardiovascular deaths by 20%.
- Prescriptions for GLP1 drugs like Ozempic are up fourfold from 2020 to 2022, and Morgan Stanley predicts that 24 million people in the US could be taking these drugs by 2035.
- Each patient taking GLP1 drugs registers on average a 24% reduction in total calorie intake per day, which collectively amounts to a 22 billion calorie reduction intake per day.
- If the fast food industry sold 36 million fewer Big Macs per day, the company would register a revenue decline of $18 billion per quarter.
- Fast food companies and hospital networks may suffer when people don’t visit hospitals for treatments related to obesity due to the pandemic.
- Obesity-related comorbidities were present in 82-88% of COVID-19 deaths, and a healthier population may lead to fewer deaths from the virus.
Surging Bond Yields
- Surging yields on long-term US debt indicate a significant sell-off in the bond market, possibly due to strong economic data and the Federal Reserve’s interest rate policies.
- Short-term bonds are a good predictor of where rates will go, while long-term bonds have been slow to catch up to reality.
- The economy is less sensitive to short-term interest rates than historically due to a prolonged period of refinancing.
- Corporate balance sheets and homeowners’ finances are in good shape, reducing the impact of rate hikes.
- The lag between rate hikes and their effects on the economy is severe relative to history.
- The housing market is typically the most sensitive to rates, but we are not in normal circumstances.
- Larger market cap companies have the least need to refinance at higher rates and will be hurt the least by higher interest rates.
- The Russell 2000, which includes smaller publicly traded companies, has been hit hard by rising interest rates.
- It is not impossible to have rates where they are today and have a stock market perform well, as evidenced by the 1990s.
- The Fed has a history of cutting rates to save the market, but with rates already high, the question is when will they cut rates again.
- Nominal yields have averaged 5.7% historically, and we are currently at 5.25%, which is normal.
- Real yields, which factor in inflation, have averaged 2%, and we are just hitting that now.
- Long-term bond yields have been rising, with the TLT ETF down 43% from its 2020 highs.
- Short-term treasury bonds are no longer moving, and long-term bonds are just now catching up to what short-term bonds have known for a year and a half.
- A recession may be overdue, but an exogenous shock is needed to make it real. The credit quality of recent vintage mortgages is better, and banks have significant regulation.
- A recession is always coming, but the timing and severity are difficult to predict.
- It is possible to have a localized recession that only affects certain industries or regions.
WeWork’s Future
- WeWork will miss $95 million in interest payments on its debt.
- WeWork is likely to go into bankruptcy, but the next owner could make money by cherry-picking the profitable locations and right-sizing costs.
- WeWork is a global brand with happy customers, and there is value in the company.
- The way to play WeWork is to buy the debt and not the equity.
Summary
Ozempic’s Market Impacts
Ozempic, a weight loss drug produced by Novo Nordisk, has the potential to disrupt the fast food industry and impact related sectors. The drug helps individuals lose weight and reduces the risk of heart attacks and strokes. With the rising popularity of GLP1 drugs like Ozempic, the fast food industry may experience a decline in demand, leading to potential revenue declines. Additionally, reducing obesity rates could have a significant positive impact on the economy, potentially outweighing the impact of AI technologies.
Surging Bond Yields
The recent surge in bond yields indicates a sell-off in the bond market, potentially driven by strong economic data and the Federal Reserve’s interest rate policies. While short-term bonds are reliable predictors of rate movements, long-term bonds have been slower to adjust. The impact of rate hikes on the economy is currently less severe due to factors such as refinancing and strong corporate and homeowner finances. However, smaller companies and the housing market may be more vulnerable to rising interest rates.
WeWork’s Future
WeWork is facing financial challenges, including missed interest payments on its debt. While bankruptcy seems likely, there is still value in the company as a global brand with a satisfied customer base. Investors interested in WeWork should consider purchasing the debt rather than the equity, as the next owner could potentially profit by restructuring and optimizing costs.
Conclusion
The market impacts discussed in this episode highlight the potential disruptions and opportunities in various sectors. From the potential effects of weight loss drugs on the fast food industry to the implications of surging bond yields, investors and businesses need to navigate these dynamics to make informed decisions. Additionally, the future of WeWork presents both challenges and potential value for investors. Stay tuned for further developments in these areas as the market continues to evolve.
