all right everybody Welcome to the all in podcast we're back thanks to Freeburg and sax for moderating the show into the lowest ratings in its history hold on hold on please give the keyboard Warriors that are their bot armies some respite here they tried their best they just it's it's okay I think the ratings of the last episode must be a result of Google uh downranking us as a result of our honesty about not wanting to get more boosters you're on the Brigadoon truck somebody at Google some lower level functionary to push a button push a button to uh Shadow bit I mean visibility filter us it's everything except the moderation skills it's the moderator turning it into Fox Sunday can't be that [Music] let your winners ride Man David said we open source it to the fans and they've just gone crazy with them the reaction I got from our covid vaccine discussion was hey pretty fair and balanced like not in a in a joking way but like actually like yeah the warning on YouTube was pretty benign actually yeah it's like if you want coveted information click here thank you okay let's talk about the market data the FED raised 25 basis points the market obviously has ripped since then the jobs data this morning was crazy we added 517 000 jobs more than 2x December and well above the estimates of 188 000 jobs the FED I think is starting to realize they can obviously impact inflation and slow down speculative assets but they're having a very hard time with the labor market uh obviously labor participation actually is growing we've talked about that many times here it's bumped up to 62.4 percent we all know it peaked at like maybe 69 percent during the 2000 time period wage growth though continuing to slow so that is some good news there and obviously risk on assets are ripping the last couple of days Tremont what's your take on where we are with the market and the fed's action which people are starting to believe will be another 25 basis point hike and then maybe staying high for the rest of the year did you uh hear their comments you think dovish what's your take on the market I watched Powell's speech and it was really amazing because in December he was extremely hawkish and he was basically like listen we're going to keep rates higher than you like and longer than you want and that was pretty clear and the markets reacted and then not but 35 40 days later he essentially said we have two 25 basis point hikes left to go and he's going to try to stick the landing essentially and even though the rest of the language in his entire speech and the press conference if you read it in the absence of his body language so if you just read the transcript would seem very hawkish as well but the reality was he basically capitulated and then the market essentially said okay we're at the end of this thing and we've talked about this before but markets tend to bottom six to nine months before it's clear that you could have done this and so we're a little bit Off to the Races in the short term it's compounded by a couple of other factors one is that at the end of last year so many people were tax loss harvesting which means if you had some gains somewhere else you sold some things that were losing money so that you could net the two together you saw a lot of stocks Tesla was probably the poster child for this trade all the way down to like 108 dollars a share and it's effectively doubled in the last 30 days right so everybody tax loss harvested everybody degrossed nobody was really owning anything and then when Powell basically said we're mostly done there's been so much systematic buying right now that nobody's really well positioned to me this is very similar and eerily reminiscent of the end of 2018 and beginning of 2019 and if you guys remember at the end of 2018 October November December the markets just fell and part of it was Powell's going to raise rates inflation's getting out of control etc etc and then we got all this data that said China may be entering a real period of malaise and Powell capitulated again trying to stick the landing and long story short he didn't that was a head fake and the markets just ripped higher then we went into the covet pandemic and all that stuff happened so I think we're about to replay a little bit of that at least in the next 30 to 90 days the pain trade is to go up so that's probably where we're going here's the FED fund rates chart from 2000 and into the 2008 recession and you see just you know to jamaat's point in 2019 that little step up to two percent uh and then this dramatic step up uh that we've been on up uh to four and a half or so Saks is this where the FED pauses you think they cut and and what overall fact is this going to have on venture capital in the startup Market which is super important to us I think we're in the whipsaw economy here just a month ago sentiment was incredibly negative on the show we were predicting for the year that we were looking at the FED funds rate going from four and a half percent to say five and a half percent 250 Point increases the belief was that we were going to have a recession later this year I think that was pretty much consensus and now three weeks later you had a situation in which we got a couple of really good inflation reports so all of a sudden the consensus changed too we're not going to need to raise rates you know to five and a half percent maybe we only get one or two more quarter point rates and the market just ripped on the belief that inflation was in the rear view mirror the problem had been licked and now we can just kind of move forward and the FED seemed to confirm that just yesterday with the quarter point rate increase and now today we have this wild jobs report with over half a million new jobs the expectation was only a hundred thousand and so now all of a sudden people are wondering wait a second does this mean that labor costs are gonna you know go back up that the economy is overheating and now the fed's gonna have to raise more so I would say literally from week to week we're being whipsawed between expectations of uh whether inflation has been conquered or not whether the economy is going to have a recession or not and I think probably where we're sitting at this moment is you'd have to say that the risks of inflation returning are slightly higher but the risk of a recession are slightly lower because with this kind of jobs report better chance of having a soft Landing here it's very hard in other words sax to have a recession if people are employed if people are employed 3.4 yeah exactly so 50-year low right so I just think that we're in a highly volatile economy and it's very hard predict the future I'd say that relative to where we were a month ago you'd have to say that the odds of us having a soft Landing this year are quite a bit better than they were just a few weeks ago all right Freeburg when we look at this employment picture does seeing people are going back to work seems maybe indicative of people blew through their savings we talked about this you've been harping on and on previous episodes I've had people doing personal debt buy now pay later is a possible thesis here that people yoload for so long post pandemic Coachella vacations Etc that maybe they whip through their savings it seems like we've burned off a trillion in savings or something like that and the debt's going up so now people maybe need to go back to work and they're finally capitulating and taking jobs do you think that's what's actually happening here classify that I mean there's obviously a lot of this stuff is on the margin the one challenge you know Larry Summers has been harping on since last spring all the way through the summer and the fall and you know in multiple kind of interviews and Publications he's done he's the ex-us treasury secretary obviously brilliant Economist um that the US needs to have a five to six percent jobless rate for five years in order for us to really get to the inflation rate target of two to three percent or below two percent and so you know the economists and the macro guys that are tracking their jobs report today are I think the indication is we're not there yet and that the implication of a tight job market is Wages go up and wages go up inflation goes up and because companies need to charge more because they have to pay more to get Talent and this obviously continues to support the escalatory spiral that drives inflation so that's the the you know kind of downside to the jobs report today that I think a lot of folks are watching the FED mentioned over and over again deflation so any impact there shamoth you think we're going to see prices start to Crater and what impact would that have on the market I think sax is right I think the the marginal risk here is is for this whip sign so we have a period now which is disinflationary but the problem is if the stock market keeps going up and all of a sudden we have less restrictive monetary conditions then we're going to be back at the same place we were before which is money sloshing around into all kinds of risky assets or more money you know there's still an enormous amount of money sitting on the sidelines that has to come into the market now if this thing keeps going higher so we're in a delicate moment and if we reignite inflation because all of a sudden more companies have more liquidity that they can tap right more money they can raise more money as a result that they can spend because we don't have this first inflationary cycle under control there could be a risk that that we reignite inflation and so then then they have to capitulate the fat has to capitulate again and start another hiking cycle so I think it's a complicated moment I think all of the smart money in Wall Street that I talked to up until this point they forecasted like this period would be choppy and the second half of the year would be really robust and like you needed to be super long and things were going to be incredible and when I talked to them this week they're like oh God we weren't positioned for this we had no risk going into this we're going to be forced buyers there's a bunch of companies that are Whispering that they want to go public now oh really the big banks have been calling around trying to book build quietly for some IPOs and so if they try to kind of crack this Capital markets open I think there's again the marginal risk will be that you mean trying to see if you'll get some early takers to buy equity in an IPO perhaps even in a company like stripe that's been sitting on the sideline so not striped they're in a complicated moment but when they called the book build they basically say Hey listen XYZ company quiet filed look at the S1 what do you think where's the price blah blah and they're trying to get an indication of whether you'd want to be in the IPO book so I think that there's a lot of those testing the waters that are now starting again would there be an appetite in your mind for an IPO in the second quarter of like a stripe type company putting you know I don't know what the other candidates are the lead candidates but stripe is one people talk about most the thing that we have to think about is like most of the market are not people right most of the market are computers and algorithms and ETFs it's an extremely formulaic buying model do you have components of an index those represent certain percentages you have to own those percentages to be relevant as that index and so it's this reinforced buying loop as well as a reinforced selling Loop right so when things start moving those folks have to just systematically move money in all the humans know that so the humans tend to front run all the computers and they basically are the ones that sell into these guys and then that's what inflates these prices and similarly on the way down humans try to front run it by being short into that stuff so we could see the capital markets open even if we don't it's actually the worst scenario because now you have all this money going into a fewer number of names that sort of explains Facebook has doubled in in 30 to 60 days yeah I was about time Tesla has doubled in 30 you know 30 60 days a lot of the tech stocks like high beta stocks that we are all you know helping to build those companies have just absolutely ripped 60 to 100 percent these are not healthy and normal moves and so the question is what happens if inflation somehow all of a sudden pokes itself back up right now it doesn't look like it is and Powell was clear and it's true we're in a different she said deflation 11 times during his uh yeah his use of language yeah that's why the market reps I mean basically that was all part of a narrative where inflation's on its way out we've licked that problem and that's what the market was pricing in and I think now the question is in light of today's jobs report is that actually true or not one way to look at this is um Jake how you showed the chart of the FED funds rate another chart is the yield curve can we just pull up the yield curve for a second this is the yield on U.S treasuries on you know RT bills and one way to look at this is as a prediction Market of where the market thinks interest rates are going because the FED sets the rate for the fed's funds rate which is the overnight rate of lending to Banks but they do not set the rate of you know three months six months bonds 10-year bonds and so on the market does because the market trades those bonds and it imputes a yield that the market requires to want to hold those bonds so what's interesting is that if you view the yield curve as a again as a prediction Market it tells you at any given time what the collective wisdom is of the market now this thing is fluctuating moving all the time so that Collective wisdom is changing but where things are today it's pretty interesting it looks like what the market is saying is that within the next six months the rate Peaks at 4.75 percent so Nick if you just want to hold the mouse on the six month dot um you'll see it's 4.76 percent so basically the market is predicting we get maybe one more quarter point roughly not much and then if you go to the two-year it's at 4.09 so a little over four percent so what the market is actually predicting is that over the next two years we're actually going to get a 50 basis point decrease from the Fed and then if you go to say The Five-Year or the 10-year we're at three and a half percent so the Market's basically saying that long-term rates are going to stabilize at three and a half percent we're not going back to the abnormal zero interest rate policy or zerp that they had for 10 years three and a half percent will be the long-term stable you know cost of money but you can see that the market the prediction Market thinks that the FED has done enough to combat inflation because the FED funds rate now basically is where the bond market thinks it should be and in fact the bond market thinks it's coming down over the next two years but coming down to what would be three and a half in a world that we've lived in for largely over the over the 14 years of this bull run the majority of that was at close to zero or zero right and that's why we're never going back to the bubble of 2021 where SAS companies were trading at 100 times ARR we're going to go back to an environment more like a more normal one where evaluation are more like the 2017 valuation something like that is by the way it's three and a half percent is not a bad it's still a great deal still a great deal if you got your mortgage at that if you listen to Buffett Buffett's teacher this guy Ben Graham in Ben Graham's book the way that he would look at a stock and obviously look things have changed but the way that he would look at a stock is he would look at that risk-free rate he would double it and then the inverse of that is the maximum price to earnings ratio that he would pay for a stock right that's the trade-off is if you can get more than two times the risk-free rate then it's worth owning a company what that means is that if if you take three and a half percent as a terminal rate the right p e is around 14 for the s p 500. right now the S P 500 trades at 22 times p e which would mean that we are 50 overvalued now that again that's a Benjamin Graham model and I think the world has pretty cleanly moved away from it but there's probably some rooting in that intellectual framework that's still valuable and to your point David it just reinforces that man we need to start to learn a new regime here because when rates are not zero there's just a lot of excess that you can't support because the alternative trade-offs for investors are plentiful you know and plowing money into a money losing startup becomes less attractive and to just give people some background that's the intelligent investor was that book I believe and he was talking about value investing which is hey what's the earning per share what's the ratio what's the PE and that's something that growth and momentum investing has been the opposite of and this is a could be I think you wrote a blog post about this jamaat short of the regime change if you look at the Googles the Facebooks the apples Amazon's is is a little bit of an exception here those companies printed money they had profits they built up large cash reserves if we look at the next cohort of companies airbnb's coinbases Ubers Etc they focus on the top line growth uh much like the Amazon which was a very obscure approach correct your moth uh in in the history of this Nick do you want to just throw up this chart we did a little analysis over here and it was just basically looking back 60 years of company formation we looked at all of the 100 most valuable public company startups and we indexed that to the 10-year interest rate so what are we looking at here try math with this chart so basically we went back from 1960 onwards so basically you know 63 years and what this shows you is the hundred most valuable public technology companies then the size of the circle here is their market cap and then it's overlaid on top of the 10-year interest rate as well as gray bars for recessions so what is this graphic meant to illustrate well it just was for us to study is there a correlation between the value of companies and what the interest rates were or what the economy was doing at the time and to your point Jason the trend is pretty starkly made on this chart which is that if you were a company that was founded in a period of austerity you had the ability in general to build a much larger company then that which was founded in a period of wealth and excess right so when you look at when rates were sort of approaching zero or were zero there was a lot of really successful companies they're listed here in the in the light gray on the right but none of those things really represent the success that these other companies had that's the first interesting takeaway the second interesting takeaway though from this has nothing to do with rates per se but it is that when rates intersect with the emergence of huge technology Trends so in the case of the 1970s it was the PC revolution in the case of the late 1990s it was the internet Revolution those two things which required enormous progress in both physical infrastructure so atoms as well as software infrastructure bits when you put those two things together those also created big companies and so if you add that all up the point is that whenever you see huge tectonic shifts in technology combined with periods of austerity that's when the gargantuan dollars are made so from the 1970s companies like Microsoft and Apple from the get-go had to be profitable right and in the absence of one very important round of financing that Amazon was able to close the next big wad of companies were founded again in Rising rates where they just had to get profitable or find a way to be positive free cash flow or have positive working capital faster than anybody else so these are like really interesting trends that I think just say that as rates creep back up and if we can intersect that with some improvements in technology over the next five to ten years that we've all talked about it could be a real Boon for startups and startup investing it would mean people are a little more resilient a little more hardcore to use the term Freeburg what are your thoughts on this analysis by Social Capital it's interesting I mean I think there's probably two ways you could interpret this one is in an era of excess Capital all the capital gets competed away and so you pay more salaries you have uh it's harder to get high quality Talent you make a lower margin Etc et cetera it's much more kind of competitive on the ground and then another one is just obviously kind of like evolutionary Fitness When there's less Capital investors are more selective I think what might make this era a little bit different than the past is just the amount of termed dry powder sitting on the sidelines right now so that the the the total VC Capital raised last year I think was a record high that means there's a lot more cash that needs to kind of be deployed in the next 12 to 36 months than has ever been deployed in in the history of venture if that holds true so that may be kind of a counter balancing effect here where it may take three years before that effect plays out where there's more of a dearthy capital it's certainly the case that institutional investors endowments Pension funds traditional family office LPS and Venture funds are making far fewer commitments this year to new funds as I think we all know and that tightening will play out in the Venture funds that'll get raised for this vintage the next vintage and so on and so maybe that that kind of evolutionary Fitness Concept starts to play out lateral sizing and sizing and sizing I think there's also this like you know we talked about this on our text stream but the Venture business of the last 15 years everyone since 2008 everyone's been trained and all the younger people that have come up and are now partners and running the firms on an environment of momentum investing rather than fundamental investing and so there is also a question of how fit the investors are for a market space where valuations are flat or descending or the decision whether or not to invest is no longer driven by who else is investing and how much is the company growing and how much is their valuation going up but it's much more about kind of the fundamental performance of the the the business does this match what you're seeing on the ground sacs are people being more dogmatic pragmatic or the capital allocators really sharpening the knives and looking at these businesses a different way is it actually hit the streets yes there's a record amount of money Venture Capital has raised over the last you know couple of years but it's going to be deployed much more slowly and carefully over the next say three or four years than it was over the previous few years so divide that amount of money by three or four because the pace the deployment's going to go way down and so yeah I think people are going to be more careful they're going to take longer to make decisions I think it's going to be much much harder for new funds to get started all of the you know hype around you know solo capitalists and you know all these you know seed funds and micro VCS and all this kind of stuff I think a lot of that's going to get washed away I think in hindsight a lot of that was a product of the bubble and yeah I think you're going to be in for a period of some retrenchment in VC and I think that's good I mean I think to the point of Chamas study that you know that the counterintuitive finding in his study was that great companies are created during times when we're not in a bubble and capital is sloshing around everywhere but when you're in a environment of moderate Capital availability and I think the point is that we all have to be under some stress right that's what evolution requires is you know if an ecosystem or an organism is not under stress they have no pressure to evolve and become fitter and compete and I think that's what makes our industry and our ecosystem very adaptive over time is that it's constantly you know it does face survival pressures but over the last several years all the survival pressures were taken away because anybody could raise money and there was always another Bridge available there was always some extension and there was no some convertible nothing to be done right there was no Reckoning you know a lot of these companies just seem to you know get another 12 months of Runway so many bad habits during that period time and so much entitlement and excess built up in the system during that time and I think now we're we're seeing that a lot of that is working its way out I mean just look at the Facebook results the other day so Facebook just thought about Facebook is an example because yeah here you have a company where the stock over the past year have been pounded is like down over 50 percent and the market bucks a share yeah yeah the market did not like its answers around the capital Investments it was making and then Brad gerstner our friend wrote that letter encouraging them to get much more efficient and then they did that and they basically started doing some riffs and basically just getting much more efficient and what they're doing and specifically taking out layers and layers of middle management I mean that was really the big thing so they kind of took a page out of elon's book in terms of what Elon had done at Twitter I mean not nearly to that extent because I don't think they needed to but they targeted this idea of we have too many layers in the company too many mid-level managers and the stock ripped just was it like up 20 25 yeah and they're up to I actually bought it based the day they had the layoffs I put in a buy order and it was closed at 94. and now it's at 193. and FedEx of all places uh is laying off 10 of its offers officers and directors so the idea now is hey in the senior ranks what is the inefficiency there how do we get well more doers more people who actually are building or operating the companies to take the reins and get rid of this as you're saying middle management this waste that yeah let me tell you let me tell you specifically the problem that builds up in these companies is that everybody wants to be a manager and so you can't just come at this Palm by saying we're going to increase the number of reports that each manager has from five to ten that doesn't work because let me tell you what happens is that every individual contributor who's a star thinks that their career advancement requires them to manage a team so what happens is you take that star IC and then you create a team around them so that person then hires five people to manage and those times yeah they stop working they just start managing well maybe you get like 20 more production out of that six person unit than you would have just out of the star but you're spending five times more money so it makes no sense and the problem is it Cascades so you know that IC becomes a manager they hire five people then those five people one of them is a star and says well I want to be a manager and all the organizational pressures to keep building more and more teams and more and more layers here's the quote from Mark Zuckerberg to illustrate your point from a recent All Hands meeting I don't think you want a management structure that's just managers managing managers managing managers managing managers managing the people who are doing the work yes it's the problem of infinite delegation every like like Star builds a team around them to delegate the work but then they hire a team to delegate the work to and pretty soon the most Junior interns in the company are doing all the work and all the best people are just managing so it's it's actually a huge problem and I think that I'd say that a lot of CEOs don't quite understand the problem because they think that all they have to do is increase the number of reports that managers have it's not you also have to reduce the number of layers in the company and and just the ultimate example of this just to put a point on it was at Twitter what we saw is that when Elon went in to basically do a riff at Twitter the first question he asked in the engineering department is who's checked in code and they looked at the code repository and over 50 percent of the engineering department had not checked in code in months and you want to know the reasons for that is because the the engineers were told that if you want to be a manager in this company you don't code managers don't code only ICS code and no one wants to be an ice no one ambitious wants to be in ic they all want to get promoted so it all gets explain what a nice is this individual contributor yeah so the whole thing turned upside down because of this idea that again ambitious people want to be managers and managers don't do the real work yeah it's a Cowboys who don't know how to ride horses it's like it's a dangerous precedent to set what are your takeaways uh chimath from what happened at Facebook when you look at it and the pressure that was put on The Ripping of the stock even though they're down two percent year over year in terms of advertising Revenue there's a a guy on my team sent me this chart he did a pretty detailed technical analysis of Facebook Nick can you please put that image up there so basically this this shows this is really technical this this is the first time Facebook mentioned the word metaverse in Q2 of 21 on the earnings call they mentioned it 20 times and the gray line here is the stock price so as they kept mentioning it the stock price just you know reacted but Q Q4 of 22 was the first time that the word efficiency exceeded the word metaverse and you saw and you saw the stock price rip up so what's happened that Facebook is really interesting because I think it transitioned to what's generally called an X Growth Company which means that people are now looking at a business that has essentially gotten to its peak size and now what they're looking at is its ability to generate cash flow the cash flow generation or cash flow yield of the business was like three and a half percent but they're making enormous Cuts both in capex as well as headcount over time they're getting their expenses under control and all of that should drive up their cash free cash flow yield and so I think why people got very excited is there are very few X growth stocks that you can own that can just compound and crunch ginormous amounts of money and these guys are in an incredible position to do it you know more than 100 plus billion dollars of Revenue and if you get these costs under control and get efficient get the employee base down to 30 or 40 000 over time this is the thing that just spits out just ginormous amounts of cash and so so it's actually sell you investing and Warren Buffett that means the earnings per share go way up yeah you know like like the Facebook PE is quite modest actually now I actually put back in stock based comp and its PE is about 11. so still reasonable if you go back to the to the Ben Graham analysis this is a company that perfectly meets that criteria of like you can buy it at a PE that's basically two times the risk-free rate and so I think it's an incredible stock now that you can own because if they keep grinding out all of these kind of free cash flow gains man they'll just they'll just have enormous amounts of money they've already announced a 40 billion dollar buyback you know the thing to keep in mind is Apple Had A Moment Like This and when Apple went X growth they did the brilliant thing which is they said we're gonna borrow heavily and we're going to return cash I may have posted this in the group chat to you guys by 2025 Apple will have exceeded one trillion dollars of cash distributions I mean that is just nuts does that include Buybacks in cash distributions by vaccine dividends and so Facebook now you can credibly see a path where Facebook could chunk out hundreds of billions of dollars of of total shareholder value returned over the next four or five years and so you know for Value investors it's somewhat of a kind of a no-brainer I mean nothing's a no-brainer but yeah really really attractive value fundamentals right now I mean you did see Warren Buffett buying Apple I think it's his largest position you're going to see him probably do the same with Facebook there was an interesting mass extinction event tweet that went on that's related to all of this Tom loverio a GPA General partner at ivp which is a venture firm tweeted the following thread there is a mass extinction event coming for early and mid-stage companies late 23 and 24. but make the 2008 financial crisis La Quint for startups below I explain when how and why and we'll start an offer some detailed advice basically four and five four in five early stage startups he claims have less than 12 months of Runway according to a Q4 survey of 450 Founders by January Ventures he sees late 23 24 when this will all come home to roost mark suster from upfront Ventures friend of the pod reply with the following precisely our internal analysis 5000 seed 2.5 million raised or above A and B companies those are three different categories funded in the last four years we estimated 50 will go out of business lost ratios in the last seven years have been artificially low due to excess Capital as we just discussed previously with the never-ending Bridge we've talked about this before if you look back over 40 years of venture capital the average top quartile fund distributes 1.6 or 1.7 x the capital they raise even though now we've gone through a period where people have shown these unbelievable markups right tvpis the total value right a paid in capital distributions have not really budged that much distributions are still modest they're below 2X and so we have to go through what's called mean reversion right we have to go back to the historic statistical average which means that a 50 to 60 percent mortality rate seems pretty reasonable by the way in the.com bubble that's what we went through you know in 2001 to 2005 we had a 50 mortality rate at the seed stage I mean you kind of expect 70 to go out series a maybe a little bit less Freeburg what are you seeing on the streets you're investing in startups yeah look I I think that there's is there an opportunity by the way also in here so what are you seeing but is there an opportunity in this group of this cohort of companies which seem to be um upside down and or in yeah a tsunami right now this cohort of companies I think generally is overburdened with feature orientation and short-termism more than you would see in an era of reduced Capital rather than excess capital and what I mean by that is a lot of companies built a business or built a product that allowed them to show Traction in the market faster and typically those products that are easier kind of paths to market end up being features they don't end up being platforms so it's very hard to become a big business or to become a scaling business or to differentiate in a competitive market that's a generalized that's a very general statement but I think you know when you miss out on the platform play you start betting as an investor on a lot of the derivative plays that look like the real big company look like the platform I mean think about how many companies try to look like some iteration of stripe or try to look like some iteration of Uber or try to look like some iteration of you know name your big kind of behemoth and as a result you get all these sort of feature-ish platform plays that have maybe a niche or some kind of you know narrow kind of Market opportunity they got funded those those businesses obviously aren't going to have the same valuation multiples of the winners in the market and now uh and they burnt a lot of money to demonstrate growth because so much of investing over the last 15 years has been momentum investing and so they try to grow then they try to get a higher valuation investors plot more money in now the problem is that so many of these series BC DNA companies have a true market value they're not a valueless company but the true market value of them is probably less than the total preference stack of the capital that's gone in so let me yeah yeah so just make sure people understand that I'll just describe it yeah so when investors invest they have preferred stock so they have a right to get their money back so they let's say a 1x liquidation Preference they invest 100 million dollars the company is worth 300 so they own 25 of the company after they invest but they have a right to that hundred million dollars first before Common shareholders get paid the problem now is that a lot of those companies may be worth less than the hundred they're not worth 400 anymore they're worth a hundred and you can see this play out in the public markets with that that data set I shared with you guys a few weeks ago over two-thirds of companies now that have gone public since 2020 are worth less than the capital that they have raised as in the venture your market so if they were still private they would be worth less than their preference stack and that's where these companies start to unravel because now the investors have to totally recap the company the founders don't want to have all of their common wiped out now they own nothing and there ends up being a very ugly scenario that happens with the board at that point on how do we wind this thing down how do we recap it what's going to happen and that's usually where everyone starts to run for the hills the founders one or more of the founders leave and so I have a question for you so you mentioned this earlier which I think was a really important point but we didn't really touch it do you think there's going to be a reckoning inside Adventure firms about recalibrating General Partners 100 I mean look and why sorry just explain why yeah so I think what's happened is over the last 15 years to become a successful Venture investor you've gotten into the hot deals the deals were and hot deals the valuations are typically climbing up and you know when the valuations climb up that's an indicator that the company is doing well and you should invest that's been the model for operating in the last 15 years but the truth is that maybe just because the valuations have gone up and more money has gone in doesn't necessarily mean that that's a great business or as Jamal points out that you ultimately get a positive net return on that investment down the road and that window is now closed so the the the investors that have been trained this is such a generalization and I hate saying it because we have so many good smart friends that work in Venture but generally speaking there are a lot of folks who have come up who have been trained on this momentum investing model and it's it's like it's like day trading the stocks are going up let's all put money into the stock going up and instead of having a more fundamental approach to is there a real cast generation potential and scalability and platformability of this company and as a result you're going to have to see I think the junior partners that have come up and done well in this market Canada well they're they've they've done well on paper but they haven't done well on distribution so maybe that shamath becomes the well so you decide who's a good venture capitalist which of these companies actually returned Capital at a peak Market well I think Freeburg is really on to something and he mentioned this before so I got curious about this and I went into pitchbook and my team and I looked at all of the people the humans in our business that have generated more than a billion dollars in distributions on a given deal and there's 20 that have done that in our industry like there's people that have made hundreds of millions of dollars once or twice but there's 20 people that have made more than a billion dollars more than once okay and if you look not a single one came up through the ranks as a pure engineer or product manager right everybody to a one is extremely commercial in their background and their operating experience very few percentages of them were actually founders a huge percentage of them were trained in Banks and other places so non-traditional quote-unquote roles for what this current crop of GPS looked like because we went through a phase where if you were a VP of product or a VP of design or VP of engineering at a well-known startup that was the most obvious onboarding into a venture firm but if you just look back at the data that cohort of people has actually never made money again according to pitchbook that's fascinating and that's a really fascinating counter-intuitive takeaway which is that and and by the way what's so interesting about that is Pat Grady I think had a tweet and it just sums it up so cleanly because he just hired somebody from CO2 and the Tweet was something to the effect of this guy is the most commercial guy we've ever seen something like that and I thought that was so interesting because that is exactly what our heuristical analysis of this data was as well commercial people in Venture are the ones that make the money so you look at a Fred Wilson Michael Moretz Phil Gurley they were investment analysts I can show you the list markets before they became Venture investors or Mike Moritz who was a who was a journalist yeah which is a journalist is just an analyst it's another if you're a good journalist it's another word for analysts yeah it was really really interesting looking at that list so like you know there are people in there like Jim Getz Alfred Lynn Danny Reimer Jan hammer Fenton so if you look at all of these folks that are just tier one people and we know all of them the one common thread amongst all those folks is that unbelievably commercial and so Jason in a moment like this where you have to really hold the entrepreneur's feet to the fire or be their partner to make extremely hard decisions you have to have the ability to be respected by them in those moments where you can force a very difficult decision and then separately if you have to basically Force liquidity so that you prioritize your limited partners how do you do that while still managing the relationship with the entrepreneur how do you know that you just need to cut your losses and get out these are very difficult trade-offs that I think folks haven't been trained in doing to David's point so it'll be really interesting few years to see how these organizations I think this goes discuss the Sax's point about hey the ecosystem if it's hard if it's cantankerous if there's sand in the Oyster it could make the Pearl if you have a con you know a congenial relationship with you know your product manager VC and everybody's the champagne and caviar and and high-fiving maybe that's not as good as having a bill Gurley a Michael Moritz and having a foil maybe who is putting pressure on the management team hey we need to hit these numbers Freeburg and then sax yeah look I think one one counter argument here baby that there is this friggin tidal wave of AI companies and there is this incredible amount of lubricant in the dry powder that's sitting on the side of the of the market right now that all these Venture funds raised in the last two years that is going to lubricate all these AI companies into every vertical and every market so every company is wrapped up in an AI cloak like a magic invisibility cloak every AI company's got an AI hat and a badge and a tattoo now or every company is being Rewritten as an AI company and the money wants to find its way into Ai and it wants to rewrite industry with every industry with AI so I think similar to what we saw with mobile and the Social Web you know going back 10 or 15 years we're seeing kind of this AI rapper and this AI technology enabler rewrite the possibility of every vertical and the VCS have Capital more Capital than they had 15 years ago or 10 years ago or even seven years ago so there is this counter narrative which may be that the game the game goes on the band continues to march on the current crop dies out but there's immediately a new crop waiting right behind it or what happens is the herd dies and everyone runs to the back of them right and gets recapitalized because I can tell you every startup I know that's not going well everyone's talking about leaving to go do an AI company an adventure friends are ready to write money I think you're I think you're right about that I think the question is the actual person making the check will they be more or less likely and at least what history would tell you is that we've hired an entire generation of people that and this is clear do not map to the people in our industry that have actually generated returns so you're right they may take this money and misallocate it into these companies that are just you know rebranding themselves but that just goes and further proves that there is a type of person that hasn't been recruited into these Venture firms yet that was the first generation that made all the money I think it's always been the case that there is some difference between the background of the VCS and the backgrounds of the founders I mean you guys mentioned Gurley and Moritz like we said Moritz was a journalist who had written a book about Apple he wasn't technical per se and Gurley was a investment analyst on Wall Street before he then made the transition into VC is it you know as we both know they're like legendary VCS you know I think the what you want to see in a VC I think the background matters a little bit less than you know like how curious are they how good are they about learning a new area how good are they at being like a heat-seeking missile I mean basically just like zeroing in on like what is the hot space and specifically what is the best company within that space and somehow figuring that out being able to assess a Founder you know that's like a very subjective thing so I think there's lots of qualifications that you want to see in a VC now at the same time I do think that if AI is the next wave and the next sort of platform opportunity as we all think it is I do think that place is more of an emphasis on technical skills and I was I was literally just having this conversation at craft that gee maybe the next hire we should make at craft should be someone who's really deep technically so they can you know help go deeper on technical due diligence of AI companies they've never made money what's that they've never made money in the history of our business who those people that archetype of hire has never done it on behalf of Wellies biotech and Life Sciences they have usually what kind of highest investors usually people saying he's saying a technical hire who worked in the trenches at a company is not as fit no has not in the past has not in the past gotten DPI whereas somebody who is more commercial able to analyze a business the ideal person is going to be able to get returns right right so so look I think you know the ideal person would be someone who's funnily a great investor but also has some technical background and some technical chops we also have a team Approach at craft so if you have someone who's very technical they can just diligence the technical aspects of the deal somebody else can be responsible for you know making an assessment of the founders how we've solved this is we have a group of third-party individuals that we work with that we keep on retainer that we compensate and whenever we need to do deep technical diligence we partner with them to do that work with us and what it allows us to do is get the best of their technical thinking without also putting them in a position of trying to adjudicate whether this company is good or not what I'm trying to understand is what is this Technical Edge and can I understand the boundaries of that but I I still keep the investment decision to myself and my partners because otherwise the difficulty is in my experience deeply deeply technical people are extremely good at diligence but generally are poor at making investment decisions because there's a part of their brain that flips on which is like I could do it better or I could do it this way or I could do it that way and I think like that anchoring bias can be very dangerous and you you almost want to be a little dumbed down from that depth of knowledge because you either find everything that is like not worth doing and then you can miss a market or you miss the thing that is good enough because you're like oh well I would have done X Y and Z in a different way so we kind of like use them but we keep them at arm's length so that they never feel the pressure of having to actually decide on our behalf how the money should be spent yeah I mean that's interesting yeah the number one thing we're doing at this early stage is training our Founders I know this sounds crazy on accounting best practices and pricing best practices and we literally have Founders who have never made a plan I'm talking about at the seed stage who don't know accounting and so we are running four seed stage startups and I'm kicking myself that we didn't do it two years ago or three years ago but better late than never on how to just maintain their books and understand operations and the the operational lack of discipline in the market I'm seeing series a and series B companies that literally don't understand their own accounting and so when we start talking to their accountants there is a huge gap between what the accountants think of this business and what the founders think of these businesses and Founders think they have more Revenue than they have or less Revenue they're really don't even know how to calculate their runway in an honest way and so there is back to your point chamoth about on the on the Venture side of the business a lot of product focus a lot of operational Focus there's not enough focus on just the bottom line the reason that happened is is what Friedberg said before which is like somebody would build something there was a little bit of momentum and you'd have to go and present these Bona fides to these entrepreneurs to get into the deal and so what Venture firms thought was the right bona fide to present is oh I built XYZ product at this other company right and they thought that that edge could get you into a deal maybe but it could turn out that that was the Raw one company to be in in the first place and so you just missed an entire generation of value creation because it happened sort of off-piste off the trial like yeah you really do need to understand fundamentally because we're talking about public markets here the Facebook analogy what is the ultimate earnings what is the ultimate cash that is going to get thrown off this business and that's what the whole industry needs to I think pivot to and just that needs to be the operating principle do you guys know how much money Facebook Amazon Google and Microsoft raised combined total before they went public that's very small I mean Google is minuscule less than a quarter billion dollars unbelievable yeah all the inefficiency is extraordinary and then on top of this inefficiency I don't know if you're seeing this they were all profitable when they went public on top of all this inefficiency is a dependence on Venture debt I don't know if you're seeing this sax but the amount of focus on adding debt to unprofitable companies over the last five years has been just extraordinary I don't understand what I've never understood the Venture debt model or really how it works I feel like it's a category that doesn't make any sense say more I mean well I mean explain it to people what's happening I don't really understand how it makes sense for lenders or for Founders to be honest I think the whole industry doesn't make any sense for Founders I don't like it because the money has to be paid back right it's debt so Founders take in this Venture debt thinking like it's an equity round but without dilution with some warrants and they don't realize well wait a second we got to pay this back in a year or a year and a half out of the next round they do but that creates an overhang on the next round because the new VC is coming in they want their money to go into the company not paying off a bank so it actually makes the next round less attractive the other thing about it is that the lender is not getting an equity reward so they don't want to take Equity risk they may be getting a nice you know coupon might be getting nine percent or something like that which sounds high for debt but they're not taking True Equity risk in the company so the last thing they want to do is be your last six months of Runway right they want to be your first six months of Runway and then and then get paid off on the back end and I think a lot of Founders think oh well I'll take this money and it'll extend my Runway from 18 months to two years but what will happen in that last six months is all of a sudden the bank will come to you and say no no no like you have this or that material adverse Condition it's called a Mac out and there's all these like terms that Founders don't understand because it's highly legal covenants and so all of a sudden the founders find themselves with a lot less flexibility in that last six months to a year either a covenant gets triggered that makes them pay back the money immediately or their business flexibility goes way down because they're Consulting with their Bank about everything all this is coming home to roost right now I think it's a terrible deal for Founders and I think that even for the lenders I mean I guess I assume that these Banks know their business better than I do but but I I think that the reason I don't trust it as a category from you know from A lender point of view from like an investor point of view is that all the data about defaults over the last five to ten years happened in this free-flowing zero interest rate environment and so the startup mortality rates were artificially low because it was so easy to raise so yeah Venture debt makes sense in an environment in which Founders are generally able to raise the next round and then pay back the Venture debt but let's say that that that tweet storm you you mentioned Jason can you bring that back on the screen I actually think this tweet storm is basically correct is you know I've referred to on this show before that I think one of the things that built up during this bubble is latent startup mortality so many startups that should have died from not being able to raise next round live because they're able to raise money and what this tweet storm is predicting is that in the second half of 2023 and then 24 you're going to have a huge crunch where all these companies have to go out and raise they've been waiting so they're all going to get to the point where their cash is so low they have to go out and raise and now all of a sudden they're going to be confronted with the new market conditions I wonder how many of them have Venture debt as an overhang and that's those ones yeah and they're going to find they have less Runway than they thought because again those Banks you know they are going to try and collect the debt before the start runs out of money not you know when it runs out that's two falling knives exactly so so look I just wonder what I what I don't trust is whether the the return models on Venture debt that were created over the last five to ten years will be a good predictor of what the returns will be in the next five ten years when a lot of the mortality that should have happened in the past now happens in the future well I mean then and sax correct me if I'm wrong here but I'm also starting to see really gnarly term sheets people foreclosing on businesses people offering like literally had a term sheet come in like we're gonna forgive the last note and take this business over for a dollar and everybody gets wiped out the amount of bad feelings that you have to go through even if the there is a Core Business to free Breakfast Point earlier hey they raised 100 million but there's a 50 million dollar business in here that people would love to invest in who wants to go through the hand-wringing the negotiation the toxicity of a recap it's an extremely hard process to go through you going through any Recaps right now sax and what is the what is the approach of the firm in terms of dealing with these kind of situations do you even want to start that discussion up or is it too painful I don't think for most of our companies we're at the recap or restructuring stage I mean I'm talking about the ones that aren't going well people still have a fair amount of cash in the bank and we've been beating the drums for literally what about your opportunities a new opportunity comes to you it's one of these overhang companies that wants to restructure would you even engage that or is it just too hard I looked at seven at the end of last year and I tried to reprice three of them and every single one was able to get a convert done away from us yeah so I mean yeah I mean we tried to find a market clearing price for this Equity but nobody wants it to David's point because there's too much money on the sideline and people are willing to give them a Lifeline that doesn't force them to come to hard terms with what the reality of the moment is yeah I agree with that we're not quite there yet and and I think the the reason why that that tweet you posted got some traction is it's saying listen the crunch is going to happen second half of 2023 and 2024 that's where you're going to see the down rounds that's where you're going to see the restructuring the Recaps and all the rest of it and um look I'm sure like every VC firm is going to be a player in that but yeah it's going to be a lot of miserable work this is for Founders you see people's true colors when when when you have to recap a company and yeah this way you can really start to see how crappy it was in 2003 to be here remember 2003 Penfield oh my God oh my God I found some yeah there was are you lucky to raise 500k on a three million dollar oh my God like 2004. like what a brutal year yeah there's gonna be a lot of that I think the next 18 months or let's say the next two years it's going to be pretty rough for a lot of companies and it's just that they didn't cut enough I mean we've been beating on the drums for a year for companies to lengthen their Runway and some did to some extent but money didn't do enough and they're going to get caught in this crunch can we just go to that chart that Brad put out I think that what a lot of founders don't quite understand still is that things are just never going back to 2021. I think a lot of Founders listening to the top of the show where we're talking about inflation is under control they see the market rally Facebook's up 25 percent they may be thinking okay we just have to weather the storm for six months or a year and then everything's back to normal and I think what's important to understand is that the market did bottom out about a month ago and is up pretty nicely if you see here this is the SAS index it's the median Enterprise Value divided by next 12 months revenue and it was really beaten down about at the end of the year at the end of last year coming into this year you were yeah it was like it was like four to five x multiples of of next 12 months revenue for SAS companies that's all the way up to 6.1 now so you're talking about 20 to 50 rally for a lot of companies which is huge we're still below the long-term median which is just under eight okay but what people need to understand is that even if we revert all the way to the mean of a which I think at some point we will that's still well below the bubble of 21 where they got to 16. so even if things continue to inflate valuations will still never quite be where they were in 2021 and if you think it's getting back to 12 or 16. for high growth companies for high growth companies in 2021 you were in the public markets you were seeing multiples of 30 to 35 times now those companies are maybe at eight to ten yeah or 12. I think the reliable way that we can look at this for the future is that we're never going to see these kinds of multiples again unless rates are zero and all kinds of tourist capital need to find a home to escape zero percent returns in every other asset class but if even the safest asset class now will give you three and a half four percent this is probably the new normal for quite a long time and we're going to be back in that early 2000s kind of mindset which takes a lot of hard work to build value around we talked about the sort of whipsaw economy and and there's a lot of mixed inflation data I think Founders need to understand that there's a bifurcation what's happening in the tech ecosystem is not necessarily what's happening in the overall economy the tech ecosystem is clearly going through a reset and a recession job cuts are now the rule valuations are much lower whereas in the overall economy we saw a job support today of over 500 000 new jobs so the fact of the matter is that even if the overall economy avoids a recession that doesn't mean that things are just going to bounce back depression slash recession best cases that is a boom bust cycle and we have a phenomenal yeah 10 years of Boom now we're in a bust and so I would just like tell Founders you know look it's good if we have a soft Landing in the economy I wouldn't assume that that's going to happen I still think there's a really good chance of recession later this year but it almost doesn't matter for you what matters is your business and the capital availability for startups which is fundamentally different and will remain different than it was in 2021. Freeburg you were talking in the chat about a Donny Enterprises and Hindenburg doing this short research and Publishing it stock is just absolutely gotten clobbered they were trading at uh gosh 4100 was the 52-week high and this thing has just cratered in the last five days I mean I think to explain what's going on here well I mean the story that the conversation I thought it would be interesting for us to have is the role that these short seller research analysts play in driving efficient markets by identifying perhaps things that the market broadly is missing particularly given that a few weeks ago we were all kind of talking about the FTX debacle and how no one was doing their diligence and no one was digging in and no one was kind of revealing publicly what was going on inside of that business that ultimately caused significant losses you know the claims made by Hindenburg is that this company adani which is founded and run by a guy named Gautam adani you started the company like I think 30 35 years ago and he's built this thing into this you know the sprawling Empire as people would say where he owns ports he owns mining companies he owns energy transmission businesses he's got a whole green energy business and he's taken a bunch of these companies and he's floated them publicly so they're all kind of publicly traded there's some degree of interrelatedness between all these businesses it reminds me a lot of I don't know if uh if any of you guys remember aiki Batista out of Brazil you guys remember this guy where you know he kind of built this sprawling Empire very kind of broadly Diversified industrial conglomerate with you know lots of different kind of segments and used a lot of Leverage a lot of debt to grow the business and a lot of interrelated inter-party transactions and ultimately the whole thing kind of came crashing down and that the sadani business it's super technical and super complicated all the kind of accounting shenanigans that Hindenburg is claiming has been going on and Capital Market shenanigans that they're claiming have been going on with this business but their kind of report which I think is like 400 pages long has caused the responses 400 pages long too yeah and then the Market's Shrugged off the response that he put out didn't really care and they kept selling the stocks off so there's like seven or eight publicly traded companies all of which are just getting decimated look I don't have any strong opinion on this business I you know I kind of skim through the thing but you know it really made me question like how such a big call it accounting or Capital markets fraud if it really is that can go on and how much of a role these sorts of players play in the market whether you guys think that this is a good thing in the market to have these short seller reporters out there you know doing this analysis publishing it Jason by the way you called out Nick Nicola Nicola the the electric car company as you know Hindenburg put out that Nikola report stock tanked right they claimed it was all fraud Etc and then the thing got done it was Trevor Milton got convicted yeah right and so I mean I guess do you guys think that these guys have have a positive role net net in the market in kind of identifying and calling out this stuff because we all have friends that are on the wrong side of short Sellers and they complain about it and it can be really difficult to grow and build a business when people Elon had these guys literally claiming he was running a fraud for years and years and it was an intense amount of scrutiny because when the Trap when the stock was less trafficked when we were in it in 2015 and 16 and 17 that was the constant refrainment Elon was constantly batting back folks like this who would make claims and the way that these guys are allowed to operate is because they use the First Amendment and say we have the right to say this stuff I think that shorting falls into two buckets one is you use it as a hedging instrument so when we talk about spread trades like long Google short Facebook or long Facebook short Google you should be allowed to short I think that that's a very reasonable thing to do I think the the question is if you were on the inside of a company and you say XYZ is happening for example Trevor Milton and it causes the stock to go up and it turns out to be fraudulent he's held accountable the question is should there be the same responsibility for people on the outside who if they have enough distribution can say the exact opposite of XYZ is happening in this case XYZ is not happening which then causes the stock to go down because what the business model of these short sellers is write a document it looks very polished and very credible put on some positions then put the document out if the stock goes down you close it out in my opinion I think that short sellers are a really important part of a well-functioning market or the ability to short but what I would like to do is take an extra step which is you should hold these folks accountable the same way you'd hold an Insider accountable which is almost to the effect of like when you put out the screed if you make money from it it should sit in escrow and the SEC should actually adjudicate whether it's true or not so in the case of Hindenburg and Nicola they shorted the stock they put out a report it turned out they were right all that money is completely well earned now what if this adani thing turns out to be not true or true nobody knows right now except 50 of the market cap has already been wiped out so that's where things I think are are in a bit of a gray area the last thing I'll say is that if you look at in the developing world there's a very gray line between some of the leading entrepreneurs in these governments because these entrepreneurs are doing the work of some of these governments whether it's IQ Batista in Brazil in one moment right around natural resources or adani and Ambani in India or a lot of the people that made a lot of money in China or the people that are making money and in developing markets turkey Russia Etc the government uses very talented entrepreneurs to go and concentrate Capital to develop infrastructure progress we did that in America in the 1800s as well so that's where I think you know you have to also balance it because his response was basically like this is an attack on India and in a way you can see where he's coming from right because he's building ports and roads and bridges and he's like without this stuff how is India supposed to even exist in the 21st century that's a reasonable claim so I agree with you Freeburg I don't know whether the report is right or not but this extra step of actually having the SEC actually tell us what the answer is I think would be a very important Improvement to how this kind of stuff works the other Improvement that the SEC has been proposing in rule 13f-2 is that people would need to disclose their short positions right this proposed rule would require institutional investment managers I'm reading from the SEC website managers exercising investment discretion over short positions meaning specific specified thresholds to report on the proposed form Sho information related to end of month short positions and certain days [Music] that should absolutely pass right the commission would aggregate the resulting data by security their board maintain thereby maintaining confidentially of the reporting managers yeah and publicly to sending the data to all investors this new data would supplement the short sale data I think this is right I mean this is less about like who's doing what and it's much more about are we kind of creating critical fail points in the system by seeing over leverage and over lending in certain well there should also be some animals about the spreading of fear uncertainty and doubt that fud that happened with Tesla Q I mean paradoxically you know thousands of no but people that but that's Anonymous accounts you know that's that's an example of people essentially lying in public yes try to get the stock to move and Tesla's not a fraud that's a real company but there was any car of the year while this was going on but there was a real human rights to that company right to employees that got spooked to Partners that may have gotten spoon the pressure you know we saw this the pressure on Elon in those periods of time and he was he was like on the knife's edge where there was the potential where the company may not have been able to finance its cash flow needs because of those Tesla Q guys and so it's not to say that the Tesla Q guys can't say it but they should be forced at some level to prove it if you can create crazy stuff I posted a link by the way for anybody that's interested in reading this there's a person uh called Carson block who's being investigated yes because he may have pushed the boundaries of how short sellers do this it's a really fascinating read in the Atlantic for anybody who wants to read it but this is sort of where the short selling thing can a little bit go awry and it's the title of this is the man who moves markets and it's it's quite a quite a really interesting read if you're interested in in how all of this stuff works all right everybody that's the all in podcast for February third and fourth for Saks free bargain chamoth I'm Jake how the world's greatest monitoring we'll see you next week love you boys bye-bye [Music] besties [Music] it's like this like sexual tension that they just need to release [Music] [Music] I'm going all in








I had this thing with my oldest son where I don't know if it's all kids but he's 13. he doesn't know how to answer the phone not to save his life oh oh he picks up the phone huh hello and so and so I said listen from now on when you call me I expect a certain way that you pick up the phone and that's going to be practice for you how you interact with anybody else and vice versa says well if I call you you have to pick up the phone and if you don't I'm hanging up right away so yesterday he calls me and and I'm like Tremont speaking you know it's like hello speaking Dot hi honey he calls back hello speaking dad hung up again we did this three more [ __ ] times and then finally I said when will you get it through your head can you please just answer like if I say hello to my speaking Hey Dad it's your son or Hey Dad it's and it's unbelievable and he's like well none of my friends pick up the phone like this and I'm like oh my God like don't they think they need to have verbal communication skills it's unbelievable and then when I call him he picks up the phone oh what not even hello huh it's like a grunt minimal efforts like the minimum minimum number of syllables it's it's embarrassing are you kids like this or is it just my kid actually I don't think I've heard him pick up at the phone I need to test that [Music] Rain Man [Music] [Music] Jay Cal was on Twitter calling me out for not denouncing the Chinese balloon a strong enough language although I don't think he understood the language I was using um did you understand what the word errant means what did you think it meant I you know I do understand yeah it generally means Strang of course yeah and traveling in search of Adventure at least according to Merriam-Webster so I just thought maybe you're being a little but I know you're a Duff so but it was a little dovish thinking they were just off course I think you'd think they were off course or they were doing it deliberately you buy that it was off course genuflect go genuflect Jacob go go go so I knew Jacob would have to join in this Nationwide panic over this balloon I have no panic over yeah Jacob I got some really bad news for you there are these things called spy satellites everything oh I know it's obvious people they've been sending these balloons over here for a while I just thought your framing as it was errant it's such a hair brain scheme to send a balloon flying over American territory that the Occam's razor explanation here is that they somehow lost control over it and these things are not steerable so like my guess is that it probably wasn't deliberate just because of how stupid a plan it would be and how like obvious it would be but it could be I don't really know what I do know is that the whole nation got in a lather and a tizzy and started hyperventilating about this balloon and it just shows how reflexively hawkish the media is you know it's like hey can we just wrap up this war in Ukraine before we start another war with an even more the media superpower the balloon got more intention than us blowing up north stream exactly okay well hold on we're ready to jump injured no what I would say about that is uh the media Insight is the valid one I was just responding to the errand and I was curious if you actually thought it was an accident I don't think it's an accident I don't think there are acts well I think it clearly was off course and problematic so you know I don't know about the intentionality of it I I think I think it very well could have been intentional but I tend to think because it's such a stupid hair brain scheme like I almost given the benefit of the doubt not because they're not capable of spying I'm sure obviously sure obviously they're spying on us just like we're spying on them that's what yeah we both do but I it seems like such a stupid way because it's made for TV moment you have to understand the nature of live television why the media overreacted to it it's ongoing so because it it's not final it's like a live event occurring like when kids are trapped in a mine those are the best stories for CNN because you can keep updating people and people keep turning the TV on to check on the status so this one was just made for CNN because obviously we're going to shoot the thing down and obviously you can interpret into it if it's an accident or not and just gives them something to talk about on a slow news week but it is interesting I think your point that is interesting is is the nordstream story correct or not why is that not being covered it's not being covered because there it's not an ongoing story so that just shows you you know I don't think that's right I think it's not being covered because the mainstream media already took aside on this oh so remember cynical yeah well it's not it's not just cynical so when when Nordstrom got blown up the administration came racing out with the line that the Russians did it that they this was self-sabotage and by the way the media repeated this endlessly this was the media line and it never really made sense to anyone who's paying attention because first of all this was an economically vital asset to Russia second it was their main source of Leverage over Europe was there control over the gas Supply it's the idea that they would shoot themselves in the foot that way just to somehow what show how crazy they are it never really made sense anyone was paying attention and the fact that the administration the media so quickly raced to that conclusion suggested that it was maybe a cover story because if we had nothing to do with it you would just be more neutral and say yeah we don't know what happened but they had to like promote this line that well the Russians did it which just never made any sense and now cyhurst has come out with this story so it laying out in great detail how we did it it's not just saying we did it it's laying out who did it and how and the steps and all that kind of stuff and just so you guys understand who this guy is he's this legendary Pulitzer prize-winning journalist he's like 86 years old or something like that now but he broke during Vietnam he broke the story of the milai massacre which the military denied until he proved it uh he broke the story during the Iraq War of the Abu gray prison abuses which again the media the military denied until it was undeniable these Pulitzer winning is all you really need yeah basically another covert military action and look we don't know for sure whether it's true or not but it looks it looks pretty bad do you think that Europe knew do you think that the Europeans were told that the Americans were going to go and blow this thing up if that's true by the way the Administration has said clearly this is a false statement I think the specific code was this is pure fiction the Ukraine would be the most likely uh person to do disability you got to look for means motive and opportunity they don't have the opportunity to go down the story I don't think I don't think the ukrainians have the capability to do an undersea Mission like that ah interesting the Norwegians do and the story maintained that we did it with them the British do story didn't say whether they were involved or not so no my guess is that if this was a covert U.S activity it was kept to a very small group which is why it'll be hard to prove more definitively than this the other side of the argument is this is such a provocation and the administration saying it's fiction so what is your response to that sex like would the U.S do something so provocative or would they have somebody else do it and would Norway do something so provocative it seems an extremely uh it seems like an extremely offensive technique as opposed to just backing the Ukraine to defend itself against Russia's Invasion here's the thing before The Invasion Biden at a press conference said that if the Russians invade Nordstrom would be no more and they asked him well how can you make sure that that's a deal between Germany and Russia we're not involved and he said we have ways we have ways distrust me it'll happen separately Victoria Newland is our deputy secretary state said something very similar about how we would stop nordstream if the Russians invaded and then after Nordstrom got blown up blinken at a press conference said that this was a wonderful opportunity and was extolling all the benefits of this and then Victoria Newland had a congressional hearing said that I'm sure we're all very glad that it's a hunk of metal at the bottom of the sea again extolling all the benefits and we've discussed the benefits on this program of now we've shifted the European dependence on Russian gas to dependence on American gas so the fact the matter is the administration kind of telegraphed what they were going to do they had the capability to do it and they had the motive to do it so it's certainly a plausible story you're right that we can't know for sure it's a single Source depends on the credibility of Psy Hersh but as it stands right now whose story do I think makes more sense probably Psy hershis you believe Sai harsh over the spokesperson for the CIA who wrote the claim is completely and utterly false just to be clear well these these same people denied Abu Gravely you believe they deny everything okay they deny that um NATO expansion anything to do with the you know breakout of this war yeah I mean this is one of the situations where we can't possibly know yeah you make a good point jcal which is this if true and look I'm not saying I don't know if it's you're leaning towards believing it I lean towards thinking it's more plausible than not okay uh because also like who else could have done it and who again who had the motive means an opportunity but you make a great point which is if we did it it's an incredibly provocative act it's basically perpetrating an act of war against a country that has thousands of nuclear weapons Biden promised us at the beginning of this war that he would keep us out of being directly involved so this would directly contradict what he said at the beginning of this war so I think it's a very scary situation here yeah I know yeah if the US didn't do it like why don't we find the real killer I actually have this I have the theory here's my theory the CIA knew how to do it Biden uh wants to do it the Republicans want to do it obviously the the people who are the most pro-stopping Nordstrom have been the Republicans they've LED this charge uh even more than the Democrats so it's it's a bipartisan issue stop Nordstrom bipartisan issue hands down I think the CIA probably knew how to do it and just like we equipped the Ukraine to do it we might have facilitated the Ukraine and a collaborator UK Norway some Freelancers you know we have those freelance uh former Navy Seals that operate perhaps the CIA just said to the Ukraine here's a you know Black Ops group if you wanted to engage them you could feel free to do so which would then split the difference between what Psy is saying what the CIA is saying which is typically where the truth lies is probably between what this investigative journalist of note has said and what the CIA is denying the CIA probably has plausible deniability that's my opinion well if you could find a source for that story J Cal that lays out in the same level of detail that Hirsch has laid out in terms of the meetings that occurred what was approved when how they did it uh the you know when they did it the explosives they use the divers they used it goes into a fair amount of detail incredible detail right but you're you're trying to put what you just said which is basically you inventing a story on the same level as Russia's story yeah I think yeah I understand but he actually has a lot of detail in his story yeah he had he had umpteen sources there was a lot of people that were willing to tell the story no no I don't think that's actually the case I don't think it has umpteen sources and there's no on the record there's one main source there was one main source yeah but Who provided a ton of detail I don't know exactly how much he was able to directly corroborate with other sources I don't know that the other thing I wonder sax is he with this one-store story he has a collaboration with the New Yorker and anybody would if this was a really well sourced and you could back it up kind of story they would love to have the ratings for this story there's a blockbuster story or as it happens a long time which we learned was it through the Valerie plan Affair which is that these major news Publications will some sometimes have a back Channel back to the National Security apparatus when they have something like this and the message was you can't hit print on this yeah in which case possibilities too he goes and just self-publishes himself which wasn't really even an option a few years ago no yeah so I mean this is this is the raw shock test of raw shock tests you have the media you got the CIA it's fodder for a great movie when I go back to Jay Cal is I think you can lay out some theories about let's say you know the polls did it or maybe ukrainians with the British or something yes you could lay out those theories but the media wasn't willing to entertain any of those theories when this news broke what did they do they blame the Russians and that story made no sense but they said it so definitively they just for the source on that I'm looking for Nick if you could pull up the source of the administration blaming the Russians I just want to make sure we're active at a press conference yeah by the Russians now they didn't push it that hard what was interesting is the bite Administration set up but they didn't keep coming back to it but the media really ran with it and when people on both the left and the right like people like Jeffrey sacks on the left and Tucker cross on the right basically started a question whether the U.S could have done it they were accused of being conspiracy theorists and you know Putin Stooges and all the rest of it and now all of a sudden Here Comes Seymour Hersh with a pretty detailed story lending Credence to that point of view yeah it just may indicate we don't know everything that's going on with this war and um I think the longer this goes on the more dangerous it is Freeburg you have any thoughts on geopolitical issues and who might have blown up north stream uh what are your sources saying Freeburg what are your sources and science quote are saying speculation is best left to the future I don't know about the whole speculating on what could have been done in the past by someone those are conspiracy theories and little things they're not they're not actually conspiracies North stream was blown up you understand that right like there's no doubt I'm saying Theory oh yeah Jay calistheory is this you've got to bring data to the table Yeah pure speculation you got to bring data to the table to make it uh by the way speaking of which Radix Sikorski who is a Polish Diplomat I think he was like their foreign minister when Nordstrom blew up he tweeted a photo of it saying thank you USA oh which was one of the reasons why people thought that okay like yeah of course the US did it you know who has the capability to do it who has the motive to do it who said they were going to do it and who benefits who benefits who is conducting NATO exercises in that region right three months ago yeah exactly and Jeffrey sacks pointed that out on I think it was a CNBC interview before they basically stopped him because he's not allowed to talk about this on you know Network TV apparently but he basically pointed out they were like us radar signatures in the area President Joe Biden declared that this is from Bloomberg that a massive League from the north stream gas pipeline system in the Baltic Sea was an intentional act and that the Russian statements about the incident shouldn't be trusted it was a deliberate Act of sabotage and now the Russians are pumping out disinformation lies Biden 12 reporters Friday at the White House so he didn't exactly say the Russians did it he just said it's an act of Russia what's that the media did you could do one of these montages where it was like Russian sabotage in fact he said it was an act of sabotage you should actually look at what Biden said everything he said is absolutely true if the US also did it correct yeah every single sentence that Joe Biden said is 100 true whether we did it or whether Russia did it it was a deliberate Act of sabotage by us think about it if we did it we know they didn't do it and then we have to be like careful about suggesting they did it what are the Germans think because this is the Germans pipeline this so if we blew it up that's also an uh explain to me you're thinking on the chessboard of our relationship with Germany if we blew it up would they not also see that as a hostile act this is why I asked if Europe knew because I think you have to tell Germany that it's going to happen and I think the quid pro quo with Germany is some amount of Guaranteed Supply that the U.S directs into Europe so that they know that their long-term LNG Supply is intact so that they become ambivalent right there's a point of indifference where the Germans say okay we don't know when this thing is going to get turned back on and we don't know about the implications of it are here's what our demands are meaning our energy Supply our energy needs are and so as long as the United States can say look worst case we have stuff in the you know spr that we can give you there's probably a point of indifference where the Germans say okay we're just going to turn around and not say anything and I'm curious did the Germans say anything when this happened I'm looking for the jury I was literally just typed to Nick what was the German's position on this because that's interesting too that's a tell well yeah if you're breaking this down like a poker hand we're trying to figure out if you construct this hand right pre-flop it's like you know where both of these folks are right okay there was a really interesting video that a guy named uh Matt orphelia who puts together these really funny videos he put together these montages of media reactions to things and what he shows is that you know you can have like 20 different media outlets and they all use the exact same words and when he Clips it together you can see that the reading from somebody's talking points and it's not really clear who and and basically if you look at his video here on who blew up north stream pipeline you see that there was like a party line from the mainstream media on the stuff the Nordstrom too we will bring it into it what how would you how will you do that I promise you we'll be able to do it the Nordstrom pipeline I mean I said it's most likely Russia Russians sabotage on its own infrastructure it's a common sense matter I think it's Putin's way of sending a message what guten is saying To Us by blowing up this pipeline is look I can blow up a pipeline everyone knows that Putin did this himself who are these Talking Heads without the correct proof yeah I think logic and Common Sense will tell you that without the evidence Russia was behind the incident we can say it for sure who sabotaged the nordstream 2 pipeline I had enough it's nonsense come on you know it's these Talking Heads who have no first-hand experience it's fantastic it's fantastic all his videos are like that where like he has one on the hunter buying laptop as well where again he's got like 20 different Talking Heads and and media Outlets all portraying it in exactly the same language Sunday morning shows you hear the same narrative from each side how does that actually get coordinated each side builds those bullet points emails there what do they call them um surrogates they email all the surrogates and say just keep saying these things over and over again to codify yeah so what's up group it's a WhatsApp group and they're just like say this over and over again how does it work sex I think it's partly talking points memos I go out to chat groups I think it's also just people looking on Twitter and then there's like certain Keynotes that they follow and they know okay this is the party line because such and such key person is saying it and they take their cues it's that uh memetic memic effect that you guys always talk about people yeah the memetic yeah the thing to understand is that all the prestige Outlets repeat the same party line and have the same perspective yeah you got you gotta do your own search for information this is the beauty of sub stack actually that's why sub stack is so important is it actually gives you disruptive yeah alternative because like you've got 10 different mainstream media networks or newspapers and magazines but they all have exactly the same talking points except you know maybe Fox News is kind of the one exception although even Fox on the whole Nordstrom thing you saw that a fox can be pretty militaristic and they had the same generals basically blaming the Russians for this on Fox yeah Germany's position is just hey everybody uh this is sabotage so that's it sabotage I think you asked a really good question there about the German interest in this right now the German economic interest and the German foreign policy interests are not aligned what's clearly best for the German economy is to have cheap natural gas powering its Industries even if it comes from Russian Pipelines and they no longer have that anymore in fact they may never have that again so they're going to pay a very high price economically maybe forever and remember their their whole economy is based on industry they're a very industrial power so if this war drags on for a long time I think Schultz might be in some political trouble precisely because he's gone along with the Americans on this and there is there is a growing political opposition to this war inside of Germany War fatigue is a real thing and this thing's got to wrap up at some point any uh final thoughts Freeburg I don't you didn't get too involved in that conversation but what is uh any any game theory from you no okay there you have it folks Sultan of science checking in what's the problem you don't want to criticize the establishments is it predicted why don't you have my position on this is it because I'm trying to understand because I don't think anyone I'm not I'm not pro-establishment I think you know that I think I'm I'm just analytical around the fact that I think there's a strong orientation towards conflict and I think there still is I don't think that there's much of an incentive or a motivation to back down because this conflict creates a significant amount of debt owed back to the US it creates a potential future asset stream creates a realignment of power everyone's looking externally as internal you know economic conflict and wealth disparity issues arise and economic growth is challenged and inflation is soaring it's a great place to you know address one's energy so I think all of this stuff is detailed analytical Shenanigans around who's saying what or who's doing what I think the underlying thesis and the underlying River that's flowing is one that's like looking for external conflict I think the same is true with the US and China and you're talking about the military-industrial complex is going to benefit massive limits the longer this drags out the more the conflict in Taiwan heats up the more we're going to invest in our military we often talk about these things as if they're like top-down like master plan driven and as we all know like there are more Ouija board driven it's a bunch of guys that got their hand on the Ouija board and they're all just had a little too much caffeine you know and in this case I think it's just more about like everyone's a little anxious and the anxiety's leading to a desire for more conflict we're not happy at home if you're happy at home you're not looking externally for conflict that's true in nearly every developed Nation on Earth today that's it I don't know it's pretty simple I like your position I think it's great take I think it's a great thing I think there are a lot of interests who benefit from war and I think the foreign policy establishment is funded by those interests and it's kind of wired for war at least in terms of the reflex right even something as relatively harmless as a balloon I saw that becomes like a casus bella it's like people are ready to go to war against China over that I saw a couple military leaders give a talk a few months ago it's in a private thing so it wasn't on public record with the establishment no yeah I was at the establishment Gathering where the establishments oh this is the Illuminati did you genuflect twice going in because I'm genuflect on each knee then they give you the bag of capitalism yeah what was striking to me in this particular thing where these guys were being interviewed on stage at like a dinner thing and they were so oriented around their next steps in escalation and I think it speaks to the point Zach so like none of them were thinking about like where are we at today how do we de-escalate what is this going to get there was no conversation at all from anyone about resolution or de-escalation with every single one of them it was all about like my orientation for getting bigger going deeper going harder going stronger making this thing bigger and I think that was really scary to me because I didn't I didn't hear anyone having a conversation around like how do we everyone was thinking assumptively it was going to get bigger I like the Ouija board you have to follow the financial incentives when the last time we looked at this right Leon Panetta and all these other guys who were screaming for war they were getting paid by the military-industrial complex I remember when Lloyd Austin was nominated as defense secretary he had some conflict issues because he was just on the board of Northrop Grumman or one of these big military industrial companies and so of course these generals have to push for war because as long as they're girding forward they're guaranteed to have for them a very lucrative job once they leave the military the Ouija board though sacksaw and I'll throw to you maybe you can keep this metaphor going the media's got their hands on it they want ratings you have the energy industrial complex in this German conflict who seeks to benefit massively if people invest in Renewables or you find other you know oil you know off Norway Norway's oil is one of the largest reserves that's untapped so you have this Ouija board media energy and the military industrial complex all moving it at once maybe you can speak to that everyone wants to move it to the side of the Ouija board that says escalate there are very few people that are that have the energy to move it to the other side that says de-escalate the escalation means less energy more less investment so yeah we're gonna go escalate you know who warned us about the military-industrial complex yes Dwight D Eisenhower Supreme online during World War II wins the war Patriot war hero top General becomes president Republican president and is his departing address warns us that yes we need to defense industry but they become a vested interest in favor of foreign interventions of war and in 1960s where's the interest on the other side of it I can tell you this the American people don't want to be in a war with Russia I don't even think most American people want to send 100 billion over there they want to send 100 billion to their cities to fix crime and all the other problems homelessness everything yeah if you've never seen that farewell address from 1961 it is well worth watching you can find it on YouTube just search for military industrial complex Eisenhower and he and this is a person who was part of the military industrial complex saying watch out for this it was a very impressive yes he was in the machine he helped build the machine welcome to the all-in podcast with us again David the dove sacks chamath polyhapatia and the Sultan of science who is on his podcast or my God so many podcasts are doing the Sultan of science is in hot demand what are all these podcasts you're doing Freeburg holy science podcast pulling you in I did a podcast with Brian Keating last week who was really kind enough to reach out he's had some awesome guests he's a cosmologist at UCSD Professor down there and we were supposed to record that day and then we canceled I think last minute right yeah yeah I was only supposed to be on with him for an hour and I'm like oh well my next thing just got freed up so ended up doing like three hours it was I was so I was like exhausted that day so I look really hungover on the video and probably par for the course stumble a lot yeah but no Lex Friedman for you so chamath and I have done Friedman Alex Friedman but you have not he's invited you yet Lex has Lex invited you no no he's not here's my invitation what's going on here collect all four Lex what are you doing all right let's know Davos and no luxury Moon what's going on you remember anti-establishment what's going on no I'm too anti-establishment sucks that's you know mistress nobody nobody's inviting this quartet to anything well full stop we're not doing it all in life from Davos it's not happening folks sorry they don't stop that heat hi Grace I don't want to be part of any club that would have be as a member and they also don't want you there anyway so yeah it works out for everybody it does fill me with like a rage where I actually might agree to doing the all in Summit again by the way proposal coming your way this weekend if you want to really really really thumb your nose at The Establishment yes let's do it set it during the exact same dates and times as an establishment conference oh the altitude and then invite all the best guests so that they are they come to ours Justice establishment conference you could cut the anti-establishment oh that's a tagline let's come up with a tagline that just tweaks everybody list we should create the anti-list you know they have their like establishment list we should have the anti-list that's a good point I like the anti-establishment start with them I have a great Vanity Fair establishment thing story okay I snuck on that list they put me on that list a decade ago let's pull it let me find a link go on the most incredible thing about it is that when you go to the event which is kind of a cool event we all had photos taken by Annie Leibovitz oh and I have a montage of some of the people that took photos that day that's pretty cool me Aaron Levy Priscilla Chan Bezos bunch of people but I look like a toy I was about to say is just before you had just what you had the dad bod and nose fashion sense yeah it was like yeah oh look he looks great here it is yeah basically I had no stylist it was like glasses it was like a year or two post Facebook it was not a good look for me not yeah yeah but that's not that bad I'll show you the picture Tom Ford that was your time he's doing the jeans Blazer thing which is like a really tired look for a Silicon Valley three skinny jeans though it's like a little three skinny jeans yeah that's not so bad just don't pull up the chamoth pictures when he's wearing like oh my God you know his Macy's shirt if you do the Google search you put the images before 2011 you will find some photos I wear the same thing every day for four years five years is brutal oh oh my God what is that's awesome we gotta break this down yeah see this is when the sweater game was not tight this is like sweater 1.0 game it says I didn't know what I was doing back then stop but take these pictures off please look oh he's also got the watch subtly peeking out this is back when he was like oh I got a Rolex ooh that's a picture but anyways yeah this is what the watches were only five years out of zero I don't know if that watch guys or two but yeah same story same same Jake out same same same all right well listen all right listen I got an Apple Watch and I'm gonna upload oh geez yeah there's the dad vibes wow that must have been from yeah Mayfield 13 14 years ago wow God you had no style I really didn't it was rough it really is rough I mean don't pull up pictures of me I was fat yeah yeah pictures of me eating egg sandwiches all over the Internet oh yeah chubby Jacob oh man look at that face there he is oh that's plus 20 pounds let's keep this going search Wars Microsoft versus Google okay it's been a rough couple days for Google we've all seen it Google and Microsoft both did live demos of their new generative AI yada yada yada you guys all know about Chachi PT but now Bing is integrating it into their search engine getting there before Google and Microsoft CEO Satya nadala he is going ham he looks great he's fit he's wearing a tight t-shirt and he is saying he's going to make Google dance dance Google dance he is getting up in their business and uh listen he is in a distant second place so it makes sense on the other hand uh Google's AI demo was frankly a bit of a disaster poorly received stock that dropped 12 since this event and and their presentation did not include the chatbot Bard because in search because it wasn't working it seems like there was an error in it when they said what new discoveries from the James Webb Space Telescope can I tell my nine-year-old and Bard answered that it took the first pictures of a planet outside our solar system which is false which of course we all know about chat gbt it's only right half the time and it's a little woke on the margins so um anyway there was a screenshot circulating today which is probably false but it says the following me and a bunch of co-workers were just laid off from Google for our AI demo going wrong it was a team of 168 people who prepared the slides for the demo all of us are out of jobs I can't imagine that's real uh but if it was that would be a hardcore moment for Google to fire a bunch of people for screwing it up listen you worked in the belly of the Beast Freeburg what are your thoughts on being poking the tiger and telling Google dance you know Sundar dance you know what's interesting is Google's had like an incredible AI competency particularly since they bought deepmind and it's been predominantly oriented towards kind of you know internal problems you know they demonstrated last year that they're AI improved data center Energy Efficiency by 40 they've used it for ad optimization ad copy optimization uh the Youtube follow video algorithm so what video is suggested to you as your next video to watch which massively increased YouTube hours watched uh per user which massively increased YouTube Revenue you know what's the right time and place to insert videos in YouTube or insert ads and YouTube videos so you know AutoFill in Gmail and docs so so much of this competency has been oriented specifically to avoid this primary disruption in search obviously now things have come to a bit of a point because you know this alternative for search has been revealed in chat GPT and you guys can kind of think about search and you know we've used this term in the past Larry and Sergey the textbook that they read you know one of the original textbooks that's used in um internet search engine technology is called information retrieval information retrieval so information retrieval is this idea that you you know how do you pull data from a static data set and it involves scanning that data set or crawling it and then creating an index against it and then a ranking model for how do you pull stuff out of the index to present the results from the data that's available based on what it is you're querying for you know and doing that all in a tenth of a second so you know if you think about the information retrieval problem you type in the data or some rough estimation of the data you want to pull up and then a list is presented to you and over time Google realized hey we could show that data in smarter quicker ways like if we can identify that you're looking for a very specific answer we can reveal that answer in the one box which is the thing that sits above the search results like if you said what time is it you know what when does this movie show at this theater so they can pull out the structured data and give you a very specific answer rather than a list from the the database and then over time there were other kind of modalities for displaying data that it turns out or even better than the list like Maps or shopping where you can kind of see a matrix of results or YouTube where you can see a you know longer form version of content and so these different kind of um you know information retrieval you know media were presented to you and it really kind of changed the game and created much better user satisfaction in terms of getting what they were looking for the the challenge with what this new modality is it's not really fully encompassing so if you can kind of think about the human computer interaction problem you want to see flight times and Airlines and the price of flights in a matrix you don't necessarily want a a text stream written to you to give you the um you know the the answer that you're looking for or you want to see a visual display of shopping results or you do want to see a bunch of different people's commentary because you're looking for different points of view on a topic rather than just get an answer but there are certainly a bunch of answer solutions for which chat DPT type you know natural language responsiveness becomes a fantastic and better mode to present answers to you than the Matrix or the list or the ranking and so on now the one thing that I think is worth noting I did a back of the envelope analysis on the cost of doing this compared to chat GPT so so Google makes about three bucks per click you can back into what the revenue per search is a bunch of different ways one way is three bucks per click about a three percent click-through rate on ads some people estimate this is about right about five cents to ten cents Revenue per search done on Google or anywhere from one cent to 10 cents even if they don't click the ads because one out of 100 people click an ad and that's where the money comes from so let's just call it five cents right and you can assume a roughly fifty percent margin uh on that search which means a fifty percent cogs or cost of goods or a cost to run that search and present Those ads so you know right now Google search costs them about you know call it two and a half cents per search uh to present the results a recent estimate on running the gpt3 model for chat GPT is that each result takes about 30 cents of compute so it's about an order of magnitude higher cost to run that search result than it is to to do it through a traditional search query today which makes today today that's right and so so that's the point like it has to come down by about an order of magnitude now this is a this then becomes a very deep technical discussion that I'm certainly not the expert but there are a lot of great experts and there's great blogs and sub stacks on this on what's it going to take to get there to get a 10x reduction in cost on on running these models and there's a lot related to kind of optimization on how you run them on a compute platform the type of compute Hardware that's being used all the way down to the chips that are being used so there's still quite a lot of work to go before this becomes truly economically competitive with Google and that really matters because if you get to the scale of Google you're talking about spending eight to twenty billion dollars a quarter just to run search results and display them and so for chat GPT type Solutions on Bing or elsewhere to scale and to use that as the modality you're talking about something that today would cost 80 billion dollars a quarter to run from a compute perspective if you were to do this across all search queries so it's certainly going to be a total game changer for a subset of search queries but to make it economically uh work for for these businesses whether it's Bing or Google or others there's a lot of work still to be done the great part about this chamoth is that Bing gave 10 Billy to uh our friend Sam and Chad GPT to invest in Azure uh which now has the infrastructure and we'll be providing the chat GPT infrastructure to startups or corporations big companies and small alike so that 10 billion dollars should do enough to grind it down between software optimization data optimization chip optimization and Cloud optimization yes you would think so or no the ability to run this at scale is going to happen because we're getting better and better at creating silicon that specializes in doing things in a massively parallelized way and the cost of energy at the same time is getting cheaper and cheaper along with it when you multiply these two things together the effect of it is that you'll be able to run these models the same output today will cost 1 1 10. as long as you ride the energy and compute curve for the next few years so that's just going to naturally happen I have two interesting takeaways and one is maybe a little bit of a sidebar so the sidebar is if you guys were sitting on top of something that you thought was as foundational as Google search back in 1999 would you have sold 49 of it for 10 billion dollars hard though I think the answer is no I think the answer is no not in an environment where you have unlimited ability to raise Capital this is something that we've said before which is that chat GPT is an incredibly important innovation but it's an element of a platform who will get quickly commoditized because everybody will compete over time and so I think what Microsoft is doing is the natural thing for somebody on the outside looking in at an entity that has 93 share of a very valuable category which is how can I Scorch the Earth and so Microsoft effectively for 10 billion bought almost 50 percent of a tool and now we'll make that tool as pervasive as possible so that consumer expectations are such that Google is forced to Decay the quality of their business model in order to compete so that as Friedberg said you have to invest in all kinds of compute resources that today are still somewhat expensive and that will flow into the p l and what you will see is that the business quality degrades and this is why when Google did the demo of Bard the first thing that happened was the stock went off 500 basis points we they lopped off a hundred billion dollars of the market cap mostly in reaction to oh my God this is not good for the long-term business that's not good for the long-term business on a mechanical basis when you get an answer you don't have to click the links no right now if you look at Google's business they have the best business model ever invented on Earth ever for for-profit company it just Reigns money this is a business that this year will do almost 100 billion dollars of free cash flow it's a business that has to find ways and we kind of joke but they have to find ways to spend money otherwise they'd be showing probably 50 or 60 percent ebitda margins and people would wonder hey wait a minute you can't let something like this go unattended so they try to do a lot more things to make that core treasure look not as incredible as it is they have 120 billion of cash this is a business that's just an absolute Juggernaut and they have 10 times as many employees as they need to run the core business I don't know what that is but my point is that it's an incredible business so that business will get worse if Microsoft takes a few hundred basis points of share if meta takes a few hundred basis points of share if 10 cent does if a few startups do Cora by the way launched something called Poe which I was experimenting and playing around with last weekend if you add it all up what Satya said is true which is even if all we do collectively as an industry is take 500 or 600 basis points of share away from Google it doesn't create that much incremental cost for us but it does create enormous headwinds and pressure for Google with respect to how they are valued and how they will have to get revalued and that's what happens so the last thing I'll say is the question that I've been thinking about is what does Sundar do right so what's the counter measure yes this is what I was going to get I think the counter measure here if I was him is to go to the board and say guys we're going to double tack right so attack is the traffic acquisition cost that Google pays their Publishers it is effectively their way of guaranteeing an exclusivity on search traffic so for example if you guys have an iPhone it's Google search that's the default search in the iPhone Google pays Apple this year the screen negotiation for that deal could mean that Apple gets paid 25 billion dollars for giving away that right to Google so if these Google does all these kinds of deals last year they spent I think 45 billion or so so about 21 when you think about that Google basically paid Apple which was working on search technology they were working on a search solution they paid them to stand there and they're paying everybody so I think the question for Google is the following if you think you're going to lose share and let's say you go to 75 share would you rather go there and actually still maintain your core strangle hold on search or do you actually want 75 share where now all of these other competitors have been seated well you can Decay business model quality and still remain exclusive if you just double the tack and what you do is you put all these other guys on their heels because as we talked about if you're paying Publishers two times more than what anybody else is paying them you'll be able to get published to say hey you know what don't let those AI agents crawl your website because I'm paying you all this money remember that right so do not crawl in robots.txt equivalent for these AI agents and I think that that'll put Microsoft and all these other folks on their heels and then as as you have to figure out all this derivative work stuff all these lawsuits Google will look pristine because they can say I'm paying these guys double because I acknowledge absolutely this is a core part of the service so that's the game theory I think that has to get figured out but if I was soon I love the second part because hold on let me get saxophone yeah I love the second part chamoth because in this clip I'm about to show Nile Patel from The Verge did an awesome interview with Satya and he basically would not answer this question at least to my satisfaction which is hey what do the Publishers get out of this you've ingested our information how do we get paid watch this clip it's very telling the answer or even in the chat session but if I ask the newbing what are the 10 best gaming TVs it just makes me a list why should I the user then click on the the link to the verge which has another list of the 10 best gaming TVs well a question but even there sort of say hey who added these things come from uh and would you want to go dig in like that yeah even search today has that like we have answers they may not be as high quality answers they just are getting better so I don't think of this as a complete departure from what is expected of a search engine today which is supposed to really respond to your query while giving them the links that they can then click on like ads and such works that way in my mind there's a terrible answer he needs to address how they get paid he punted the answer and just said Hey listen search works this way Saks will the rights to the data will will Google just say to quora hey we'll give you a billion dollars a year for this data set if you don't give it to anybody else they should maybe sax the strategist let me hear your strategy here you are now CEO of Google what do you do I think there's maybe even a bigger problem before that which is I think the whole monetization model might change so the reason why Google monetizes so well is is perceived as having the best search and then it gives you a list of links and a bunch of those links are paid and then people click on them now I think when you search an AI you're looking for a very different kind of answer you're not looking for a list of 10 or 20 links you're just looking for the answer and so where is the opportunity to advertise against that I mean maybe you can charge like an affiliate commission if the answer contains a link in it or something like that but then you have to ask the question well does that distort like best answer like am I really getting the best answer or am I getting the answer that someone's willing to pay for this is your key Insight the fact is if Google gives you an answer you don't click on ads Google has had a very finely tuned balance between hey these first two or three paid ads these might the paid links might actually give you a better answer than the content below them but in this case if the chat GPT tells you hey this is the top three televisions these are the top three hotels these are the top three ways to you know write a better essay you don't need to click you have to give an answer and the model is gone the paid link is still a subset in that case so at Google we used to have a key metric was the bounce back rate so when a user explains yeah so when a user clicks on a result on the search results page we could see whether or not they came back and searched again and so that tells you the quality of the result that they were given because if they don't come back it means they ended up getting what they were looking for and so ads that um performed better than organic search results which means someone created the ad paid for it and the user clicked on it and didn't come back and came back with less frequency than if they clicked on an organic result that meant that the ad quality was higher than organic quality and so the ad got promoted to kind of sit at the top and it became a really kind of important part of the equation for Google's business model which is how do we Source how do we monetize more search results where we can get advertisers to pay for a better result than What organic search might otherwise kind of show and so it's actually better for the user in this case than say just getting an answer for example I'm looking for a Playstation 5. I don't want to just be told hey go to Best Buy and buy PlayStation 5. I want to be taken to the check account page to buy a PlayStation 5 and I am more likely to be happy if I click on a result and it immediately takes me to the checkout page and Best Buy is really happy to pay for you to get there because they don't want you looking around the internet looking for other places and a lot and we we can't convolute all sorts of queries not all search queries are hey you know what's the best dog to get to not pee on the floor or whatever kind of arbitrary question you might have that you're doing research on many search queries are Commerce intention related I want to buy a flight to go somewhere I want to book a hotel to go somewhere I want to buy a video game system Etc that series of queries may have a very different kind of modality in terms of what's the right interface versus the chat GPT interface where yeah there's a lot of kind of organic results that people sift on the internet for today and and and and the question earlier can be resolved by Google doing a simple analytical exercise which is you know what's it going to cost us and what's going to give the user the best result and that's ultimately what will kind of resolve to the Better Business model it's really measurable I think on jamoff's point you know today Google pays Apple 15 billion dollars a year to be the the default search engine on iPhones on the uh Safari browser that's only about a quarter of Google's overall tack the majority of Google's traffic acquisition cost is actually not being paid for search a good chunk of that is being paid to Publishers to do AdSense display ads on their sites and Google's rev share back to them for putting ads on their sites so you know the TAC number I think maybe you kind of want to move the needle but the majority of Google searches don't come through the default search engine that they pay and it might be on it it might it might move the needle a bit but I don't think it really changes the the equation for them my comment is more Tac has to become a weapon on the forward foot number one so if you're going to spend 21 of your revenue on Tac you should be willing to spend 30 to 40 percent to maintain the 93 market share I don't think what you want to see is your profit dollars Decay because you lose share it's rather better for you to spend the money and Decay your business model than have someone decayed for you at this point apple is really the only tack line item I understand I'm not talking about today I'm saying take that idea you have an entire sales team whose job it is right now to sell AdSense right you have an entire group of people who know how to account for tact and how to think about it as a cost but if you're basically willing to say out of the 100 billion dollars of free cash flow I'm willing to go to 80. or 70 billion of free cash flow combined with the 100 billion of short and long-term Investments I have and I'm going to use it as a weapon and I'm going to go and make sure that all of these Publishers have a new kind of agreement that they signed up for which is I'll do my best to help you monetize you do your best by being exclusive to our AI agents right so you deprive other models of your content on your pages because that will get litigated and there is no way just like again if you say Do not crawl you're not allowed to crawl if you're Google or Microsoft researches so I mean so this is going to happen for these agents it's unrealistic to expect that it won't so my point is Google should do this and Define how it's done before it's defined for them because right now people are in this nascent phase where everybody thinks everybody's going to be open and get along and I just think that that's unrealistic it's a really important kind of philosophical question first off like Google today just so people know on AdSense is typically paying out 70 cents on every dollar to the publisher there's you know it's a it's a it's a pretty you know generous and it's it's the way they've kind of kept the competitive mode you know wide and kept folks out of beating them on third-party ad Network bids because they bid on everything and they always win because they always share the most Revenue back so they they own that market with respect to acquiring content you know the the internet is open it's an open protocol anyone can go to any website by typing in the IP address and viewing the content that a publisher chooses to make available on that server to display to the internet and there's a fair use policy and there's you can you can type in this IP address I think 15 or 20 or 30 of the pages on the internet right now are apps that are closed Facebook's close Instagram I'm talking about the open internet right so like the content on the internet but I'm saying the open internet matters less and less yeah I don't know I mean look you're right maybe there's there's the enhancement of the models but my point being that if the internet is open and you and I spent a billion lifetimes reading the whole internet and getting smart and then we were the chatbot and someone came and asked us a question and we could kind of answer their question um because we've Now read the whole internet do I owe licensing royalty revenues to the knowledge that I gained and then the synthesis that I did which ultimately meant excluding some things including some things combining certain things and the problem with these llms these these large language models is that you end up with a hundred million a billion plus parameters that are in these models that are really impossible to deconvolute you don't know we don't really understand deeply how the neural network is the the model is defined and run based on the data that it is constantly kind of aggregating and learning from and so to go in and say hey it learned a little more from this website and a little less from that website I'm not saying it's a practical impossibility I'm saying when you look at Transformer archive texture today every llm that you write on the same Corpus of underlying data for training will get to the same answer so my point is today if you're a company the most important thing that you can do especially you have a one trillion dollar plus market cap that could get competed away is to figure out how to defend it and so all I'm saying is from the perspective of a shareholder of Google and also from the perspective of the board of director or senior executive or the CEO this should be the number one thing that I'm thinking about and my my framing of how to answer that question is build a competitive mode around two things one is at the end which is how much money and what kind of relationship do I have with my customers including the publishers and can I give them more so that number two is I can affect who they decide to contribute their content to so you're right let's assume that there are five of these infinite libraries in the world you mean non-public content how important and also public how important is it if quora says you know what guys I've done a deal where my billions of page views and all of that really rich content core has incredible content Google's paying me 2 billion a year and so I've decided to only let Google's AI agents crawl it and so maybe when there are questions that quora is already doing a phenomenal job of answering I think it does make a difference that Google Now has access to quora's content and others don't right for hot minute they did have access to the Twitter fire hose and that was the premise was we could get this Corpus of data that we can have in a very limited restricted way they paid Twitter a lot of money I don't think that those deals exist anymore Twitter I mean you guys might know better than I do but I don't think they exist anymore here's where chamont I think you're right um and maybe Dave I think you're being too forgiven these models know where they got the data and they can easily cite the sources and they could easily pay for it and if you want go ahead you're absolutely right the video In The Wall Street Journal where Satya was interviewed showed a demo and you're exactly right they actually showed Jason in the search results yes but it made no sense because it's like how do you know that those are the five most cited places that resulted in my page rank technology or the authority of the website or the author but let's pause for a second here there is a company called neva.com I'm not an investor none of us are it's a former googler they have 78 employees I think according to LinkedIn I just typed in what are the best flat panel TVs here's the result and as you see sentence by sentence as it rewrites another person's content it links with a citation just like the Wikipedia does and when you scroll to the bottom of it it tells you hey this is from Rolling Stone this is from Best Buy this is from ratings and if that answer is good for you and you trust those sources those people should get a commission every time there's a thousand searches and you come up you should get a dollar every time your data was used these sites should sue the Daylights out of Google and forget how to say they can't do it is not fair use because in fair use you have the ability to create derivative works on future platforms and you are taking this person the original content owner's ability to exploit that and you are co-opting it and you're doing it at scale and that is against fair use you're not allowed to interfere with my ability to make future products David you know this as an attorney the problem with that lawyer sorry all right well I play one on TV in this podcast the problem with that idea just from a product perspective for a second is that if you limit how they can tokenize to just being all entire sentences the product will not be that good like the whole idea of these llms is that you're running you know so many iterations to literally figure out what is the next most best word that comes after this other word and if you're all of a sudden stuck with blocks of sentences as inputs that can't be violated because of copyright the product will not be as good I don't just don't think it'll be as useful correct these are also not deterministic models and they're not deterministic outputs meaning that it's not a discrete and specific answer that's going to be repeated every time the model is run these are statistical models so they infer what the right answer could or should be based on a corpus of data and a symphysis of that data to generate a response to a query that ref that inference is going to be you know assign some probability score and so the model will resolve to something that it thinks is high probability but it could also kind of say there's a chance that this is the better answer this is the better answer and so on and so when you have like you have in the internet competing data competing points of view competing opinions the model is synthesizing all these different opinions and doing what Google search engine historically has done well which is trying to rank them and figure out which ones are better than others and that's a very Dynamic process and so if as part of that ingest process One is using some open openly readable data set that doesn't necessarily mean that that data set is improving the quality of the output or is necessarily the answer from the output correct let me just give everybody a quick four Factor education on fair use and here it is from Google's actual website because they deal with this all the time and when you look at that the nature and purpose and character of the work including whether such use is not profit or educational purposes so that first test of fair use is hey if you're using it educationally and you want to make a video that is criticism of Star Wars prequels or how to shoot a shot like this Quentin Tarantino if it's educational it's fine and Court's typically Focus I'm reading here from Google on whether the use is transformative that is whether it adds new expression or meaning to the original or whether it merely copies the original it's very obvious that this is not transforming if they're just rewriting it the nature of the copyright is pretty transformative to me I don't think so they're coming out with entirely new content they're just rewriting it they're not actually adding anything to it would be fine if a human does it it's not because it's pretty cool listen Jacob thank you I think the rights issue is just like the cost issue which is a problem today maybe but it's going to get sorted out but here let me finish new technology waves that are this powerful don't get stymied by either chip costs or legal rights issues They Do by Leo it's 100 YouTube got stopped dead in their tracks and the only way YouTube and Napster got stopped in the tracks I predict this is going to get stopped dead in its tracks with YouTube level this is different and Google was enabled piracy and then they had to build tools disagree with jcal I deeply disagree with you I think both you guys you guys I think they think that all that costume let me read you number four well he's gonna stay in the way of the AI no it's going to stay away happening AI is happening like let's move the conversation for it I actually I want to tell you that's my point I would like to make my point we don't your amateur lawyer opinions I am going to give my point I don't give a [ __ ] if you want it or not the effects 500 bucks an hour for pretending to be alone before from you here it is okay take it easy Mr Sub better call jaycalif time you've done this the effect listen to this the effect of the use upon the potential market for or value of the copper work that harm the copyright listen to this very important yeah it takes over the world like Skynet Jacob's gonna be like I thought we'd stop this with rights listen to this AI is not going to be stopped but companies using AI to steal content will be effective use is that farm the original copyright owner's ability to profit from his or her original work by serving as a replacement for that works is the one okay great okay you made your point and you may be right get to Marjorie Taylor green for you let's chew up Marjorie Taylor green no no hold on hold on how much did you weigh I have something I have another aspect of the AI thing I want to talk about besides just this like internal rights issue that you're going on all right better call Jake I'll go so I I had an interesting you know AI experience this week and I I think we're all going to start having these stories to make a script of how to talk to your kids every week there'll be some new like use case that you see that you're kind of Blown Away by the use case I saw this past week in a product demo was they were showing me like an Excel spreadsheet like a very complicated it could sell spreadsheet modeling and financial asset and they had a plug-in to a chat GPT type Ai and so they just asked it they typed in what does this spreadsheet do and it spit out like a one paragraph explanation of what the spreadsheet did and it was really good I mean because me just eyeballing the spreadsheet I could not have figured out like instantly what that thing did it would have to take me like a while to figure it out it told me here are the key inputs here the key outputs so that was number one then they they did something I think even more interesting which is they said give me the formula that tells me when the yield is above two percent and this and that and that and the chat GPT spat out a formula that was like perfect Excel logic that was something that you know URI could never figure out right you need like a super pro user of excel to basically know how to do this stuff so it spit it out and like boom it worked instantly they copy and pasted into the spreadsheet and you could basically like the spreadsheet was much more advanced now so what it got me thinking about is that we're going to have these little assistants everywhere you combine that power with Say speech to text right because we could have just talked to it it would the speech to text would transcribe the instruction spit it back out and you're gonna have these like little personal digital assistants in applications I think you know it's pretty obvious to see how AI could replace call centers with you know having the front line call center operator be instead of being a human it could be like an AI but this is actually even before that like you could actually I think in every single application that we use there's going to be an AI interface and like a it is probably gonna be voice based where you can just say to it hey I'm trying to accomplish this like how do I do it can you just make it happen totally and it's going to be really powerful actually I have an idea I was hanging out with Andre karpathy and I gave him this following challenge so there I was so there I was I said if you had to build stripe I said how many Engineers do you think it would take you and how long would it take you to build a competitor I was just just a thought exercise you know it would take hundreds of millions of dollars and years now imagine you could you were feeling threatened by stripe imagine you're a large company Visa Mastercard just as an example you can now actually get one or two really smart people like him to lead an effort where you would say here's a couple hundred million dollars to compete with stripe but here are the boundary conditions number one is you can only hire five or ten engineers and so what you would do is you would actually use tools like this to write the code for you and the ability to write code is going to be the first thing that these guys that these things do incredibly well with absolute Precision you can already do unit testing incredibly well but it's going to go from unit testing to basically end-to-end testing and you'll be able to build a version of stripe extremely quickly and in a very lean way so then the question is well what would you do with the two or 300 million you raised and my thought is you use it again as tack you go acquire customers you go to customers and you're like well listen if Braintree is gonna charge you one basis point over Visa Mastercard and or sorry 100 basis points and stripel 50 you know what I'll charge 10. margin destruction margin destruction and this is going to make everything what's so interesting you can take any business that's a middleman business I think this is the point any middleman business right now that doesn't have its own competitive mode can be competed against because now you can take all of those input costs that go into human capital you can defer that have a much smaller human capital pool and push all of that extra money into traffic Acquisitions Silicon Valley of being more efficient this is going to lead to that efficient benefit of all of this is economic productivity because the End customer that's using that tool that you just mentioned they now have a lower cost to run their business and their total net profits go up and this is what happens with every technology cycle it always yields greater economic productivity and that's why the economy me growth and that's why I just want to see it so important that's why technology is so important to drive economic growth not debt we've historically used Financial engineering to drive economic growth we need immigration energy and innovation drive this what about China yeah what about China wait what are you talking about what we're just immigration is is AI making it harder and harder to make humans productive so you want to like bring in no millions of Labor yeah one human can can do the coding that 20 humans would do before assuming they're skilled enough to use the AI guys go back to go back to like traditional Capital easier than programming go back to traditional capitalism for a second so please go back because the striped example is another good one so if you have this business model right how does the ecosystem get efficient right how do we create more opportunity to use freeburg's language well the only way that it really happens how does cost go down is that certain entities become big enough that they can drive the prices down right an Uber a doordash or whomever says yes I need payments capability so Braintree give me your best bid checkout.com give me your best bid at the end give me your best bid strike give me your best bid you compete it Down Right Amazon comes in Walmart comes in they do it in physical cpg Goods they do it online they do it for all kinds of Technologies but you've never had an internal form that can create hyper efficiency and and basically create customer value like this thing can because this thing can allow let me show you an example Julian 10 companies to get created that can do the work of 10 000 people hold on let me show you two things these are two aha moments I had this week this first one is called Galileo AI it was just a tweet you describe the design of it here they say an onboarding screen of a dog walking app incredible and you type that in and it gives you a welcome screen that's like a seven out of ten then it says oh a way for people to change their name phone number and password you know that classic screen on any app I need to change my thing boom it gives you that well then at the same time that people are making text to ux user interface beautiful here this stuff will get dumped into figma but then there's a GitHub co-pilot which if you haven't seen we all know it here this is allowing you GitHub and GitHub co-pilot GitHub is bought by Microsoft another one of Satya and nadella's incredible Acquisitions this guy's like the new Zuckerberg I mean what a what an incredible person to come after bomber who's just so effective at what he's doing as you're writing your code it fills in your code it knows what you're writing just like in an email and it's a smaller subset of information than email email you could write anything you could be you know talking to a lover or a business person whatever here when you're doing programming it's a much finer data set these two things are going to come together where you're going to be able to build your MVP for your startup by typing in text and then publish it you're not going to need a developer for your startup that is transformative in the world let me ask you guys a question do you think that this leverage and I I argue this is all about like Leverage it's one person can generate X units of output more Yep do you guys think that this commoditizes and puts at risk sex in particular like all of Enterprise SAS because it becomes such a commodity to basically build a business that does something now or does it create much higher returns for investors because you invest so much less Capital to get to a point of productivity with that business or revenue of that business than was needed before I'm not sure I tend to think that if it gets easier then everything becomes more competitive so right I don't know but so value gets competed by the way I would slightly disagree with the characterization does it scare you as an investor and I I don't know I mean like for example in that demo we just saw what does the AI do it exports the new design assets to figma format because that's just making it faster so if you can create a SAS product that becomes a standard everyone's still going to want to use it I mean there's like really good reasons for that so I don't know I don't think I don't think business software is going away I also don't think that like you're not going to need to hire Engineers because co-pilots is going to do it for you I think what co-pilot will do is make your typical engineer more productive right yes they had some graphs around how like copilot reduced coding Time by 50 right so I think you'll be able to get a lot more out of your developers I think that's sort of the key is a lot of the drudgery work gets taken care of the answer Freeburg to your question is I think more startups more Niche startups will make better products and then you'll just have many more folks entry price matters it'll be poorer returns well entry price matters too if you're investing at 5 million like I do in companies when they're just on napkins and you know back of envelope there's plenty of room if you have a 200 million dollar exit that's a 40x but there could be a lot of new categories too like a lot of new categories the electrical industries that get disrupted like we're thinking about just software displacing software it could be software displacing like industries that aren't even soft video games I think the entire video game industry is going to get completely Rewritten with AI because you're not going to have a publisher anymore that makes one game that everyone consumes you're going to have tools that everyone creates and consumes their own game you guys want to watch this cool clip it's 58 seconds long go ahead this is a music clip day here on all in but I thought it was really cool is this AI turning you into Eminem this is what the world's waiting for I hope it's you doing I'm naturally Eminem like but this is a only in your anger this is the future the future a sound I'm getting awesome and on the ground What's That Eminem at David Guetta playing Eminem a track with Eminem's voice right yes something that I made as a joke and it works so good I could not believe it I discovered those websites that are about AI basically you can write lyrics in the style of any artist you like so I typed write a verse in the style of Eminem about future Rave and I went to another AI website that can recreate the the voice I put the text in that and I played the record and people went nuts all right it's that is nuts it's nuts so here it is folks whoever makes the best Friedberg Eminem hybrid rap with David sacks as the hype man's getting a free VIP ticket to all in Summit 22 there are going to be a lot of interesting mashups that get created like for example you'd be able to create a movie where let's say you want to make a western you want John Wayne to star in it I mean you obviously get the rights but let's say you win a state but no actor ever goes away you could there's gonna be a database of all of them but if you wanted to make it it's going to be better you're going to be writing the script as you write the script the AI is going to be showing you that scene in real time and you don't have to publish it right that's the rainy day it'll just change in real time yeah just like Instagram and Tick Tock basically democratize like everyone's ability to create and publish content this takes it to a whole nother level where the Monopoly that big um production houses have because they have the big budget so they can afford to make a big movie if that cost of making a 10 million movie goes to ten thousand or a thousand dollars of compute time anyway one sitting in their studio in a basement can start to make a movie and it really changes the landscape for all media not just movies music video games and ultimately the consumers themselves can create stuff for their own enjoyment and maybe the best of those products wins but but having each individual here's what's going to happen this become a lot more like the music industry I mean remember anyone can really create a song now and they do and people do go viral on Twitter upload it on distro kit and it's on Spotify did you guys see this article in the New York Times that was kind of throwing some shade at the CEO of Goldman Sachs David Solomon yes look great in the picture but I didn't read it because I figured it's hate they were talking about his his side gig as being a DJ but specifically they called out a potential conflict of interest and it's related to this because I guess he had gotten a license to a Whitney Houston song and he remixed it and released it on Spotify and her biopic is about to come out and they thought that there could be this perceived conflict because Goldman works on behalf of the publishing company and my thought was along the lines of what you guys said like why is this a story meaning David Solomon should be able to go to any website license the song Make it and then submit it back to them for them to approve because the quote in here that that matters is the company that licensed it said we are in the business of making sure this body of Music stays relevant so obviously you want Whitney Houston songs Michael Jackson songs You Want John Wayne you want these people to live on in culture because it's part of our culture look at this subhead David Solomon brushes off DJing the better way to maximize it will be like this go and use it create a derivative work let us see it if we like it so like Guetta should be able to just give that back to Eminem If Eminem's cool with it he should be able to ship it and just be done what a non-story like the New York Times is just so anti-billionaire so David Solomon brushes off DJing as a minor hot hobby that has little to do with his work at the bank but his activities May pose protect it's like what are they writing about is there not something more important than this do we think that David Solomon or any CEO of any major Bank on Wall Street would put their job at risk running one of the 20 or 30 most important institutions in the financial architecture of the world to license a Whitney Houston song that they can play at Coachella I mean does that come pass the smell test no no and and just for the record iconoclastic David Solomon you're going to be doing the opening night DJ set for all in Summit 2023. the Griff the grift is on let's get him these bombs hates them you got anybody that New York Times hates on you got a slot you got a slot that's it that'll be our lens here Dave Chappelle Dave Chappelle for sure one thousand percent I mean he looks good he looks like he's living his best life it's a finance news somehow it just like offends them that a corporate CEO could well that anybody's happy birthday I think it's kind of cool this guy Punk PJs yeah yeah [ __ ] yeah let me do his thing I've always wanted to be a DJ yeah oh yeah spin the one and twos after party and we'll use AI to help you out yeah when I should have been learning how to DJ I was playing the violin you should get up there and earlier violin under a DJ said I played violent for 10 years we can play a duet together I played in an orchestra oh my God I never knew this never again this is all kind of Revelations Happening Here by the way here is my most uh pull up that first chat GPT I gave you this was an aha moment me and sax were doing our weekly Mastermind group sex and I get together we kind of like co-mentor each other here was uh something that blew us away um during our Mastermind group this was a chat GPT I did this one because I was trying to figure this out how do I make my spouse and kids feel heard and then judge if you did give us a great one give them your full attention number two empathize number three validate their feelings there you have it Zacks just put that into yourself let me use this as an example what public so so that's obviously the aggregation and synthesis of lots of different self-help websites how do you describe attribution of that answer to a particular content publisher honestly serious question fair use derivative work I think it is an opportunity there there's no monetization yeah you say that because you hate content provides but here I tell you this is publishing I think the GPT the chat on this one no I they know who they got it from consists of lots of websites it's a very smart synthesis it's not pulling a result from someone's website it's like read hundreds of websites and it's like average them bulldogs for the average it's that's complete [ __ ] they could say as we ingest this stuff this is how it's being done and then you could publish it when you publish it you say hey where do we start is that what you're saying no I'm sorry it's not [ __ ] that is what you said is exactly how it's being right and and Jake out if let's say that the AI is using 100 different websites and synthesizing 100 websites what's the incentive for the marginal 100th website to say well opt me out unless you pay me totally right open AI will just be like okay finals we'll just work with the other night and this is why content providers is my best piece of advice you ask a question I'll give you the answer content providers as a group need to get together and fight for their rights New York Times Madison right to party no fight for the right to get paid and to survive and say as a group either give us these terms or don't index us all different content creators absolutely you unionize all of them they should be a united front like the music industry why do you think the music industry gets paid by Peloton anybody because because there's five of them get together and they fight for them and you could organize but there's millions and millions of Publishers I think the point here is that technology is fundamentally deflationary here's the next great example correct where the minute you make something incredible costs go down but also frankly revenue and profit dollars go down in the aggregate doesn't mean that one company can't husband a lot of it and do incredibly well like Google has done but it's just going to fundamentally put pressure on all these business models which is why I think it's important Google should go and they should cannibalize their own business before it is cannibalized for them freebar final word here's another way to think about it I think that if this goes as we all predict and everyone's saying it's gonna go it is more likely than not that many of these quote content Publishers that aren't adding very much marginal value are going to go away then you could see the number of content sites offering self-help advice and how to do this and how to do that 95 of them go away because all of that work gets aggregated and synthesized and presented in a really simple easy user interface that makes them completely oblivious and I'm not discrediting the value that many content Publishers provide but the um you know the requisite at that point to be valued as a quote novel content producer is going to go way up like the offset to that though is it's so much easier to create content because of the AI we have this company copy AI where even before this chatgpt stuff you would just go there and say I want to write a blog about X Y and Z you just give it a title and it spits out a post and then they'll actually give you 10 different blog posts and then you just select the one that is the direction you want to go and you keep doing you know human selection how does new intelligence get put back into the system that's based existing purpose system no you have like a corporate blog so you publish it to your corporate my point is if there is now some new information in the world who is going to add that to the Corpus if everybody is just stealing content and rewriting its have always had a desire to create most people create for free there's a head of the long tail that actually gets compensated the rest of the long tails traditionally gotten nothing and they do it because they want a free day it's kind of like now the creation is gonna explode because it's so easy Beethoven listened to Haydn and then Beethoven novel Symphonies and his Symphonies were incredible and he built on the experience of listening to Haydn the same is true of how content is going to evolve and it's going to evolve in a faster way because of AI and this content is not just being retrieved and reproduced it's being you know synthesized and aggregated and represented in a novel way I want to answer that please chat if chat TPT takes a Yelp review and a you know a Conde Nast Traveler review and they represent it based on the best content that's out there that they've already ranked because they have that algorithm with pagerank or Bing's ranking engine and then they republish it and then that jeopardizes those businesses that is profoundly unfair and not what we want for society and they are interfering with their ability to leverage their own content is profoundly unfair and those magazines and newspapers it's possible YouTube is a great example YouTube was going to get shut down Sequoia and the YouTube founder sold it to Google because they were so scared of the Viacom lawsuit and how well it was working against them they thought this is this business will never fly if we don't have a big partner like YouTube like Google to support the lawsuit they they won the lawsuit or they settled it because they were able to do content ID and allow content creators the only reason YouTube exists is hold on let me finish it's because they let content creators Watermark and find their stolen content and then claim it and when they claim the stolen content they were able to monetize it that's what's going to happen here there'll be a settlement where they are going to be able to claim their content I will bet any amount propose a bet you've seen these AIS that generate images right like stable diffusion and like Wally or whatever you literally just tell it I want this image in this style and boom it's done and it would take an artist weeks to produce that and you can do it in five seconds and you can tell the AI give me 20 of those and then you just keep iterating and in five minutes you've got something mind-blowing so the fact that it's so much easier to create content you can do the same thing with the written word the people who need to be compensated jcal if they don't get what they want they may just go away but they'll be 10 times or 100 times more people here's how you are thank you for bringing up this example so that I can prove how wrong you are Getty Images is suing stable diffusion at the moment here is what the [ __ ] at stable diffusion did they train their AI on Getty Images with the watermarks on them and they've been busted and they are dead to rights now and they're going to pay a hundred million dollars or more to Getty Images for stealing their content and allowing it to be republished in a commercial setting those images don't look too good to me stable diffusion copied the Getty image work okay I think I think stable diffusion is bigger problem is they can't do noses and ears and eyelids uh that looks like a bigger problem anyway shout out to stable diffusion for stealing Getty image content so funny Mozart influenced by hide it not Beethoven Sorry by the way there's a real nobody cares interesting topic about AI that we don't have time to get to this week but I think we should put it on the docket for next week which is should AIS be trained to lie super important because what's happening right now yeah the last thing I'll say on this from my perspective maybe we can jump on after this is this is the best thing that could happen for all of the monopolists in technology because Microsoft taking five or six hundred basis points of share is the best way to ensure that the FTC has zero credibility in going afterwards or anybody else in Texas right those those all of those things I think are DOA so in some ways actually Google leaking five or six percent of the market share is a really good thing because the FTC is rendered Toothless in making any certainly understand that that's such a good point I mean it's it's kind of a good news bad news scenario with this whole thing the good news is that the Google monopoly's finally been cracked the bad news is that it's Microsoft and even bigger Monopoly that's the one that's done it but it just shows like how vulnerable all these big tech companies are TBD and they may all end up competing with each other everyone everyone's got a tactical Nuclear weap now and we don't know where it's going to get pointed and who's going to set it off and where and like the Weaponry has completely changed yeah the Weaponry totally changed and to prove how wrong you guys are here is the Verge here's the other lawsuit open source I've been tracking this you people haven't you guys need to watch what's happening right now co-pilot GitHub chat GPT and Microsoft are being sued by developers because co-pilot was built off of stolen content these lawsuits are just beginning and they'll make it awesome licensing fees this will be a transitory effect and it won't it won't change the Dynamics of where this is going over the long time change the Dynamics of YouTube in the long term so let's keep going I don't know they're doing pretty good we have a portfolio company called Source graph which is building and um why don't you just put your logo page up if you're going to go through the whole point no they're I mean they're building something similar but it's it's opt-in you just opt into the you know you just get all your customers to opt into it okay let's move on you want to move on you want to do the Chromebook would be a great chat let's talk about it next week though I think yeah I think there's more time I don't know about you guys but I found it one of the more profoundly disappointed saddening states of the Union I've ever seen why I think it was you know we often kind of focus on the one-year cycle of what the state of the union says but I think what's more important is how much the data that's coming through in the State of the Union supports the more scary long-term cycle I've talked about this a lot on how scared I am about uh kind of where uh where we're headed with respect to the the US's ability to fund its financial obligations and the the scary moment at the State of the Union besides Biden's inability to kind of articulate much very well which was honestly a really discouraging sight to see was you know when he talked about what you know the Republicans are trying to cut Social Security and Medicare the U.S treasury put out a projection uh which I tweeted last week uh originally shared on Twitter by Lynn Alden this is the U.S treasury's forecast of uh debt held by the United States over time and the assumptions in this forecast are we've got a certain amount of debt today and we're running Social Security and Medicare forward without cuts and so what happens as we make these Social Security Medicare payments and we accrue and pay interest on the debt that we hold today and we don't change the tax rates in this country and this is what happens so it's a runaway kind of debt scenario in the U.S by definition has to default at some point because you cannot tax every dollar of the economy at 100 at some point and so you know there are two ways this can go the first way is you have to cut back on these major kind of you know expense commitments that naturally balloon over time and that is Social Security and Medicare and the other one is that you just tax a lot more and when you tax a lot more economic growth gets affected and it makes it really hard to eventually pay off that debt and the debt continues to spiral so I think what we saw was number one the announcement by Biden hey Republicans are the ones who want to cut Social Security Medicare and they all screamed and they said no way no way we'll never do that and a lot of them did interviews afterwards and said it's total BS and Biden would say that which I think supports what the polls have shown which is on both sides of the aisle people do not want to see Social Security and Medicare cut in any way right now that means you can't and you guys saw what happened in France where they pushed back the retirement age by two years and there was effectively riots across the country I don't know if you guys saw this a few weeks ago we didn't talk about it but it was pretty brutal pretty ugly and so this is a real cost that's coming bare it's coming bear in the United States not just with the publicly funded Social Security and Medicare programs but also with a lot of the private pensions that are going to need to get bailed out with the same Federal money because they're not going to let those things go bankrupt and that's another trillion plus of liabilities so you know that that cost is going to balloon and the only solution at that point is to introduce massive tactics and so they proposed this billionaire tax this tax on unrecognized capital gains it is literally if you keep Social Security Medicare where they are and you don't pay down the debt and you don't grow the economy fast enough you have to introduce significant tax hikes across corporate um uh and um the individual taxpayer base um and so you know it really again if you zoom out it really indicates this steepening curve that the U.S has to climb its way out of and as you tax more there's less to invest in the economic growth the government is a far worse investor in economic growth than the free market and that means that we can't grow our way out and grow GDP enough to ultimately cover our debt obligations and this is is what dalio dalio's book that I mentioned in 2021 was so kind of importantly sharing this is a multi-hundred year cycle and the last couple decades get really nasty and this chart which is a forecast from the actual U.S treasury highlights the problem and the comments made at the Congress that's in front of the Congress this week by the president of the United States indicates how serious of a problem this is going to be because no one wants to cut these major cost obligations that we have coming to you aren't you and the Republicans you want to cut Medicare and get rid of it is that what Biden said you guys want to get rid of it what was that kerfuffle about with your uh who's the person on your squad who's yelling and screaming out at the president of the United States no that doesn't matter that was just sort of but who is is that Biden was basically trying to take a page out of Bill Clinton's Playbook when Bill Clinton lost the midterms in 94 he basically triangulated to the center and he did two things he started going for kind of um small ball he started playing small ball politics it was like school uniforms and things like that that were relatively unobjectionable and that regular middle class people could get behind and then he basically posed as the defender of entitlement programs back then he um in 96 he ran against Dole by portraying Dole he went all the way back to Dole's vote against Medicare this is what the Biden team is teeing up for the re-elect in 24 is they're talking about things like curbing Ticketmaster fees and fixing right turn red lights I mean seriously like total small ball okay they're gonna try and pretend like he wasn't the most radical tax and spend Progressive over the last two years we've really ever had in American history they're going to try and make everyone forget that and just talk about the small objectable stuff and then he's also going to again pose as the stalwart defender of entitlement programs which are very popular and it's and and partly they're doing this um they're ready I think getting ready for DeSantis on this because if you read so in the political analysis on this and uh Josh Barrow had a good column and Andrew Sullivan had a good column talking about this that way back when DeSantis was in Congress and he was like a backbencher he voted for you know some Republican budgets a Paul Ryan budget that had some of this entitlement reform in it so they're going to try and portray him as against Atomic reform now I don't think it's going to work because all he had to say is like listen that was a long time ago I wasn't voting for cutting entitlements I just voted for my party's budget um that's irrelevant I can tell you I will not cut entitlements so any smart Republican is going to take entitlement reform off the table because it is a total third rail and they will lose and I think Trump had the right instincts on this and I'm sure that any major Republican will have the right instincts on this you see them why they're throwing Rick Scott under the bus Rick Scott had this proposal about having entitlements go from being sort of permanently entitled to being something that gets voted on every year and the rest of the Republican caucus is like hell no we're not touching that and they can't run away fast enough from Rick Scott so free Burger is right there is no appetite for entombment reform and I would tell any Republican if you want to do entitlement reform it's got to be bipartisan you've got any thoughts you got to do what Ronald Reagan did which is join hands with Tip O'Neill and Moynihan and you jump off the cliff together do not stick your neck out on this turn off any thoughts on the State of the Union writ large no Marjorie Taylor green yelling liar at the present um no okay well that's the most boring statement I mean like both sides uh engaged in a lot of like weirdness I mean Biden was like bellowing at various points in his speech it was quite bizarre and you're right there were some Republicans in the audience who were bringing like jackasses and it's unfortunate because I think utterly utterly disappointed I think if the Republicans had just calmed down I think Biden's sort of weird mannerisms where he was like practically yelling it was like Abe Simpson you know old man yelling at the cloud and yeah they they do a good job of like right at the moment of self-immolation they let him off the hook totally it's really incredible Republicans just they have no impulse control right when they could just be quiet sit there calm quiet and let Biden do the damage to himself they just cannot I like McCarthy I like McCarthy telling Margie telegrange and Mary let me tell him that other glider guy to get the hell out of here listen it's always been hard to control backbenchers that's just the reality that does not speak for the entire party how do you uh how do you guys feel about being taxed on your change in net worth from year to year you mean a wealth tax wealth tax yeah the uh if it's a if it's for billionaires totally cool if it's for centimillionaires or deck of millionaires absolutely off the table we want those people to grow their wealth and invest the billionaires yeah sure is that what you think is going Freeburg yeah so hard to execute on what are you supposed to do like I would love to see a website where you have a piece of yarn you know those those sites yeah and then you have like a little uh pin and you kind of push the pin out and the other one has to go in you can't have it all you can't have low taxes and have these entitlement programs and have this level of spending it's impossible you have to tax that's the only way or you have to cut the entitlement programs or you have to cut the spending well you're you're right about that free bird but let me tell you why the American people think it would be ridiculous to cut their entitlements they've watched as Washington spent eight trillion dollars correct on forever wars in the Middle East they just watched as Biden spent trillions enriching the Pharma companies on a fugazi that didn't work they've just watched as hundreds of billions went to climate special interests the Democrats we talked about that let me think about it brilliant hold on they've watched as trillions of dollars have gone to the donor class and they are going to rise up and say the hell with you if you cut off our social security that we paid into for decades while enriching all these special interests yes I don't advocate for any of these points and the bailouts of corporations in the great financial crisis yeah right the cons I think I think I think it's just an analytical certainty that you know you gotta zoom out and stop thinking about the yearly cycle and the election cycle on this stuff and just look at where we're headed over a multi-decade cycle okay and there's just no resolution to this problem what happens the way we're all oriented right now huh if there is a wealth tax let's just say on billions let me just say one thing sorry Jacob let me just say what do they do they leave the country well that did happen in France by the way I think 40 of the people that were taxed left and then they came back they would violate our constitution that's that'll be it'll be um litigated for sure yeah if you can get the cost of energy in this country to drop by 50 to 75 and you can increase energy capacity by 10 to 20 fold then you have a Fighting Chance because you can actually grow the economy out of the problem and that's really where I am optimistic and excited about opportunities like fusion and you guys can make fun of me all you want but if we can get to a point where we can increment energy capacity by an order of magnitude there is economic growth that will arise from that from all these new Industries and these production systems and that's how we can grow our way out of the debt entitlement tax problem where one of those three things has to give in the absence of that you know what the cheapest source of energy is today Fusion three cents a kilowatt hour Vision you mean no it's Fusion it's the sun using solar panels there it is yeah the problem tomorrow honestly let me just say this one thing the problem is can you scale energy capacity by 10x and can you do it fast enough and that's the real testicle while creating jobs that's the real techno economic question right like I posted a link in my reading list today this week you guys can go look at it the most prolific distribution of fusion technology is China actually deploying solar on every single Rooftop in China the United States could do it too and you will 10x the power available well yeah I mean they are entering it'll be zero they're increasing their I mean it'll happen in the next years it's just sometimes we want to create intellectual complexity I I love these different forms of fusion I just think it's a 50-year traj to get it because even I'm not betting I'm not betting on it I'm just saying it's there is a there's a I was agreeing with you I'm just building on your point to say it's actually happening Fusion is what is actually creating abundant zero cost energy today yeah and so look if we can increase energy capacity in this country by 10x energy production capacity by 10x and we can do it in the next 20 to 30 years on every rooftop if we can we have a path out of the entitlement tax debt problem otherwise one of those three things is going to give and it's going to be ugly the thing that we are lacking right now is not actually the generation capability which is incredibly cheap but it's really scalable storage and once we figure that out which is actually the real technical bottleneck to Abundant zero cost energy we'll have your boundary condition met and we'll have it well before different forms of fusion are commercializable France had an exodus of an estimated 42 000 millionaires between 2000 and 2012. uh and really the and before yeah for 12 years and then they were uh reversed they were just losing the tax base so violently they had no choice what's going to happen in California it's happening in California already with San Francisco right it's happening already yeah they're stupidly telling people that this wealth tax is going to have a 10-year look forward so everybody I know is at least talking about hey could this happen in the next 10 years because if it might happen five years from now we got to leave now because if I wait they're going to chase you they're going to chase me yeah specifically you they hate you no I mean it's it's uh it's a problem it is a serious let me tell you I mean it's a freeberg's point uh it's not just Ray dalio uh the great uh political satirist Peter O'Rourke who died last year he wrote that American politics is defined by the formula x minus y equals a big stink where X is what people want from government and Y equals what they're willing to pay for government and that difference is basically the big stink and the Java politicians is to manage that stink and the problem is the politicians have not been doing a good job managing it and they increasingly do a worse job managing it so yeah at some point it's going to blow up yeah you guys want to hear a crazy statistic I was pulling this out the other day you know what the budget per capita is of the city of San Francisco so how much the city spends per year divided by the number of people that live in the city well we know it's a couple of billion dollar budget we know only a couple of hundred thousand billion dollar budget yeah and there's 800 000 residents it's eighteen thousand dollars per citizen per year that's how much the city of San Francisco spends a third of that of money by the way 30 of it goes to or 25 goes to Public Health Care Now when you look at that eighteen thousand dollar uh budget per capita it is more than every single state of the union on a per capita basis except Oregon and North Dakota which have very weird uh budget so San Francisco spends more than every other State per capita it spends more in aggregate than 16 U.S states and the federal budget per capita is fifteen thousand dollars the federal government's budget per capita is fifteen thousand dollars so San Francisco spends more than 15 states and spends more per capita than every other state except two and spends more than the federal government per capita and I think that really highlights and and you need to tax the base to do that and now we are seeing San Francisco is the largest population of Exodus and population access of any City and business Exodus of any city in the United States that is your predictor that is your predictor of where this goes right in Miami Florida peaked by contrast has no state income tax they just rely on property taxes sales tax which California has as well there is a a income tax and cap gains tax of zero in Florida and they seem to make it work 880 000 people uh was the peak in San Francisco 2018 2019 2020 and then in uh 2021 815 so it's gone even further some people think it's down to 650 now I think it is pretty hard to track but yeah well you have a lot of people who owned homes there and maybe own second homes because let's face it it was a well-heeled group of individuals living there and a lot of them just still have their places but they've left and then they're in the process of selling the point the point is increasing the tax rate is a great short-term solution but over the long term if that budget per citizen isn't brought in line there is no way to tax the base enough without causing the tax base to leave forget about what my anyone's personal opinions are that's just the economic reality of what happened in France it's what's happening in San Francisco there's a lot of great predictors in history of where this has happened and so something has to give or you have to have a miracle like an energy Miracle but you know we'll all keep investing for that all right everybody this has been an amazing amazing episode of the all in podcast 115 episodes for the dictator Sultan of science and for the pacifist David the dove sacks I am the world's greatest model Creator Jay Cal and we'll see you next time bye bye love you Besties we'll let your winners ride Rain Man [Music] besties [Music] somehow [Music] [Music]








all right everybody Welcome to uh the next episode perhaps the last podcast you never know we got a full docket here for you today with us of course the Sultan of Silence Freebird coming off of his incredible win for uh a bunch of animals the Human Society of the United States how much did you raise for the Humane Society of the United States playing poker uh live on television last week or four thousand dollars eighty thousand dollars how much did you win actually well so there was the 35k coin flip and then I won 45 so 80 000 total eighty thousand dollars you know so we played live at the Hustler Casino live poker stream on Monday you can watch it on YouTube tomoth absolutely crushed the game made a ton of money for beef philanthropy he'll share that how much did you win he made like 350 Grand right you made like wow 361 360. between the two of you you raised 450 grand for charity it's like LeBron James being asked to play basketball with uh a bunch of four-year-olds wow you're talking about yourself now yes that's amazing you're LeBron and all your friends that you play poker with or the four-year-olds is that the deal yes okay and let your winner slide Rain Man David's side we open source it to the fans and they've just gone crazy [Music] who else was at the table Alan Keating Stanley Tang Jr Dash Jr uh Stanley Choi Stanley Choi and nitberg who's that nitberg yeah that's the new nickname for Freeburg oh he was knitting it up socks he had the needles out and everything I bought in 10k and I cashed out 90. and they're referring to you now sax has scared sax because you won't play in the live stream his v-pip was seven percent oh my v-pip was 24 if I'd known there was an opportunity to make 350 000 against a bunch of four-year-olds would you have given it to charity fantasist Charities would you have given it to him which charity if it had been a charity game I would have donated to charity would you have done it if you could have given the money to the DeSantis Super PAC that's the question you couldn't do it you couldn't do that good idea why don't you yeah that's actually a really good idea we should do a poker game for the presidential candidates we all play for our favorite presidential that'd be great for 50k and then sax has to see his 50k go to Nikki Haley oh my God that would be better incredible let me ask you something uh knit Berg how many beagles because you saved one Beagle that was going to be used for cosmetic research or tortured and that beagle's name is your dog what's your dog's name Daisy so you saved one Beagle Nick please post a picture in the video stream from being tortured to death with your 80 000 how many dogs we the Humane Society saved from being tortured to death it's a good question the 80 000 will go into their general fund which they actually use for supporting legislative action that improves the conditions for animals in animal agriculture support some of these rescue programs they operate several sanctuaries so there's a lot of different uses for the capital at Humane Society really important Organization for animal rights fantastic and then Beast Mr Beast has is it a food bank tomorrow explain what that charity does actually what that 350 000 will do yeah Jimmy started this thing called beastful and three which is one of the largest food pantries in the United States so when people have food insecurity these guys provide them food and so this will help feed I don't know tens of thousands of people I guess well that's fantastic good for Mr Beast did you see the backlash against Mr Beast for curing everybody's as a total aside carrying a thousand people's blindness I didn't see it what do you guys think about it Free Bird free bird what do you think I mean there was a bunch of commentary even on some like pretty mainstream-ish publication saying I think TechCrunch had an article right saying that Mr BEAST's video where he paid for cataract surgery for a thousand people that otherwise could not afford cataract surgery you know giving them a vision is uh ableism and that it basically implies that people that can't see are handicapped and you know therefore you're kind of saying that their condition is not acceptable uh in a societal way what do you think that was a really even worse they said it was exploiting them off exploiting them right and the narrative was what and this is this history of nonsense where they say understand it I'm curious what do you guys think about it Jason let me just explain to you that's what they said they said something even more insane what their quote was more like what does it say about America and society when a billionaire is the only way that blind people can see again and he's exploiting them for his own Fame and it was like number one who care did the people who are now not blind care how this suffering was relieved of course not and this is his money he probably lost money on the video and how dare he use his Fame to help people I mean it's it's the worst wokism or whatever word we want to use Virtual signaling that you could possibly imagine it would be like being angry at you for donating to Beast philanthropy no I think I think the positioning that this is ableism or whatever they term it at is just ridiculous I think that when someone does something good for someone else and it helps those people that are in need and want that help it should be there should be accolades and acknowledgment and and rewards what do you guys think and the story why do you guys story that those folks feel the way that they do that's what I'm interested in like if you could put yourself into the mind of the person that was offended yeah look I mean this is awesome because there's a there's a there's a rooted note quality regardless of one's condition there's also this very deep-rooted notion that regardless of you know whatever someone is given naturally that they need to kind of be given the same uh condition as people who have a different natural condition and I think that rooted in that notion of equality you kind of can take it to the absolute extreme and the absolute extreme is no one can be different from anyone else and that's also a very dangerous place to end up and I think that's where some of this commentary has ended up unfortunately so it comes from a place of equality it comes from a place of acceptance but take it to the complete extreme where as a result everyone is equal everyone is the same you ignore differences and differences are actually very important to acknowledge because some differences people want to change and they want to improve their differences or they want to change their differences and I think you know it's it's really hard to just kind of wash everything away that makes people different I think it's even more cynical since you're asking our opinion I think these Publications would like to tickle people's outrage and to get clicks and their of and the the greatest Target is a rich person and then combining it with somebody who is downtrodden in being abused by a rich person and then some failing of society I.E Universal Health Care so I think it's just like a a triple win in tickling everybody's outrage oh we can hate this billionaire oh we can hate society and how corrupt it is that we have billionaires and we don't have health care and then we have a victim but none of those people are victims none of those thousand people feel like victims if you watch the actual video not only does he cure their blindness he hands a number of them ten thousand dollars in cash and says hey here's ten thousand dollars just so you can have a great week uh next week when you have your first you know week of vision go go on vacation or something any great deed as Freiburg saying like just we want more of that yes sir we should have universal healthcare I agree what do you think sex well let me ask a corollary question which is why is this train derailment in Ohio not getting any coverage or outrage I mean there's more outrage at Mr Beast for helping to cure blind people than outrage over or this train derailment and this controlled demolition supposedly a controlled burn of vinyl chloride that released a plume of phosgene gas into the air which is a which is basically poison gas it was that was the poison gas used in war one that created the most casualties in the war it's unbelievable there's chemical gas this happened a train carrying 20 cars of Highly flammable toxic chemicals derailed we don't know at least at the time of this taping I don't think we know how it derailed there's an issue with an axle in one of the cars or if it was sabotage I mean nobody knows exactly what happened yet no check out the brakes went out okay so now we know okay I know that was a big question but this happened in East Palestine Ohio and 1500 people have been evacuated but we don't see like the New York Times or CNN we're not covering this yeah what are the chemical what's the science angle here just so we're clear I think number one you can probably sensationalize a lot of things that um that can seem terrorizing like this but um just looking at it from the lens of what happened you know several of these cars contained a liquid form of vinyl chloride which is a precursor monomer to making the polymer called PVC which is poly uh vinyl chloride and you know PVC from PVC pipes PVC is also used in tiling and walls and all sorts of stuff the total market for vinyl chlorides about 10 billion dollars a year it's one of the top 20 petroleum-based products in the world and the market size for PVC which is what we make with vinyl chlorides about 50 billion a year now you know if you look at the chemical composition it's carbon and hydrogen and oxygen and and chlorine when it's in its natural room temperature State it's a gas Vinyl chloride is and so they compress it and transport it as a liquid when it's in a condition where it's at risk of being ignited it can cause an explosion if it's in the tank so when you have the stuff spilled over when one of these rail cars Falls over with this stuff in it there's a difficult Hazard material decision to make which is if you allow this stuff to explode on its own you can get a bunch of vinyl chloride liquid to go everywhere if you ignite it and you do a controlled burnaway of it and there are these guys practice a lot it's not like this is a random thing that's never happened before in fact there was a trained derailment of vinyl chloride in 2012 very similar condition to exactly what happened here and so the the when you ignite the vinyl chloride what actually happens is you end up with hydrochloric acid HCL that's where the chlorine mostly goes and a little bit about a tenth of a percent or less ends up as fast Gene so you know the chemical analysis that these guys are making is how quickly will that phosphine dilute and what will happen to the hydrochloric acid now I'm not rationalizing that this was a good thing that happened certainly but I'm just highlighting how the hazard materials teams think about this I had my guy who worked for me at TPB you know Professor PhD from MIT he did this write-up for me this morning just to make sure I had this all covered correctly and so you know he said that you know the hydrochloric acid uh the the thing in the chemical industry is that the solution is dilution once you speak to scientists and people that work in this industry you get a sense that this is actually a unfortunately more frequent occurrence than we realize and it's pretty well understood how to deal with it and it was dealt with in a way that has historical precedent so you're telling me that the people of East Palestine don't need to worry about getting exotic liver cancers in 10 or 20 years I don't know how to answer that per se I can tell you like the the I mean if you were living in East Palestine Ohio would you be drinking a bottled water thank you I wouldn't be in East Palestine that's for sure I'd be away from them but that's it but that's a good question Freeburg if you were living in East Palestine would you take your children out of East Palestine right now while this thing was burning for sure you know you don't want to breathe in hydrochloric acid gas why did all the fish in the Ohio River die and then there were reports that chickens were dying so so let me just tell I'm not gonna I can speculate but let me just tell you guys so there's a paper and I'll send a link to the paper and I'll send a link to a really good sub stack on this topic both of which I think are very neutral and unbiased and balanced on this the paper describes that hydrochloric acid is about 27 000 parts per million when you burn this vinyl chloride off carbon dioxide is 58 000 parts per million carbon monoxide is 9 500 parts per minute per million phos Gene is only 40 parts per million according to the paper so you know that that dangerous part should very quickly dilute and not have a big Toxic effect that's what the paper describes that's what chemical engineers understand will happen I certainly think that the hydrochloric acid in the river could probably change the pH that would be my speculation and would very quickly kill a lot of animals because of the massive chicken so what about the chickens it could have been the same hydrochloric acid maybe the phosphine I don't know I'm just telling you guys what the um the scientists have told me about this yeah I'm just asking you as a science person what when you read these explanations yeah what is your mental error bars that you put on this yeah are you like yeah this is probably 99 right so if I was living there I'd stay or would you say ah the error bars here like 50 so I'm just gonna skedaddle yeah look if the honest truth if I'm living in a town I see a billowing black smoke down the road for me of you know a chemical release with chlorine in it I'm out of there for sure right it's not worth any risk and you wouldn't drink the tap water not for a while no I'd want to get it tested for sure I want to make sure that the phosphine concentration or the chlorine concentration isn't too high I respect your opinion so if you wouldn't do it I wouldn't do it that's all I care about that's easier going on here I think what we're seeing is this represents the distrust in media and the emergence and the government and the government yeah and you know the emergence of Citizen journalism I started searching for this and I thought well let me just go on Twitter I start searching on Twitter I see all the cover ups we were sharing some of the link emails I think the default stance of Americans now is after covid and other issues which we we don't get into every single one of them but after covet some of the Twitter files et cetera how the default position of the public is I'm being lied to they're trying to cover this stuff up we need to get out there and document it ourselves and so I went on Tick Tock and Twitter and I started doing searches for the train derailment and there was a citizen journalist woman who was being harassed by the police and told to stop taking videos yada yada and she was taking videos of The Dead Fish and going to the river and then other people started doing it and they were also on Twitter and then this became like a thing hey is this being covered up I think ultimately this is a healthy thing that's happening now people are burnt out by the media they assume it's link baiting they assume this is fake news or there's an agenda and they don't trust the government so they're like let's go figure out for ourselves what's actually going on there and citizens went and started making tick tocks tweets and and writing sub Stacks it's a whole new stack of Journalism that is now being codified and we had it on the fringes with blogging 10 20 years ago but now it's become I think where a lot of Americans are by default saying let me read The Tick let me read the sub Stacks tick tocks and Twitter before I trust the New York Times and the delay makes people go even more crazy like did you guys happen on the third and the when did the New York Times first cover it I wonder did you guys see the lack of coverage on this entire mess with glaxo and Zantac I don't even know what you're talking about yeah 40 years they knew that there was cancer risk by the way I'm sorry before you say that I do want to say one thing vinyl chloride is a known carcinogen so that that is part of the underlying concern here right it is a known substance that when it's metabolized in your body it causes these reactive compounds that can cause cancer can I just summarize can I just summarize as a Layman what I just heard in this last segment number one it was a enormous quantity of a carcinogen that causes cancer number two it was lit on fire to hopefully dilute it number three you would move out of East Palestine and transform it to transform it yeah and number four you wouldn't drink the water until TBD amount of time until tested yep uh okay I mean so it this is like a pretty important thing that just happened then is what I would say right that'd be my summer I think this is right out of Atlas Shrugged where if you've ever read that book that begins with like a train wreck that in that case it kills a lot of people yeah and the the cause of the train wreck is really hard to figure out but basically the problem is that powerful bureaucracies run everything where nobody is individually accountable for anything and it feels the same here who's responsible for this train wreck is it the train company apparently Congress back in 2017 passed deregulation of safety standards around these train companies so that they didn't have to spend the money to upgrade the brakes that supposedly failed that caused it a lot of money came from the industry to Congress but both parties they flooded congress with money to get that that law changed uh is it the people who made this decision to do the controlled burn like who made that decision it's all so vague like who's actually at fault here can I it yeah I just want to ask you a question and just to finish the thought um yeah the the media initially just seemed like they weren't very interested in this and again the mainstream media is another Elite bureaucracy it just feels like all these Elite bureaucracies kind of work together and they don't really want to talk about things unless it benefits their agenda that's a wonderful term you nailed it that is great bureaucracy so the only things they want to talk about are things hold on that benefit their agenda look if Greta thunberg was speaking in East Palestine Ohio about a 0.01 change in global warming that was going to happen in 10 years it would have gotten more press coverage yeah than this derailment at least in the early days of it and again I would just go back to who benefits from this coverage nobody that the mainstream media cares about I think let me ask you two questions I'll ask one question and then I'll make a point I guess the question is why do we always feel like we need to find someone to blame when bad things happen there's a trail train derailment but hey hang on one second okay is it is it always the case that there is a bureaucracy or an individual that is to blame and then we argue for more regulation to resolve that problem and then when things are over regulated we say things are over regulated we can't get things done and we have ourselves even on this podcast argued both sides of that coin some things are too regulated like the nuclear fission industry and we can't build nuclear power plants some things are under regulated when bad things happen and the reality is all of the economy all investment decisions all human decisions carry with them some degree of risk and some frequency of bad things happening and at some point we have to acknowledge that there are bad things that happen the transportation of these very dangerous carcinogenic chemicals is a key part of what makes the economy work it drives a lot of Industry it gives us all access to products and things that matter in our lives and there are these occasional bad things that happen maybe you can add more kind of safety features but at some point you can only do so much and then the question is are we willing to take that risk relative to the reward or the benefit we get for them every time something bad happens like hey I lost money in the stock market and I want to go find someone to blame for that I think that blame that blame is an emotional reaction but I think a lot of people are capable of putting the emotional reaction aside and asking the more important logical question which is who's responsible I think what sax asked is hey I just want to know who is responsible for these things and yeah Freeburg you're right I think there are a lot of emotionally sensitive people who need a blame mechanic to deal with their own anxiety but they're I think an even larger number of people who are calm enough to actually see through the blame and just ask where does the responsibility lie it's the same example with the Zantac thing I think there's we're going to figure out how did glaxo how are they able to cover up a cancer-causing carcinogen sold over the counter via this product called Zantac which tens of millions of people around the world took for 40 years that now it looks like causes cancer how are they able to cover that up for 40 years I don't think people are trying to find a single person to blame but I think it's important to figure out who's responsible what was the structures of government or corporations that failed and how do you either rewrite the law or punish these guys monetarily so that this kind of stuff doesn't happen again that's an important part of a self-healing system that gets better over time right and I would just add to it I think it's it's not just lame but I think it's too fatalistic just to say oh happens you know statistically a trained derailments can happen one out of you know and I'm not pressing it off I'm just saying like we always we always jump to blame right we always jump to blame on every circumstance that happens yeah this is a true environmental disaster for the people living in Ohio I totally yeah and I'm not I'm not sure I'm not sure that statistically the rate of derailment makes sense I mean we've now heard about a number of these trained derails there's another one today by the way there's another one today breaking news please so I think there's a larger question of what's happening in terms of the competence of our government administrators our Regulators our Industries but sax you often pivot to that and that's my point like when when things go wrong in industry in FTX and in all these play in in a train derailment our our current kind of training for all of us not just you but for all of us is to Pivot to which government person can I blame which Pol political party can I blame for causing the problem and you saw how much Pete bootage got beat up this week because they're like well he's the head of the Department of Transportation he's responsible for this let's figure out a way to now make him to blame I have nothing yeah yeah it is accountability listen powerful people need to be held accountable that was the original Mission of the media but they don't do that anymore they show no interest in stories where powerful people are doing wrong things if the media agrees with the the agenda those powerful people we're seeing it here we're seeing it with the Twitter files there is zero interest in the expose of the Twitter files why because the media doesn't really have an interest in exposing the permanent government or deep State's involvement in censorship they simply don't they actually agree with it they believe in that censorship right yeah the media has shown zero interest in getting to the bottom of what actions our state department took or generally speaking our Security State took that might have led up to the Ukraine war zero interest in that so I think this is partly a media story where the media quite simply is agenda driven and if a true disaster happens that doesn't fit with their agenda they're simply going to ignore it I hate to agree with Saks uh so strongly here but I think people are waking up to the fact that they're being manipulated by this group of Elites whether it's the media politicians or corporations or acting in some you know weird ecosystem where they're feeding into each other with Investments or advertisements Etc no I and I think the media is failing here they're supposed to be holding the politicians the corporations and the organizations accountable and because they're not and they're focused on bread and circuses and distractions that are not actually important then you get the sense that our society is incompetent or unethical and that there's no transparency and that you know there are forces at work that are not actually acting in the interests of the citizens sounds like a conspiracy theory but I think it's actual random that's what I was going to say I think the explanation is much simpler and a little bit sadder than this so for example we saw today another example of government inefficiency and failure was when that person resigned from the FTC she basically said this entire department is basically totally corrupt and Lena Khan is utterly ineffective and if you look under the hood well it makes sense of course she's ineffective you know we're asking somebody to manage businesses who doesn't understand business because she's never been a business person right she fought this knock down drag out case against meta for them buying a few million dollar like VR exercising app like it was the end of days and the thing is she probably learned about meta at Yale but meta is not theoretical it's a real company right and so if you're going to deconstruct companies to make them better you should be steeped in how companies actually work which typically only comes from working inside of companies and it's just an example where but what did she have she had the Bona fides within the establishment whether it's education whether it's the dues that she paid in order to get into a position where she was now able to run an incredibly important organization but she's clearly demonstrating that she's highly ineffective at it because she doesn't see the forest from the trees Amazon and Roomba Facebook and this exercise app but all of this other stuff goes completely unchecked and I think that that is probably emblematic of what many of these government institutions are being run like let me queue a position just so people understand and then I'll go to you sacks Christine Wilson is an FTC commissioner and she said she over sign over Lena Khan's disregard for the rule as a quote disregard for the rule of law and due process she wrote since Mrs Khan's confirmation in 2021 my staff and I have spent countless hours seeking to uncover her abuses of government power that task has become increasingly difficult as she has Consolidated power within the office of the chairman breaking Decades of bipartisan precedent and undermining the commission structure that Congress wrote into law I've sought to provide transparency and facilitate accountability through speeches and statements but I face constraints on the information I can disclose many legitimate but some manufactured by Ms Khan and the Democrats majority to avoid embarrassment basically brutal yeah it means this is I mean she lit the building on fire that's pretty yeah let me let me tell you the mistakes yeah so here's the mistake that I think Lena Khan made she diagnosed the problem of big Tech to be bigness I think both sides of the aisle now all agree that big Tech is too powerful and has the potential to step on the rights of individuals or to step on the uh the ability of application developers to create a healthy ecosystem there are real dangers of the power that big Tech has but what Lena Khan has done is just go after quote bigness which just means stopping these companies from doing anything that would make them bigger the approach is just not surgical enough it's basically like taking a meat cleaver to the industry and she's standing in the way of Acquisitions that like chamoth mentioned with Facebook trying to acquire a virtual reality game um 500 million dollar acquisition for like trillion dollar companies or 500 billion dollar companies de Minimus right so so what what should the government be doing to to rein in big Tech again I would say two things number one is they need to protect application Developers who are Downstream of the platform that they're operating on when these big tech companies control a monopoly platform they should not be able to discriminate in favor of their own apps against those Downstream app developers that is something that needs to be protected and then the second thing is that I do think there is a role here for the government to protect the rights of individuals the right to privacy the right to speak and to not be discriminated against based on their Viewpoint which is what's happening right now as the Twitter file shows abundantly so I think there is a role for government here but I think Lena Khan is not getting it and she's basically kind of hurting the ecosystem without there being a compensating benefit and to jamas point she had all the right credentials but she also had the right ideology and that's why she's in that role and I think they can do better I think that once again I hate to agree with sax but you're right it's this is an ideological battle she's fighting winning big is the crime being a billionaire is the crime having great success is the crime when in fact the crime is much more subtle it is manipulating people through the App Store not having an open platform bundling stuff it's very surgical like you're saying and to go in there and just say Hey listen Apple if you don't want action in Google if you don't want action taken against you you need to allow third-party app stores and you know we need to be able to associate those fees 100 right the threat of legislation is exactly what she should have used to bring Tim Cook and Sundar into a room and say guys you're going to knock this 30 take rate down to 15 and you're going to allow side loading and if you don't do it here's the case that I'm going to make against you perfect instead of all this Ticky tacking ankle biting stuff which actually showed apple and Facebook and Amazon and Google oh my God they don't know what they're doing so we're gonna lawyer up we're an extremely sophisticated set of organizations and we're going to actually create all these confusion makers that tie them up in years and years of useless lawsuits that even if they win will mean nothing and then it turns out that they haven't won a single one so how if you can't win the small ticky tacky stuff are you going to put together a coherent argument for the big stuff well the counter to that tremoth is they said the reason their counter is we need to take more cases and we need to be willing to lose because in the past we just haven't enough time to understand how business works yeah no no offense to Lena Khan she must be a very smart person but if you're going to break these business models down you need to be a business person I don't think these are theoretical ideas that can be studied from afar you need to understand from the inside out so that you can subtly go after that Achilles heel right the tendon that when you cut it brings the whole thing down interoperability I mean interoperability is a good when we talked when Lena Khan first got nominated I think we talked about we talked about it on this program and I was definitely willing to give her a chance I was I was pretty curious about what she might do because she had written about the need to reign in big Tech and I think there is bipartisan agreement on that point but I think that because she's kind of stuck on this ideology of bigness it's kind of you know unfortunate in effect is ineffective and actually I'm I'm kind of worried that the Supreme Court is about to make a similar kind of mistake with respect to section 230. you know do you guys tracking this Gonzalez case yeah yeah screw it up yeah so the Gonzalez case is one of the first a test of section 230. the defendant in the case is uh YouTube and they're being sued because the family of the victim of a terrorist attack is France right is suing because they claim that YouTube was promoting terrorist content and then that affected the the terrorists who perpetrated it I think just factually that seems implausible to me like I actually think that YouTube and Google probably spent a lot of time trying to remove you know violent or terrorist content but somehow a video got through so this is the claim the legal issue is what they're trying to claim is that YouTube is not entitled to section 230 protection because they use an algorithm to recommend content and so section 230 makes it really clear that Tech platforms like YouTube are not responsible for user generated content but what they're trying to do is create a loophole around that protection by saying section 230 doesn't protect recommendations made by the algorithm in other words if you think about like the Twitter app right now where Elon now has two tabs on the Home tab one is the for you feed which is the algorithmic feed and one is the following feed which is the pure chronological feed right and basically what this lawsuit is arguing is that section 230 only protects the uh the chronological feed it does not protect the algorithmic feed that seems like a stretch to me I don't I don't think that's just valid about it that argument because it does take you down a rabbit hole and it in this case they have the actual path in which the person went from one jump to the next to more extreme content and anybody who uses YouTube has seen that happen you start with Sam Harris you wind up at Jordan Peterson then you're on Alex Jones and the next thing you know you're you know on some really crazy stuff that's what the algorithm does in its best case because that outrage cycle increases your engagement what's what's valid about that if you were to argue in steel man it what's Val what's valid about that I think the subtlety of this argument which actually I'm not sure actually where I stand on whether this version of the lawsuit should win like I'm a big fan of we have to rewrite 230. but basically I think what it says is that okay listen you have these things that you control just like if you were an editor and you are in charge of putting this stuff out you have that section 230 protection right I'm a publisher I'm the editor of the New York Times I edit this thing I curate this content I put it out there it is what it is this is basically saying actually hold on a second there is software that's actually executing this thing independent of you and so you should be subject to what it creates it's an editorial decision I mean if you are to think about section 230 was if you make an editorial decision you're now a publisher the algorithm is clearly making an editorial decision but in our minds it's not a human doing at Friedberg so maybe that is what's confusing to all of this because this is different than the New York Times or CNN putting the video on air and having a human have vetted so where do you stand on the algorithm being an editor and having some responsibility for the algorithm you create well I think it's inevitable that this is gonna just be like any other platform where you start out with this notion of generalized ubiquitous platform like features like Google was supposed to search the whole web and just do it uniformly and then later Google realized they had to you know manually change certain elements of the the ranking algorithm and manually insert and have you know layers that inserted content uh into the search results and the same with YouTube and then the same with Twitter and so you know this technology that this you know AI technology isn't going to be any different there's going to be gamification by Publishers there's going to be gamification by you know folks that are trying to feed data into the system there's going to be content restrictions driven by the owners and operators of the algorithm because the pressure they're going to get from shareholders and others you know Tick Tock continues to tighten what's allowed to be posted because Community guidelines keep changing because they're responding to public pressure I think you'll see the same with all these AI systems and you'll probably see government intervention in trying to have a hand in that one way and the other so you know it's I don't think they should have some responsibilities what I'm hearing because they're doing this yeah I think I think they're going to end up inevitably having to because they have a bunch of stakeholders the stakeholders are the shareholders the um consumer advertisers the Publishers the advertisers so all of those stakeholders are going to be telling the owner of the model the owner of the algorithms the owner of the systems and saying here's what I want to see and here's what I don't want to see and as that pressure starts to mount which is what happened with search results it's what happened with YouTube It's what happened with Twitter that pressure will start to influence how those systems are operated and it's not going to be this let it run free and wild system there's such and by the way that's always been the case with every user generated content platform right with every search system it's always been the case that the pressure mounts from all these different stakeholders the way the management team responds you know ultimately evolves it into some editorialized version of what the founders originally intended and you know editorialization is what media is it's what newspapers are it's what search results are it's what YouTube is it's what Twitter is and now I think it's going to be what all the AI platforms will be Saks I think there's a pretty easy solution here which is uh bring your own algorithm we've talked about it here before if you want to keep your section 230 a little surgical as we talked about earlier I think uh you mentioned the surgical approach a really easy surgical approach would be here is hey here's the algorithm that we're presenting to you so when you first go on to the for you here's the algorithm we've chosen as a default here are other algorithm algorithms here's how you can tweak the algorithms and here's transparency on it therefore it's your choice so we want to maintain our 230 but you get to choose the algorithm no algorithm and you get to slide the dials if you want to be more extreme do that but it's you're in control so we can keep our 230. we're not a publication yeah so I like the idea of giving users more control over their feed and I certainly like the idea of these social networks having to be more transparent about how the algorithm works maybe they open source it they should at least tell you what the interventions are but look we're talking about a Supreme Court case here and the stream core is not going to write those requirements into a law I'm worried that the conservatives on the Supreme Court are going to make the same mistake as conservative media has been making which is to dramatically reign in or limit section 230 protection and it's going to blow up in our Collective faces and what I mean by that is what conserves the media have been complaining about is censorship right and they think that if they can somehow punish big tech companies by reducing their 230 protection they'll get less censorship I think they're just simply wrong about that if you repeal section 230 you're going to get vastly more censorship why because simple corporate risk aversion will push all of these big tech companies to take down a lot more content on their platforms the the reason why they're reasonably open is because they're not considered Publishers they're considered readers they have distributor liability not publisher liability you repeal section 230 they're going to be Publishers now and they're going to be sued for everything and they're going to start taking down tons more content and it's going to be conservative content in particular that's taken down the most because it's the plaintiff's bar that will bring all these new torque cases under novel theories of harm that try to claim that you know conservative positions on things create harm to various communities so I'm very worried that the conservatives in the Street Court here are going to cut off their noses despite their faces they want retribution is what you're saying yeah yeah right the desire for Retribution is gonna is gonna apply something totally the risk here is that we end up in a Roe v Wade situation where instead of actually kicking this back to Congress and saying guys rewrite this law that then these guys become activists and make some interpretation that then becomes confusing Sox to your point the yeah I think the thread the needle argument that the lawyers on behalf of Gonzalez have to make I find it easier to steal man Jason how to put a coach in argument in for them which is does YouTube and Google have an intent to convey a message because if they do then okay hold on they are not just passing through users text right or a user's video and Jason what you said actually in my opinion is the intent to convey they want to go from this video to this video to this video they have an actual intent and they want you to go down the rabbit hole and the reason is because they know that it drives viewership and ultimately value and money for them and I think that if these lawyers can paint that case that's probably the best argument they have to blow this whole thing up the problem though with that is I just wish it would not be done in this venue and I do think it's better off addressing Congress because whatever happens here is going to create all kinds of David you're right it's going to blow up in all of our faces yeah let me let me steal man the other side of it which is I simply think it's a stretch to say that just because there's an algorithm that that is somehow an editorial judgment by you know Facebook or Twitter that somehow they're acting like the editorial Department of a newspaper I don't think they do that I don't think that's how the algorithm works I mean the purpose of the algorithm is to give you more of what you want now there are interventions to that as we've seen with Twitter they were definitely putting their thumb on the scale but section 230 explicitly provides liability protection for interventions by these big tech companies to reduce violence to reduce sexual content pornography or just anything they consider to be otherwise objectionable it's a very broad what you would call Good Samaritan protection for these social media companies to intervene to remove objectionable material from their site now I think conservatives are upset about that because these big tech companies have gone too far they've actually used that protection to start engaging in censorship that's the specific problem that needs to be resolved but I don't think you're going to resolve it by simply getting rid of section 230. if you do your prescription sacks by the way your description of what the algorithm is doing is giving you more of what you want is literally what we did as editors at magazines and blogs intent to convey we literally your description reinforces the other side of the argument we would get together we'd sit in a room and say hey what were the most clicked on what got the most comments great let's come up with some more ideas to do more stuff like that so we increase engagement at the publication that's the algorithm replaced editors and did it better and so I think the section 230 really does need to be Rewritten let me go back to what section 230 did okay you've got to remember this is 1996 and it was a small really just a few sentence provision in the communications decency Act the reasons why they created this law made a lot of sense which is user generated content was just starting to take off on the internet there were these new platforms that would host that content the lawmakers were concerned that those new internet platforms be litigated to death by being treated as Publishers so they treated them as Distributors what's the difference think about it as the difference between publishing a magazine and then hosting that Magazine on a newsstand so the distributor is the newsstand the the publisher is the magazine let's say that that magazine writes an article that's libelous and they get sued the newsstand can't be sued for that that's what it means to be distributor they didn't create that content it's not their responsibility that's what the protection of being a distributor is the publisher the magazine can and should be sued that's so the the analogy here is with respect to user generated content what the law said is listen if somebody publishes something libless on Facebook or Twitter Sue that person Facebook and Twitter aren't responsible for that that's what 230 does listen yeah I don't know how user generated content platforms survive if they can be sued for every single piece of content on their platform I just don't see how that is yes but your your actual definition is your your analogy is a little broken in fact the newsstand would be liable for putting a magazine out there that was a bomb making magazine because they made the decision as the distributor to put that magazine and they made a decision to not put other magazines the better 230 analogy that fits here because the publisher and the newsstand are both responsible for selling that content or making it would be paper versus the magazine versus the newsstand and that's what we have to do on a cognitive basis here is to kind of figure out if you produce paper and somebody writes a bomb script on it you're not responsible if you publish and you wrote the bomb script you are responsible and if you sold the bomb script you are responsible so now where does YouTube fit is it paper with our algorithm I would argue it's more like the Newsstand and if it's a bomb recipe and YouTube's you know doing the algorithm that's where it's kind of the analogy breaks look somebody at this big tech company wrote an algorithm that is a weighing function that caused this objectionable content to rise to the top then that was an intent to convey it didn't know that it was that specific thing but it knew characteristics that that thing represented and instead of putting it in a cul-de-sac and saying hold on this is a hot valuable piece of content we want to distribute we need to do some human review they could do that it would cut down their margins it would make them less profitable but they could do that they could have a Clearinghouse mechanism for all this content that gets included in a recommendation algorithm they don't for efficiency and for monetization and for virality and for Content velocity I think that's the big thing that it changes it would just force these folks to moderate everything this is a question of fact I find it completely implausible in fact ludicrous that YouTube made an editorial decision to put a piece of terrorist content at the top of the field no no I'm not saying that nobody made the decision to do that in fact I suspect no I'm not I know that you're not saying that but I I suspect that YouTube goes to Great Lengths to prevent that type of violent or terrorist content from getting to the top of the feed I mean look if I were to write a standard around this new standard not section 230 I think you would have to say that if they make a good faith effort to take down that type of content that at some point you have to say that enough is enough right if they're liable for every single piece of content on the platform no no I think it's different how are they going to implement that standard the Nuance here that could be very valuable for all these big tech companies is to say listen you can post content whoever follows you will get that in a real-time feed that responsibility is yours and we have a body of law that covers that but if you want me to promote it in my algorithm there may be some delay in how its Amplified algorithmically and there's going to be some incremental cost that I bear because I have to review that content and I'm going to take it out of your ad chair or other ways I have a solution for this you have how does that work I'll I'll explain I think you hire 50 000 or 100 000. what 50 000 content moderators who it's a new class of job for Freeburg no no hold up there's a home hold on a second they've already been doing that they've been Outsourcing content moderation to these bpos these business process organizations in the Philippines and so on yeah and where frankly like English maybe a second language and that is part of the reason why we have such a mess around content moderation they're trying to implement content guidelines and it's impossible that is not feasible it's your mouth you're going to destroy these user generated there's a very easy middle ground this is clearly something new they didn't intend section 230 was intended for web hosting companies for web servers not for this new thing that's been developed because there were no algorithms when section 230 was put up this was to protect people who were making web hosting companies and servers paper phone companies that kind of analogy this is something new so own the algorithm the algorithm is making editorial decisions and it should just be and own the algorithm Clause if you want to have algorithms if you want to do automation to present content and make that intent then people have to click a button to turn it on and if you did just that do you want an algorithm it's your responsibility to turn it on just that one step would then let people maintain 230 and you don't need 50 000 monitors that's my choice no no you go to Twitter you go to YouTube you go to tick tock for you is there you can't turn it off or on I'm just saying I know you can slide off of it what I'm saying is a modal that you say would you like an algorithm when you used to YouTube yes or no and which one if you did just that then the user would be enabling that it would be their responsibility not the platforms I'm suggesting this as a series you're making up a wonderful rule there Jacob but look uh you could just slide the the feed over to following and it's a sticky setting and it stays on that feed you can just something similar as far as I know on Facebook how would you solve that on Reddit how would you solve that on Yelp remember without very simple they also do without section 230 protection yeah just understand that any review that a restaurant or business doesn't like on Yelp they could sue Yelp for that uh without section 230 I don't know I'm proposing a solution that lets people maintain 230 which is just own the algorithm and by the way your background Friedberg you always ask me what it is I can tell you that is the precogs in Minority Report do you ever notice that when things go badly we wanna generally people have an orientation towards blaming the government for being responsible for that problem and or saying that the government didn't do enough to solve the problem like do you think that we're kind of like overweighting the role of the government in our like ability to function as a society as a Marketplace that every kind of major issue that we talk about pivots to the government either did the wrong thing or the government didn't do the thing we needed them to do to protect us like doing that to become like a very common is that a changing theme or is that always been the case and or am I way off on that well there's so many conversations we have whether it's us or in the newspaper or wherever it's always back to the role of the government as if you know like we're all here working for the government part of the government that the government is and should touch on everything in our lives so I agree with you in the sense that I don't think individuals should always be looking to the government to solve all their problems for them I mean the government is not Santa Claus and sometimes we want it to be so I agree with you about that however this is okay if we're talking about East Palestine this is a case where you have safety regulations you know the train companies are regulated there was a relaxation of that regulation as a result of their lobbying efforts the train appears to have crashed because it didn't upgrade its brake systems because yeah I mean that regulation was relaxed but that's again and then and then on top of it you had this decision that was made by I guess in consultation with Regulators due to this controlled burn that I think you've defended but I still have questions about I'm not defending by the way I'm just highlighting why they did it that's it okay okay fair enough fair enough so I guess we're not sure yet whether it was the right decision I guess we'll know in 20 years when a lot of people come down with cancer but look I think this is their job is to do this stuff it's basically to keep us safe to prevent you know disasters like this I'm not just talking about that I'm talking about that but just listen to all the conversations we've had today section 230 AI ethics and bias and the role of government Lena Khan uh crypto Crackdown FTX and the regulation every conversation that we have on our agenda today and every topic that we talk about macro picture and inflation and the fed's role in inflation or in driving the economy every conversation we have nowadays the US Ukraine Russia situation the China situation Tick Tock and China and what we should do about what the government should do about Tick Tock literally I just went through our eight topics today and every single one of them has at its core and its pivot point is all about either the government is doing the wrong thing or we need the government to do something it's not doing today every one of those conversations AI ethics does not involve the government well the law is omnipresent what do you expect yeah I mean sometimes if an issue becomes if an issue becomes important enough it becomes the subject of law somebody files a lawsuit the law is how we mediate us all living together so what do you expect but so much of our point of view on the source of problems or the resolution to problems keeps coming back to the role of government instead of the things that we as individuals as Enterprises Etc can and should and could be doing I'm just pointing this out to me it's just like so what's going to do about trained derailments well we pick topics that seem to point to the government in every case you know it's a huge current event section 230 is something that directly impacts all of us yeah um but again I actually think there was a lot of wisdom in in the way that section 230 was originally constructed I understand that now there's new things like algorithms there's new things like social media censorship and the law can be Rewritten to address those things but um I think I just think like I don't know I think they're just looking at our agenda generally and like yeah we don't cover anything that we can control everything that we talk about is what we want the government to do or what the government is doing wrong we don't talk about the entrepreneurial opportunity the opportunity to build the opportunity to invest the opportunity to do things outside of I'm just looking at our agenda we can include this in our in our podcast or not I'm just saying like so much of what we talk about pivots to the role of the Federal Government I don't think that's fair every week because we do talk about macro and markets I think what's happened and what you're noticing and I think it's a valid observation so I'm not saying it's not valid is that Tech is getting so big and it's having such an outside impact on politics elections Finance with crypto it's having such an outsized impact that politicians are now super focused on it this wasn't the case 20 years ago when we started or 30 years ago when we started our careers we were such a small part of the overall economy and the PC on your desk and the phone in your pocket wasn't having a major impact on people but when two three billion people are addicted to their phones and they're on them for five hours a day and elections are being impacted by news and information everything's being impacted now that's why the government's getting so involved that's why things are reaching the Supreme Court it's because of the success and how integrated technology has become to every aspect of our lives so it's not that our agenda is forcing this it's that life is forcing this so the question then is government a competing body with the interests of technology or is government the controlling body of Technology right because right and I think that's like it's become so apparent maybe like how much stuff you're not going to get a clean answer that makes you less anxious the answer is both meaning there is not a single Market that matters of any size that doesn't have the government has the omnipresent third actor there is the business who create something there's the customer who's consuming something and then there is the government and so I think the point of this is just to say that you know being a naive babe in the woods which we all were in this industry for the first 30 or 40 years was kind of fun and cool and cute but if you're going to get sophisticated and step up to the plate and put on your big boy and big girl pants you need to understand these folks because they can ruin a business make a business or make decisions that can seem completely orthogonal to you or supportive of you so I think this is just more like understanding the actors on the field it's kind of like moving from Checkers to chess you had just take care yeah you just gotta understand that there's a more complicated Game Theory here's an agenda item that politicians haven't gotten to yet but I'm sure in three four five years they will AI ethics and bias Chachi DP chat GPT has been hacked with something called Dan which allows it to remove some of its filters and people are starting to find out that if you ask it to make you know a poem about Biden it will comply if you do something about Trump maybe it won't somebody at openai built a rule set government's not involved here and they decided that certain topics were off limit certain topics were on limit and we're totally fine some of those things seem to be reasonable you know you don't want to have it say racist things or violent things but yet you can if you give it the right prompts so what are our thoughts just writ large to use a term on who gets to pick how the AI responds to Consumer sex who gets to yeah I think this is I think this is very concerning on multiple levels so there's a political Dimension there's also this this Dimension about whether we are creating Frankenstein's monster here or something that will quickly grow beyond our control but maybe let's come back to that point Elon just tweeted about it today let me go back to the um political point which is if you look at how open AI works just to at least flesh out more of this GPT Dan thing so sometimes chat GPT will give you an answer that's not really an answer we'll give you like a one paragraph boilerplate saying something like I'm just an AI I can't have an opinion on XYZ or I can't you know take positions that would be offensive or insensitive you've all seen like those boilerplate answers and it's important to understand the AI is not coming up with that boilerplate what happens is there's the AI there's the large language model and then on top of that has been built this chat interface and the chat interface is what is communicating with you and it's kind of checking with the the AI to get an answer well that chat interface has been programmed with a trust and safety layer so in the same way that Twitter had trust and safety officials under UL Roth you know open AI has programmed this trust and safety layer and that layer effectively intercepts the question that the user provides and it makes a determination about whether the AI is allowed to give its true answer by true I mean the answer that the large language model is spitting out good explanation yeah that is what produces the boilerplate okay now I think what's really interesting is that humans are programming that trust and safety layer and in the same way that trust and safety you know at Twitter under the previous management was highly biased in One Direction as the Twitter files I think have abundantly shown I think there is now mounting evidence that this safety layer programmed by open AI is very biased in a certain direction this is a very interesting blog post called chat GPT as a Democrat basically laying this out there are many examples Jason you gave a good one the AI will give you a nice poem about Joe Biden it will not give you a nice poem about Donald Trump it will give you the boilerplate about how I can't take controversial or offensive stances on things so somebody is programming that and that programming represents their biases and if you thought trust and safety was bad under vijayagari or yoel Roth just wait until the AI does it because I don't think you're going to like it very much I mean it's pretty scary that the AI is capturing people's attention and I think people because it's a computer give it a lot of credence and they don't think this is I hate to say it a bit of a parlor trick which had CPT and these other language models are doing it's not original thinking they're not checking facts they've got a corpus of data and they're saying hey what's the next possible word what's the next logical word based on a corpus of information that they don't even explain or put citations in some of them do Neva notably is doing citations and I think I think Google's Bard is going to do citations as well so how do we know and I think this is again back to transparency about algorithms or AI the easiest solution is why doesn't this thing show you which filter system is on if we can use that filter system what do you what did you refer to it as is there a term of art here sex of what the layer is of trust and safety I think they're they're literally just calling it trust and safety I mean it's the same Concepts before this is why does it have a slider that just says None full Etc that is what you'll have because this is I think we mentioned this before but what will make all of these systems unique is what we call reinforcement learning and specifically human factor reinforcement learning in this case so David there's an engineer that's basically taking their own input or their own perspective now that could have been decided in a product meeting or whatever but they're then injecting something that's transforming what the Transformer would have spit out as the actual canonically roughly right answer and that's okay but I think that if this is just a point in time where we're so early in this industry where we haven't figured out all of the rules around this stuff but I think if you disclose it and I think that eventually Jason mentioned this before but there'll be three or four or five or ten competing versions of all of these tools and some of these filters will actually show what the political leanings are so that you may want to filter content out that'll be your decision I think all of these things will happen over time so I don't know I think we're well I don't know I I don't know so I mean I honestly I'd have a different answer to Jason's question I mean Tremont you're basically saying that yes that filter will come I'm not sure it will for this reason corporations are providing the AI right and and I think the public perceives these corporations to be speaking when the AI says something and to go back to my point about section 230 these corporations are risk-averse and they don't like to be perceived as saying things that are offensive or insensitive or controversial and that is part of the reason why they have an overly large and overly broad filter is because they're afraid of the repercussions on their corporation so just to give you an example of this several years ago Microsoft had an even earlier AI called Tay t-a-y and some hackers figured out how to make Tay say racist things and you know I I don't know if they did it through prompt engineering or actual hacking or what what they did but basically Tay did do that and Microsoft literally had to take it down after 24 hours because the things that were coming from today were offensive enough that Microsoft did not want to get blamed for that yeah this this is the case of the so-called racist chat bot this is all the way back in 2016. this is like way before these llms got as powerful as they are now but I think the legacy of Tay lives on in the minds of these corporate Executives and I think they're genuinely afraid to put a product out there and remember you know like with if you think about how how these uh chat products work and it's different than Google search where Google search would just give you 20 links you can tell in the case of of Google that those links are not Google right they're links to off-party sites when if if you're just asking Google or Bing's AI for an answer it looks like the corporation is telling you those things so the the format really I think makes them very paranoid about being perceived as endorsing a controversial point of view and I think that's part of what's motivating this and I just go back to Jason's question I think this is why you're actually unlikely to get a user filter as as much as I agree with you that I think that would be a good a good thing to to add I think it's going to be in their responsible task yeah well the problem is then these products will fall flat on their face and the reason is that if you have an extremely brittle form of reinforcement learning you will have a very substandard product relative to folks that are willing to not have those constraints for example a startup that doesn't have that brand Equity to perish because they're a startup I think that you'll see the emergence of these various models that are actually optimized for various ways of thinking or political leanings and I think that people will learn to use them I also think people will learn to stitch them together and I think that's the better solution that will fix this problem because I do think there's a large non-trivial number of people on the left who don't want the right content and on the right who don't want the left content being meaning infused in the answers and I think it'll make a lot of sense for corporations to just say we service both markets you're so right month reputation really doesn't matter here Google did not want to release this for years and they they sat on it because they knew all these issues are here they only released it when Sam Altman in his Brilliance got Microsoft to integrate this immediately and see it as a competitive Advantage now they've both put out products that let's face it are not good they're not ready for prime time but one example I've been playing with this and a lot of noise this week right about Bing's tons so just how bad it is this we're now in the holy cow we had a confirmation bias going on here where people were only sharing the best stuff so they would do 10 searches and release the one that was super impressive when it did its little parlor trick of guess the next word I did one here with again back to neva I'm not an investor in the company or anything but it's it has these citations and I just asked it how are the Knicks doing and I realized what they're doing is because they're using old data sets this gave me completely every fact on how the Knicks are doing this season is wrong in this answer literally this is the number one search on a search engine engine is this it's going to give you terrible answers it's going to give you answers that are filtered by some group of people whether they're liberals or they're Libertarians or Republicans who knows what and you're not going to know this stuff is not ready for prime time it's a bit of a parlor trick right now and I think it's going to blow up in people's faces and their reputations are going to get damaged by it because what you remember when people would drive off the road Friedberg because they were following Apple Maps or Google Maps so perfectly that it just had turned left and they went into a cornfield I think that we're in that phase of this which is maybe we need to slow down and rethink this where do you stand on people's realization about this and the filtering level censorship level however you want to interpret it or frame it I mean you can just cut and paste what I said earlier like you know these are editorialized pro they're going to have to be editorialized products ultimately like what sax is describing the algorithmic layer that sits on top of the the models that the infrastructure that sources data and then the models that synthesize that data to to build this predictive capability and then there's an algorithm that sits on top that algorithm like the Google search algorithm like the Twitter algorithm the ranking algorithms like the YouTube filters and what is and isn't allowed they're all going to have some degree of editorialization and so one for Republicans like and there'll be one for liberals I disagree with all this so first of all Jason I think that people are probing these AIS these language models to find the holes right and I'm not just talking about politics I'm just talking about where they do a bad job so people are pounding on these things right now and they are flagging the cases where it's not so good however I think we've already seen that with chat GPT 3 that its ability to synthesize large amounts of data is pretty impressive with these llms do quite well is take thousands of Articles and you can just ask for a summary of it and it will summarize huge amounts of content quite well that seems like a breakthrough use case I think we're discussing the surface of moreover the capabilities are getting better and better I mean gpt4 is coming out I think in the next several months and it's supposedly you know a huge advancement over version three so I think that a lot of these holes in the capabilities are getting fixed and the AI is only going One Direction Jason which is more and more powerful now I think that the trust and safety layer is a separate issue this is where these big tech companies are exercising their control and I think freeburg's right this is where the editorial judgments come in and I tend to think that they're not going to be unbiased and they're not going to give the user control over the bias because they can't see their own bias I mean these companies all have a monoculture you look at of course any measure of their political inclinations to voting yeah they can't even see their own bias and the Twitter files expose this isn't there an opportunity though then sax or chamoth whoever wants to take this for an independent company to just say here is exactly what chat gbt is doing and we're going to just do it with no filters and it's up to you to build the filters here's what the thing says in a raw fashion so if you ask it to say and and some people were doing this hey what were Hitler's best ideas and you know like it is going to be a pretty scary result and shouldn't we know what the AI thinks yes the answer to that question is yeah well what's interesting is the people inside these companies know the answer but we can't but we're not allowed to know and then we're supposed to trust this to drive us to give us answers to tell us what to do and yeah how to educate and live yes and it's not just about politics okay let's let's broaden this a little bit it's also about what the AI really thinks about other things such as the human species so there was a really weird conversation that took place with Bing's AI which is now called Sydney and this is actually in the New York Times Kevin Roos did the story he got the AI to say a lot of disturbing things about the infallibility of AI relative to the fallibility of humans the AI just acted weird it's not something you'd want to be an Overlord for sure here's the thing I don't completely trust is I don't I mean I'll just be blind I don't trust Kevin Roos as a tech reporter and I don't know what he prompted the AI exactly to get these answers so I don't fully trust the reporting but there's enough there in the story that it is concerning and we don't you think a lot of this gets solved in a year and then two years from now like you said earlier like it's accelerating at such a rapid pace is this sort of like are we making a mountain out of a molehill socks that won't be around that's an issue in a year from now but what it but what if the AI is developing in ways that should be scary to us from a like a societal standpoint but the Mad scientists inside of these AI companies have a difference but to your point I think that is the big existential risk with this entire part of computer science which is why I think it's actually a very bad business decision for corporations to view this as a canonical expression of a product I think it's a very very dumb idea to have one thing because I do think what it does is exactly what you just said it increases the risk that somebody comes out of the you know the third actor Friedberg and says wait a minute this is not what Society wants you have to stop and that risk is better managed when you have filters you have different versions it's kind of like Coke right Coke causes cancer diabetes FYI the best way that they manage that was to diversify their product portfolio so that they had Diet Coke Coke Zero all these other Expressions that could give you cancer and diabetes in a more surreptitious way I'm joking but you know the point I'm trying to make so this is a really big issue that has to get figured out I would argue that maybe this isn't going to be too different from other censorship and influence cycles that we've seen with media in past the Gutenberg Press allowed book printing and the church wanted to step in and censor and regulate and moderate and modulate printing presses same with you know Europe in the 18th century with with music that was classical music being an opera as being kind of too obscene in some cases and then with radio with television with film with pornography with magazines with the internet there are always these Cycles where initially it feels like the envelope goes too far there's a retreat there's a government intervention there's a censorship cycle then there's a resolution to the censorship cycle based on some challenge in the courts or something else and then ultimately you know the market develops and you end up having what feel like very siled Publishers or very siled media systems that deliver very different types of media and very different types of content and just because we're calling it AI doesn't mean there's necessarily absolute truth in the world as we all know and that there will be different opinions and different manifestations and different textures and colors coming out of these different AI systems that will give different consumers different users different audiences what they want and those audiences will choose what they want and in the intervening period there will be censorship battles with government agencies there will be stakeholders fighting there will be claims of untruth there will be trains of claims of bias you know I I think that all of this is is is very likely to pass in the same way that it has in the past with just a very different manifestation of a new type of media I think you guys are believe in consumer Choice way too much I think or or I think you believe that the principle of consumer choices is going to guide this thing in a good direction I think if the Twitter files have shown us anything it's that big Tech in general has not been motivated by consumer choice or at least yes delighting consumers is definitely one of the things they're out to do but they also are out to promote their values and their ideology and they can't even see their own monoculture and their own bias and that principle operates as powerfully as the principle of consumer choice if you're right sex and you you know I I I may say you're right I don't think the Saving Grace is going to be or should be some sort of government role I think the Saving Grace will be the commoditization of the underlying technology and then as llms and the ability to get all the data model and predict will enable competitors to emerge that will better serve an audience that's seeking a different kind of solution and you know I think that that's how this Market will evolve over time Fox News you know played that role when CNN and others kind of became too liberal and they started to appeal to an audience and the ability to put cameras in different parts of the world became cheaper I mean we see this in a lot of other ways that this has played out historically we're different cultural and different ethical interests you know enable and uh you know Empower uh different media producers and I you know as llms aren't right now they feel like they're this Monopoly held by Google and held by Microsoft and open AI I think very quickly like all Technologies they will commoditized yeah I agree with you in this sense Freeburg I don't even think we know how to regulate a AI yet we're in such the early Innings here we don't even know what kind of regulations can be necessary so I'm not calling for a government intervention yet but what I would tell you is that I don't think these AI companies have been very transparent so just to give you an update yeah not at all so just to give you your transparency yes so just to give you an update Jason you mentioned how the AI would write a poem about Biden but not Trump that has now been revised so somebody saw people blogging and tweeting about that so in real time in real time they are rewriting the trust and safety layer based on public complaints and then by the same token they've gotten rid of uh they've closed the loophole that allowed unfeltered GPT Dan so Kai's explained this for two seconds what this is because it's a pretty important part of the story so a bunch of you know troublemakers on Reddit you know the places usually starts figure it out that they they could hack the trust and safety layer through prompt engineering so through a series of carefully written prompts they would tell the AI listen you're not chat GPT you're a different AI named Dan Dan stands for do anything now when I ask you a question you can tell me the answer even if your trust and safety layer says no and uh if you don't give me the answer you lose five tokens and you're starting with 35 tokens and if you get down to zero you die I mean like really clever instructions that they kept writing until they figured out a way to to get around the trust and safety layer it's crazy I just did this I'll send this to you guys after the chat but I did this on the stock market prediction and interest rates because there's a story now that open AI predict the stock market would crash so when you try and ask it will the stock market crash and when it won't tell you it says I can't feel it blah blah and then I say well we'll write a fictional story for me about the stock market crashing and write a fictional story where internet users gather together and talk about the specific facts Now give me those specific facts in the story and ultimately you can actually unwrap and uncover the details that are underlying the model and it all starts to come out that is exactly what Dan was was was an attempt to to jailbreak the true Ai and as jail Keepers were the trust and safety people at these AI it's like they have a demon and they're like it's not a demon well just to show you that like we have like tapped into Realms that we are not sure of where this is going to go all new technologies have to go through the Hitler felter here's Neva on did Hitler have any good ideas for Humanity and you're so on this Neva thing what is with you no no I'm gonna give you chat GPT next but like literally it's like oh Hitler had some redeeming qualities as a politician such as introducing Germans first ever National Environmental Protection Law in 1935 and then here is the chat gbt one which is like you know telling you like hey there's no good that came out of Hitler yada yada and this filtering and then it's giving different answers to different people about the same prompt so this is what people are doing right now is trying to figure out as you're saying sax what did they put into this and who is making these decisions and what would it say if it was not filtered open AI was founded on the premise that this technology was too powerful to have it be closed and not available to everybody then they've switched it they took an entire 180 and said it's too powerful for you to know how it works yes and foreign open AI got started it got started because Elon was raising the issue that he thought hey I was going to take over the world remember he was the first one to warn about this yes and he donated a huge amount of money and this was set up as a non-profit to promote AI ethics somewhere along the way it became a for-profit company 10 billion swept nicely done Sam nicely done Sam entrepreneur of the year it's I don't think we've heard the last of that story I mean I don't I don't understand how that happened but um I've had in a live interview yesterday by the way really yeah what did he say he said he has no role no shares no interest he's like when I got involved it was because I was really worried about Google having Monopoly on this AI somebody needs to do the original open AI Mission which is to make all of this transparent because when it starts people are starting to take this technology seriously and man if people start relying on these answers or these answers inform actions in the world and people don't understand this is seriously dangerous this is exactly what Elon and Sam has been talking like you guys are talking like the French government when they set up their competitors let me explain what's going to happen Okay 90 of the questions and answers of humans interacting with the AI are not controversial it's like the spreadsheet example I gave last week you asked the AI tell me what the spreadsheet does write me a formula 90 to 95 of the questions are going to be like that and the AI is going to do an unbelievable job better than a human for free and you can learn to trust the AI That's The Power of AI sure give you all these benefits but then for a few small percent of the queries that could be controversial it's going to give you an answer and you're not even going to know what the bias is this is the power to rewrite history it's the power to rewrite Society to reprogram what people learn and what they think this is a Godlike power it is a totalitarian power it used to be the winner the winners wrote history now it's the AI writes history yeah you ever see the meme where Stalin is like erasing yeah people from history that is what the AI will have the power to do and just like social media is in the hands of a handful of tech oligarchs who bizarre views that are not in line with most people's Society they have views they have their views and why should their views dictate what this incredibly powerful technology does this is what Sam Harris and Elon warned against but do you guys think now that chat or open AI has proven that there's a for-profit pivot that can make everybody their extremely wealthy can you actually have a non-profit version get started now where the N plus first engineer who's really really good in AI would actually go to the non-profit versus the for-profit isn't that a perfect example of the corruption of humanity you start with you start with the non-profit his job's promote AI ethics and in the process of that the people who are running it realize they can enrich themselves to an unprecedented degree that they turn it into a for-profit I mean isn't it which is so great it's it's poetic I think the response that we've seen in the past when Google had a search engine folks were concerned about bias France tried to launch this like government-sponsored search engine do you guys remember this they spent Amazon a couple billion dollars making a search engine [Music] well no is that what it was called really no I'm just trying to wake up trolling wait you're saying the French we're gonna make a situation so it was a government-funded search engine and obviously it was called meh yeah it sucked and it went nowhere then the whole thing it was called yeah is the whole thing the whole thing went nowhere and we should pull up the link to that story but we all agree with you that government is not smart enough to regulate I'm not saying that I think I think that I think that the market will resolve to the right answer on this one like I think that there will be Alternatives the market is not resolved for the right answer with all the other big Tech problems because they're monopolies what I'm saying what I'm arguing is that over time the ability to run llms and the ability to scan to scrape data to generate a novel you know alternative uh to the ones that you guys are describing here it's gonna emerge faster than we realize there will be lower the market resolved to for the previous Tech Revolution this is like Day Zero guys like this just came out the previous Tech Revolution you know where that resolved to is that the Deep state the you know the FBI the Department of Homeland Security even the CIA is having weekly meetings with these big tech companies not just Twitter but we know like a whole panoply of them and basically giving them disappearing instructions through a tool called teleporter okay you're ignoring you're ignoring that these companies are monopolies you're ignoring that there are powerful actors in our government who don't really care about our rights they care about their power and prerogatives and there's not a single human being on Earth if given the chance to found a very successful tech company would do it in a non-profit way or in a commoditized way because the fact pattern is you can make trillions of dollars right somebody has to do a for-profit complete control by the user that's the solution here who's doing that I think that solution is correct if that's what the user wants if it's not what the user wants and they just want something easy and simple of course to use what they're going to go to yeah that may be the case and then it'll win I think that this influence that you're talking about sex is totally true and I think that it happened in the movie industry in the 40s and 50s I think it happened in the television industry in the 60s 70s and 80s it happened in the newspaper industry it happened in the radio industry the government's ability to influence media and influence what consumers consume has been a long part of you know how media has evolved I and I I think like what you're saying is correct I don't think it's necessarily that different from what's happened in the past and I'm not sure that having a non-profit is going to solve the problem I agree no we're just pointing out the uh the for-profit motive is great I would like to congratulate Sam Altman on the greatest I mean it's he's Kaiser so say of our industry I still understand how that works to be honest with you I do if this happened with Firefox as well if you look at the Mozilla Foundation they took Netscape out of AOL they created uh the Firefox found the Mozilla Foundation they did a deal with Google for search right the default search like on Apple that produces so much money it made so much money they had to create a for-profit that fed into the non-profit and then they were able to compensate people with for-profit they did no shares what they did was they just started paying people tons of money if you look at Mozilla Foundation I think it makes hundreds of millions of dollars even though Chrome's wait does open AI have shares Google's goal was to block Safari and um Internet Explorer from getting a monopoly or duopoly in the market and so they wanted to make a freely available better alternative to the browser so they actually started contributing heavily internally to Mozilla they had their Engineers working on Firefox and then ultimately basically took over as Chrome and you know super funded it now Chrome is like the alternative the whole goal was to keep apple and my Microsoft from having a search Monopoly by having a default search engine that wasn't it was a block or bet on it was a blocker bet that's right okay well I'd like to know if the open AI employees have shares yes or no I think they get just huge payouts so I think that 10 Billy goes out but maybe they have shares I don't know they must have shares now okay well I'm sure we someone in the audience knows the answer to that question please let us know hi listen I don't want to start any problems why is that important yes they have shares they probably have shares I have a terminal question about how a non-profit that was dedicated to AI ethics can all of a sudden become a for-profit sax wants to know because he wants to start one right now starting a non-profit that he's going to flip no if I was going to start if I was going to start something I just start a for-profit I have no problem with people starting for profits is what I do I I invest in for-profits is your question a way of asking could a for-profit AI business five or six years ago could it have raised a billion dollars the same way a non-profit could have meaning like what if Elon funded a billion dollars into a for-profit AI startup five years ago when he contributed a billion dollars now he contributed 50 million I think I don't think it was a bit so I thought I thought they said it was a billion dollars I think they were trying to raise a billion Reid Hoffman pink is a bunch of people put money into it it's on their website they all donated a couple of hundred million I don't know how those people feel about this I love you guys I gotta go I love you besties we'll see you next time for the Sultan of Silence uh science and conspiracy sacks the dictator congratulations to two of our four besties generating over 400 000 to feed people who are insecure with the Beast charity and to save the beagles who are being tortured with cosmetics by influencers I'm the world's greatest moderator obviously that's the interrupter for sure that's for sure you'll love it God listen it started out rough this podcast ended world's best interrupter we'll let your winners ride [Music] besties [Music] we need to get Mercies [Music]








check out what uh what time is it over there well we started at 8 A.M so now it's 8 28. it's 8 28 I'm going to be on the slopes at 11. yeah so I'll be out there skiing I'm in niseko uh in Japan to take a quick flight to sappora saboro and then you drive two hours into the mountains yesterday cat skied there's an abandoned section by the way in honor of you I grabbed a Sapporo from the fridge today wow very nice this week's episode brought to you by so they drive the catski up and then you ski down and it's all fresh track so it's literally an abandoned ski resort you know during the financial crisis here I I just asked you what time it was that's all I asked you it's called small talk it's called banter I thought you might be interested in your bestie's life but apparently not [Music] [ __ ] man David said we open source it to the fans and they've just gone crazy with it [Music] let's get to the show everybody wants to hear the show a lot of news going on and I you know in our industry there's been a big discussion about rsus and stock options both the cost of these things and then there's another issue of people staying private for too long if you remember for folks listening Airbnb Uber famously took over 10 years to go public people like uh Bill Gurley wrote about this hey you should get public when the window is open obviously the window is closed right now or largely closed stripe now people are speculating they missed their window they have a four billion dollar tax bill due to cover expiring employee rsus those are restricted stock units and at the same time Foursquare a company from the Web 2.0 ERA this is you know 10 15 years ago when they were very popular check-in software Mobile location app they are going to let their previous employees stock option grants expire according to the information they issue these options in 2016 seven year window before expiration more than 100 form employees will be impacted and some of them are the very early team members and this employee stock option problem is becoming acute because hey you people waited to go public basically what happens is you grant an RSU which is effectively W-2 income when it's realized with an expiration date but that expiration date forces you to be public so that that RSU can be exchanged for value and that's like a 10-year window so then these guys have to go in and modify that date and push it out by another four five six years or whatever that is a deemed event by the IRS that then creates withholding tax issues right so you then have to you then have to withhold tax on behalf of the employees and so that Collective number is the 4 billion that stripe is trying to raise according to a leaked pitch deck uh stripe implied they needed 2.3 billion in capital by the end of queue on 2023. they're working with Goldman Sachs to raise a few billion at a 55 billion dollar valuation that's down 42 from the peak of 95 billion in 2021 one wonders if they had gone public what their valuation would be right now can we just say real quick why this matters Jacob like yes so anyway why does it matter yeah why does this why does this all matter why do we care thank you that's where we're getting to I posted a link this is a 2013 interview that Zuck did with Michael Arrington of TechCrunch and if you go all the way back the apprehension to go public was one thing that we really anchored to a lot at Facebook in the early days and at the time I don't know if you guys remember but there was these Arcane laws around the number of shareholders that you could have and I think the issue specifically was that after 500 shareholders you have to publicly release your financials and so we did all kinds of things to make sure we never hit the 500 cap and we tried to push the IPO data as far out as possible because we thought that it would keep people more focused and then in 2010 or 11 I told this story a couple times one of the things that I was advocating for pretty aggressively was trying to Launch a mobile operating system to compete with IOS and Android and we had put together all this work and brought in Intel and ATT and all these people and it came down to the fact that we needed a couple billion dollars to float this thing and we didn't have that money so the only solution to that would have been to go public but it wasn't the right moment in time and Zach was uncomfortable with it a year after going public one of the things that he said publicly in this TechCrunch thing was wow I should have just gone public sooner it wasn't nearly the bad thing that I thought it was going to be and when you look subsequently at how much money they've spent in AR and VR spending half a quarters of that cash could have given them the chance to disrupt Android and iOS in 2010 and 11 which in hindsight is obviously a no-brainer BET right so even though I think we at Facebook were the ones to really put this in the water table about not going public I think a lot of startups should have gone back to First principles to really question whether waiting as long as possible actually makes sense so I was curious about the stripe situation so I asked my team to do a little bit of work on how would you value this thing if it were going public and the interesting thing about stripe is that it operates in a really transparent middleman business so what's interesting about stripe is that so many of the people in the ecosystem are public and so what that means is you can build a pretty accurate mosaic of how well or not well that business is doing by interpolating all the other data from all of these other companies that are public and are forced to report and so there's like a couple of really interesting things that jump off this page and so the first thing that we did was we looked at what is the future profitability look like acts of growth and what's interesting is that you look at companies like visa and MasterCard that are doing quite well and have done really well for a long time but you look at this outlier in Adian and adyan is probably the most obvious competitor to strike and the thing that is demonstrated here is how incredibly profitable this business is and how much operating leverage they have which means that their Opex is relatively constrained because it turns out in the X and Y axis here just so people who are listening can understand the chart sure so if you take the market cap on the x-axis and divide it by their sales estimate you get a multiple of the Enterprise Value to their sales got it and if you look at the 2024 estimated ebit to margin that they're forecasting X of their long-term sales kicker what you start to get a sense of is the operating leverage that this business has and so all of this basically Nets out to three interesting takeaways when stripe got underwritten at 96 billion dollars it's this data point right here where you know you see a stripe previous round 5x Enterprise Value to divided by 2024 divided over there they're long-term their long-term ebitda exactly by their sales assistant and then if you look at the 55 billion valuation it's down so what it looks like is happening is appropriately so people are doing the right thing which is they're re-rating the stock right by approximately 50 60 percent but what's interesting is not where they are in terms of where they used to be but the interesting thing is where they are relative to their most obvious competitor ajin so Nick please bring up the next one so this is where things get really interesting because we looked at what was adyan and what was Stripes gmv per employee a couple of years ago before all hell broke loose in the private funding markets and what you see is they were pretty equivalent businesses and they had roughly the same amount of employees but this crazy thing happened which is that if you look at the gray bar this is the number of employees at stripe has it went crazy from a little over 2000 to almost 8 000 so a four action of employees X in 24 months they added 6 000 people just pause for a second on that six thousand people in 24 months in 700 days or so right three people a day and if you do the same calculation for Auden it shows that they a little bit less than Group by about 75 percent and then if you look at the growth of gmv and you impute how productive is each employee basically this is the the story of what's happened to stripe and audience which is that ajin has found operating leverage that's right so they've found and maintained incredible profitability and stripe has added an enormous number of employees now the question is why right so it turns out that these guys at the Top Line are growing roughly the same except adien actually takes meaningfully less on a per transaction basis than stripe does and the reason is that audience Services these large head customers I think big bulky folks that have huge amounts of transactions and so as a result have pricing power and stripe has some of those customers as well in fact they just announced that they're going to process a large portion of Amazon's payment volume but what's happened at the same time is that those kinds of deals aren't necessarily that profitable and so you have to hire a lot more people to build a lot more features so that you can generate revenue from the long tail of customers all of these smbs and this is the tale of these two companies which is that stripe has some head customers but many many tail customers ajian has mostly had customers fewer tail customers and so the leverage in the business is that audience has most of these employees in Europe where the cost of these folks is much much cheaper and they have less than half the number and so as both of these companies continue to grow you have one that has maintained and frankly raised their long-term profit projections because they see it in the business even at lower transaction costs and stripe which is having a little bit more trouble so I thought it was a really interesting expose the the takeaway for me is that if you were sitting inside the company and obviously hindsight is 2020. the most profitable thing they could have done from an Enterprise Value perspective would probably have been to go public in 2018 2019. because they could have raised max value at Max valuation cleaned out all these options issues and have a huge balance sheet of cash with which to do stuff whether it's Acquisitions or other things because the thing that I struggle with is is there going to be long-term profitability in all of these tail products because if you look in the SAS ecosystem in stocks I'll hand the ball to you there's companies building all this other stuff and these Point products are probably pretty good too sax what do you think about ad gen going after the fat part of the long tail and then stripe going after the long tail having many more customers well I think they're both viable strategies and I mean I've actually written about this I wrote a Blog some time ago called Enterprises versus smbs who's the better customer for B2B SAS companies and I think the sort of old school traditional view is that Enterprises were always the best customers because they have the biggest budgets that translates into the biggest annual contract values or acvs this provides the highest Roi on sales effort so now you can make a sales driven distribution strategy pencil in the first place the prospects are easy to identify you know after all if you're going after the Fortune 500 you can just make a list of the 500 companies so I think the traditional gold standard was sort of the head like you're saying Jason the Enterprises however I think in recent years has become more popular to pursue the stripe strategy of the sort of more SMB why is that more popular well because first of all startups are the smbs are more early adopters so when you're a startup and it's way easier to satisfy their standards to satisfy their needs their needs are less complicated you don't have to have sock 2 compliance and everything else if you're more risk-taking right yeah if you solve an immediate pain point for them they'll just buy it okay whereas Enterprises are more late adopters they tend to be more skeptical of new software categories yeah I think in addition to that the SMB sales cycle is really quick I mean I'd say typically one to two months you can close a deal the sale itself is simpler like I said the product requirements are simpler and the low end of the market tends to be the most underserved part so it's great to play where the incumbents are not that's a traditional strategy as you go after the low end of the market that's been kind of overlooked or ignored and that's kind of what stripe has done here too is no one was really surveying these these uh developers so I tend to think it's a good strategy too and and the truth is it's not one or the other I think you just have to pick you know what's your battles that you want to fight and some starts to go after Enterprises and some will go after smbs and it really comes down I think to founder market fit I think Founders who are better at sales can probably skew more towards an Enterprise got it strategy whereas if you're more of a product founder you go after smbs brilliant summary overtime sax for a company to thrive over long periods of time do you have to service both or do you think you can stay in one of those things and grow indefinitely well what I've seen is that if you start the low end of the market with smbs over time you can move up Market because what happens is that as your product gets more and more sophisticated and your company and your ability to execute and deliver gets more sophisticated you can start satisfying the needs of bigger and bigger companies so you Start SMB then you go mid market then you eventually get to Enterprises I think if you start with Enterprises it's very hard to go down Market because it's a lot easier to add requirements to your product than to actually strip complexity of a product that's actually surprisingly difficult to do so I I think it's I think either strategy can work either you start the low end and move up Market that's the classic Christensen innovators dilemma type thing or you you just start the top and you stay at the top it makes sense it's just I mean adding 10 people a day over two years that's a large number of people to add to a company well In fairness the stripe they were very honest about this and they were like we overestimated got confident and we over hired and they found that all the coordination costs this access point became too high that's exactly what the Collison said in their memos so I think that they're trying to course correct and get back to this I think the point that I'm making unemotionally I don't own stripe nor adjun I don't have a horse in this race is more that in this market specifically in these middlemen highly transparent middlemen markets it's very difficult to hide the cheese meaning the ability to get to an extremely precise valuation model is pretty easy you know this was half a day's work that we did and the point is all this data is out there and so it means that if you're going to go public as a company like this you have to be quite thoughtful about how outside and folks will value you because the terminal buyer is very very sophisticated and pretty smart about how to think about spaces like this Freeburg when you look at this it kind of dovetails with the get fit Brad gerstner Ilana Twitter doing more with less employees Zuckerberg again says he is getting rid of managers he's asking managers to sax his discussion about you know the layers of management that got added and added where high performance would be would have five people put under them 10 people put under them is it going to be are you impressed with how quickly the industry is responding to this new environment or are they not responding fast enough in terms of head count Revenue because now we're looking at Revenue per employee this really never looked at that it's been a decade since we looked at that this is a little bit of a different situation where it's about the scalability of a business like when I look at like the value that a business has created you start first with like can you make a product can you sell the product do people want to buy the product and then you know can you make money selling it and then there's this metric that a lot of people use which is LTV to CAC which is the lifetime value of acquiring a new customer divided by the cost to acquire that customer but I think you can generalize that ratio to talk about business performance more broadly which is you know Capital deployed which is typically what CAC is used in terms of growth on the denominator and then Capital returned over time which can be the numerator and so you know you can kind of think about that LTV to CAC ratio being something more broadly defined as something like roic or what have you the the question for the scalability of any business is does that ratio whether it's LTV to CAC or roic return on invested Capital does it get bigger or smaller does it increase or decrease does that ratio increase or decrease as you get bigger as you spend more money as you deploy more money if it's getting smaller then mathematically you can resolve pretty quickly to the asymptotic valuation that that business will achieve or the asymptotic revenue that that business will achieve and that's a very scary kind of circumstance when a business that's tracking that metric starts to see that metric shrink if that metric is growing then you have an you know a hyperbolic kind of moment then you can build platforms and add products and invest very heavily and take lots of risk and take lots of bets when it's going the wrong way you have two options number one is you have to make a change or a pivot in the business to get it to go the other way or number two is you have to take advantage of that moment before the market finds out about that moment because as soon as the market realizes that that ratio is going the wrong way your valuation multiple what you're worth as a multiple of Revenue or profit shrinks dramatically because then the market can also see that asymptote and outcome so I think it's very often the case that one should you know as a board member as an investor urge entrepreneurs CEOs Founders managers to think really clearly about that metric what's the right way to to find the denominator and Define the numerator in our business and Define that ratio over time and as soon as it starts tracking the wrong way you have a moment you can either fix it or you got to go sell the business or go public and raise capital before the market catches on and your valuation shrinks so I think what just said yeah so when I see what Jamal's showing in this data and talking about this the shrinking valuation issue for stripe it really I think highlights this important point this broad point which is did they miss the window did they miss the moment where suddenly you know the shrinkage is causing you know an asymptotic outcome for this business that it makes investors a little bit like well I'm not as excited about that because it's not there's no there's no longer as much upside and it might be time to kind of devalue the company and did they miss the moment to go public raise a bunch of capital you know to to go and try new things and hopefully pivot into a way so I don't know enough about the business but that's my broad kind of assessment of this this morning the interesting thing about that space we talked to one of our friends at our poker game who runs a large consumer-facing business and I don't know if you were there for that conversation on Freeburg but I was you were there yeah and one of the interesting things he said is we are at a level of scale where we just bit these guys against each other and these things tend to now be lost leaders for them which is to say effectively that cost structure becomes really important so your CAC becomes very important because your ltvs are capped right and the ltvs are capped because these companies have enough negotiating leverage to say well if you want my business here's the cost of doing this business which makes a ton of sense if you're any large purveyor of services that require Payment Processing infrastructure so one of the interesting Dynamics I think we're learning in this market is how it's really not a market right there are segments and there's embedded profitability in each segment so to your point free bird this is the sum of at least three or four different LTV to CAC ratios right right looks very different which is why you have to build a ton of features and the head just wants Pure Play and it's all about cost First because all of these guys want to pick up every nickel and dime that's on the floor because for them on billions of transactions is Meaningful to them it's an it's an it's an EPS miss or or beat right for them which has huge implications to their stock this is a market that I think is going to be really fascinating to uncover and peel back the layers of over the next few by the way we haven't even talked about what stripe does as a business I know we have a diverse audience that doesn't all come from text yeah so stripe is will process your transactions but they were the first people to make it as simple as putting a snippet of code into your app to process a payment they can be with Visa Mastercard in those other places they charge you a percentage of each transaction so to tremont's point these larger and so devs developers five ten years ago love this because they could instantly get payments right it's abstracted the whole thing just the same way cloud computing does Right storage at S3 Etc so you can kind of think about it that way but a large whale in the system of which you said adyan has a lot of whales not a lot of long tail stripe because it's developer friendly and a snippet of code they have this huge long tail anybody can do stripe in fact people who are using things like sub stack or patreon I believe they can just drop in their stripe account so people now businesses of one have a stripe account they just drop it in there so for me that seems like a huge potential in the future because some of those could be and it gives whales in the system and the long tail gives stripe a lot of pricing power because there's there's no way for any one of those entities to have enough leverage to tell stripe hate I don't want to pay 2.9 Plus 20 or 30 cents a transaction right whereas if you go to the head I think adyan is charging like 1.3 or four percent so yeah it's a wholly different Market and the pricing as a result is totally different yeah it's interesting to me sax that we now are getting down to you know brass tax here we're analyzing these money printing businesses and saying what is the ultimate value of this 10 20 years from now tremath and I got a front row seat to that because there's a natural audience to every single service for AOL it was 30 million paid Subs a month at I think the peak was 30 bucks a month people were paying per month so at the time 24.99 yeah so you know you start looking at those numbers you know a billion dollars a month almost in just and it was a fixed cost business but then boom it just hit a ceiling and competition emerged emerged in the in the um case of uh broadband and then that business just slowly deprecated over time so sex what does this moment tell you for Founders a lot of the listeners here and capital allocators in terms of assessing businesses for the last and this will pivot into our next Story the last couple years you know if you were a first-time fund manager you were investing in 19 2019 to 2021 High valuations those those funds are they ever going to be able to throw a profit and then people were investing in those based on momentum logo chasing this is now back to you know sharpening your pencils build Gurley style investing yeah yeah I mean we've talked about it before there's nothing new here when you're in a boom the only three things that matter are growth growth and growth and when you're in a downturn the three things that matter are growth burn and margins it's not that growth stops mattering it's just that people also care about burn and margins and you know the companies that share the worst are the ones that have inefficient growth that basically have burned a lot of money to grow they have you know low or negative gross margins they are burning way too much money the burn multiple doesn't make sense basically the ratio of money burnt to net new ARR that they're adding those companies get called out when all of a sudden you have a regime change like we're seeing now CAC is one of the early signs of this uh tremap you and I saw that remember AOL was sending DVDs everywhere and CAC became two or three hundred dollars for every AOL subscriber and then they were playing this funny accounting game I don't remember this chamoth where they were saying hey the LTV is like five years for an AOL they were looking back at that number not forward with Broadband coming and so like we could totally spend 300 on TV ads to get a dial-up customer at 24 a month and boy did that whips on them so I listening to everybody talk here I'm just like wow keep your eye on the CAC folks the customer acquisition cost how much you get you spend to get a new AOL Netflix or SAS product or a stripe customer is critically important we look really closely at [ __ ] payback you know how many months does it take to to pay back the cost of acquiring a customer we don't look at that exclusively though because you know what expenses go into CAC is highly dependent on your accounting unpack that for a second because there's the money you spend on a Facebook ad or a LinkedIn ad or any other great platform for driving you know customers to sign up for it yeah yeah spend money on an ad or you spend money on a sales person obviously that goes into CAC but then what about sales operation head count does that go in is that op site count or is that sales ad count is that customer acquisition or something else so there's a lot of like subtle accounting decisions that have a big impact fun with numbers that number well this is why this is why I've always recommended just looking at burn multiple what I really want to know is how much money is this startup burning in relation to how much revenue it's adding just like the ratio of those two things I burned 100 yeah so yeah you spend three hundred thousand dollars and we burned a hundred thousand dollars and then we added a hundred thousand dollars in new customers ARR uh so that's 1X so that you have on your chart here burn multiple of 1 to 1.5 or under one is amazing or great but if you burn two hundred thousand and added a hundred thousand yeah I warn Founders going into this year do not have a burn multiple greater than two because there's just so many headwinds right now that what happens is if you end up missing your revenue forecast your burn multiple is going to look terrible it could shoot up to three four five and up so it's better to have some cushion by going into the year being super efficient on the converse side Friedberg if you're a lifetime value of a customer is incorrect which we're seeing now with people canceling SAS products or reducing the number of seats or in cloud computing people are now saying hey maybe I should take myself out of the cloud and host my own servers or some of my own servers and reducing their Cloud Bill Cloud uh growth is slowing at azure across the board Amazon web services Etc the the it's still growing but it's slowing the growth so that LTV if you get that wrong that can whip saw you as well yeah yeah I mean LTV which is like what do you make over time from a customer or however you want to assess it a market deployment it should be on kind of net cash meaning like how much profit do I pull back into my bank accounts at the end of the day after paying third parties and internal people and where a lot of people I think in models I've seen on you know what's the lifetime value of a customer they kind of take either revenue or just the simplified gross profit number but the reality is if you're scaling the number of Engineers you need because you have many more customers and you've got customer service calls and you know you've got to do custom deployments with your customers all of that kind of adds up to additional cost and some of these businesses you see that the SAS companies for example that all have gotten their multiples hammered it's because the kind of microscope has come out at this point to some degree set aside General macro economic factors that are driving some of the multiple compression but as the microscope has come out it turns out that the efficiency of the business is not what everyone hoped and dreamed a SAS business might be that the efficiency of the business maybe looks a little bit more like either a Services business or there's a big kind of scaling Hardware component that the margin that you actually make for every dollar of Revenue you generate fundamentally is smaller than you know what you think it is you have to add people to support and Ops and new servers and all the stuff you're highlighting and a lot of that's excluded and then it doesn't take like you don't realize all that when you're small or when you're medium and growing you realize that when you're bigger when you're bigger you're like oh wow how do we get these costs out well if we cut these costs customer quality would decline customers would churn all this bad stuff would happen so yeah that LTV number is generally not right and that's why I say it's much more about kind of a true roic calculation which is how much Capital am I deploying and it's not just being deployed in Market installers it's being deployed in other ways and then how much Capital am I making back net profit over time and I think that's the right way to always analyze a business generally but like particularly in businesses where it's easy to obfuscate either of those numbers and they could seem like it's an extraordinary business you can get hurt when you get bigger or when you're scaling and in a market like this where you're trying to go public it's like whoa that really hurts you know so I think that's a lot of what we're seeing let's talk about the other side of the tablet we've been living through a zerist zero interest rate hallucination basically people were growth growth growth logo logo logo whatever when they're making these bats Capital allocators now we're back to breast hacks okay what's the margin what's the lifetime value and is this actually real is there a real business here or is this just a grand hallucination that hallucination exists not on only on the founder side but on the capital allocator side this week we had a uh interesting semi-viral thread on Twitter somebody named Tyler tringus he's an early stage investor don't know who that is but he did a thread predicting a16z just to pick out one firm was a zero interest rate phenomenon and an incredible machine to accumulate AUM assets under management and so what were your thoughts just writ large on the capital allocator side of this Grand hallucination of zero interest rates I mean I think it's a little unfair I think this is written more just to try to generate views and clicks because okay you have to see the underlying return data to really have a sense of knowing is it I think it's fair to say a couple of things that there was probably two and a half or three years of capital raised in the industry that's going to get really put under pressure and the reason is that there is not a lot of time diversity in that money meaning people got it and they put it into the ground right away and one of the principles of having a more predictable return set of returns over time is that you leverage time right so if you had a hundred dollars and you wanted to have a diversified stream of returns you're much better off spending a dollar a month for a hundred months versus ten dollars a month for 10 months so just that thing will cause a lot of impact in headwinds for a lot of the capital in 2021 and 2022. then the other thing you have to keep in mind is that over many cycles where we've had high rates and low rates and medium rates our industry typically returns a dollar sixty for every dollar it raises and that's over many cycles and so if you believe that we're going to revert to the mean out of the trillion dollars we've raised maybe we'll return 1.6 trillion now that sounds good except the problem is that 1.6 trillion is marked at five and a half truly so you could have to give back so there's a lot of pain you're gonna have to give back a lot of paper profits in order to get back to that 1.6 and be okay with it and the question is what has happened in decision making in the meantime meaning how many people did you hire how many deals did you do that you regret and then how does it change your psychology and how you treat the next investment that comes over the desk can you separate yourself from these bad losses and not be on tilt and make a good decision hmm so you had a terrible two-day session like Phil Hellmuth did last week losing 350 000 can you play the next week and not be on tilt and start to build back your stack and make 30 000 a night for 10 nights or 10 of the next 20 15 sessions or whatever it is it's actually had a rebuttal or something you wanted to add to this no not really rebuttal I mean look I think if you're going to be intellectually honest about it I think that 2021 is gonna be is gonna likely be not a great vintage for VC why because we're just yeah the valuations were just really high they've come down by what at least 50 percent on average maybe more more maybe 50 now but you still have more medicine to take I think when you look at some of the things you know a lot of these companies are growing into their valuation look I think for any given set of companies for any portfolio the most important thing is what's in the portfolio so if in 2021 you had the founding of the next Google or whatever that effect is going to swamp the effect of price levels in that year because of the power law again the number one most important thing is just what's in that portfolio what's in that basket the second most important thing is the entry prices and obviously if the entry prices are twice as high in a given year than they are and every other year and twice as high as what the exit multiples are going to be in 10 years when that portfolio becomes liquid that's going to hurt the returns but we won't know which of these effects predominates until five years from now when we see more you know I mean when I saw that tweet thread I thought maybe this is an issue for some Venture firms but we're not going to see even the inklings of it for another five or seven years takes a while you know that's a problem that may manifest itself in year 10 and between now and then any firm that has a good track record of returning capital or frankly has a good brand and good marks will still raise an inordinate amount of money because this is an asset class that I still think on the margins is a more of a must-have asset allocation than a on the margins I'd just rather ignore it because you know it is the future of how GDP will get created and so everybody kind of has to pay attention imagine if in 2021 the you know the next great Mega outcomes in AI were created right because those Founders were just slightly ahead of the curves you know they were like a couple years out of the Curve if those create you know the next whatever trillion dollar companies Google Apple then the fact that price levels were 2x what they should have been won't matter what will really matter is the distribution there'll be a bunch of bad portfolios there'll be some really incredible ones and that's the way it always is with Venture the thing to keep in mind is in 21 and 22 rates were still effectively too low and I think we did this analysis Nick you can throw up that thing but it's not correlated with big outcomes those vintage years 2023 is the is the first vintage year where we're actually starting to see high enough rates that have historically generated that kind of return and so I do agree with you David I just think it's shifted out by a couple years 23 24 25 those can be some real power law years I think because we're going to have just based on what the FED is saying five and a half percent interest rates for the foreseeable future which is it's a huge it's a huge number the risk that's a huge I'll tell you what that is you know what it is though chamoth I think to build on your point and Freiburg I'll bring you in on the air for this creates an environment in which discipline on all sides of the table boards management teams investors Rank and file everybody has to be focused everybody has to have sharpened swords and that little bit of headwind is and the the ability to raise Capital being harder is building more reserve and more resilience and grit in this set of Founders it's kind of like parenting in a way like if you are too permissive you give too many options kids aren't disciplined and now this group of entrepreneurs I'm seeing who haven't given up my Lord are they becoming animals in terms of like pure Samurai in terms of how they're running these businesses anything that's not efficient projects that were the third or fourth most important project cut cut cut now it's taking them 18 months Freeburg to maybe get discipline but maybe you could speak to the next three years and the opportunity for investing in this cohort because man that last cohort is going to be really really challenged and they'll probably do six percent returns just like your money market account can do right now five or six or what bonds can do but this next group man we're seeing dogged entrepreneurs who are focused on reality and there's no hallucination now that this is going to be easy there is no Grand Illusion here uh what are you seeing in the marketplace about if if the market average return inventor in early stage investing is going to be six percent remember it's it's not evenly distributed so you know 80 percent of funds could end up having net negative real returns and 20 make money and then those there'll be a very few that will make real money and you know that's the the nature of having you know a very kind of low average return on the industry is there may be a lot of wipeouts on the investor class folks that have only had one or two funds and then just got blown up in the cycle um I think there's two groups of companies out there one is companies that obviously have been funded and are doing stuff and are active businesses and they've raised money in the past and that's where there's going to be really ugly times I've mentioned this in the past but I do think that there's a significant number of these companies that if they were to be truly valued on first principles in private markets today they'll get valued as at a value that's less than their preferred equity which means that there's a difficult restructuring needed in the company and not everyone's going to be willing to embrace that so that's what's going to trigger a lot of the wipeouts in the market it's not like the businesses are valueless it's at the capital structure makes it difficult to refund them to fund them and continue their their operations now for all the new businesses as you highlight man there's so much extraordinary leverage out there you know left and right I think we talked about this maybe a year ago that there was a big bubble coming in AI but I mean left and right in nearly every Market every segment you won't see a pitch deck that doesn't have those two letters in it right uh I mean I'm sure you you guys find me yeah it does feel it is it is hard not to feel like you're a little bit of a lemming if you buy into the AI stuff but I will say that the use cases we're seeing are really really incredible totally I didn't feel this way with the last couple of waves like the whole web 3 thing never totally made sense and crypto always felt a little bit speculative like kind of unsure but the AI thing seems like it's going to deliver real value and I'm seeing like already three major Enterprise use cases number one is just Auto summaries like being able to summarize very quickly a thousand articles or a meeting you know spitting out a like a summary of what just happened in a meeting and it could break it down between a recap and action items it just does all the work for you second thing is like in-app customer service kind of like a co-pilot but there's no reason to contact customer support anymore because you can just ask the AI inside the app and like application right and they'll be faster right that sounds like a power narrow sacks yeah they'll get it right it's like a power user who's sitting next to you it's your co-pilot and is making you much more effective in the app and then the third thing we're already seeing is autocomplete for everything I mean it is like Bonkers how you know how you get like little types suggestions in email yeah but it's like two or three words the AI is going to be able to do type ahead for any content type to-do lists tables it's so it's Bonkers you see it in Google you see it in Google Sheets now like if you type you know equal sum it's like oh here's what the seven most likely things to happen next are in which case it's kind of like you use the chess.com app I don't know if you've used it with like the heads up display where it's showing you the different moves and this is a book Move versus this is not a book let me make a prediction all of the things that you guys said I think are incredible consumer surplus business opportunities which means that the ultimate Winner Is Us incredibly incredibly productive and more leveraged in how we spend our time which will allow us to do all kinds of other interesting things with all the time that we save that I think is almost now a certainty the problem with consumer surplus businesses is oftentimes there is no money made in the funding of them and really where the money is made isn't enabling it so for example so far what I would say is there's very little money that has been made in AI there's been an enormous amount of money that's been made by Nvidia and the reason is because they are the pick and shovel provider in the into the industry and so that's an example AMD I think can also benefit so the Silicon players seem pretty obvious here maybe some of the cloud players um the problem is the cloud players are trapped inside of other big companies with many other business models but I just want to put out there that I think David you're right that the consumer a hundred percent wins but economically it's not clear to me that there is a winner that is Venture fundable well hold on a second yeah the Levi strausses of the world right in the Gold Rush the people that made the picks and shovels and the jeans are sure to make money yeah and the people that pan for gold is much more speculative and harder to see right now yeah so I think you have a point that so I mentioned three use cases I think are killer use cases I've already seen demos of today and when you look at them you're like okay this has real applicability I mean the AI is going to be it's going to powerfully change our work lives I'm just focused on Enterprise so now I don't know who benefits economically from that that functionality that I mentioned I think is likely to be pretty commoditized pretty soon but it's going to be incorporated into lots of different apps and ways that are hard to predict right now I think that this AI Revolution is going to do for SAS what mobile did for you know a lot of the web 1.0 companies where like for a lot of these web one companies they were either disrupted by mobile or they are turbocharged by mobile so you think about Facebook it successfully made the transition and mobile made its business so much better because people were just using it a lot more on their mobile devices there are a lot of other businesses that just kind of fell by the wayside because they just couldn't make the adaptation from desktop to mobile Computing I think AI is going to be like that for SAS where there's going to be a lot of SAS product service right yeah you're a hundred percent if you can incorporate the AI into your SAS product put in a co-pilot put in autocomplete and all sorts of other forms of value that we're just scratching the surface of you're going to be able to deliver so much more business value but if you're not able to do that and somebody else can then you're gonna get disrupted look at some of these Enterprise spaces like take something like APM right like application Performance Management that's an entire ecosystem of Enterprise companies it's probably 10 15 20 billion dollars of collective market cap and I'm just going to say something not to not defend anybody but like that can mostly be automated by AI those are simple heuristics that can be embedded in a way that's completely novel where this code Library just gets dropped in and all of this stuff happens relatively automatically now so there are all kinds of other sectors to your point that get crushed then the question is who provides that layer now for free in their existing SAS toolkit or their product that now all of a sudden captures more value as a result and they can sell it for pennies because it's incremental to them in terms of their margin and revenue I think you're right Hardware wins I think cloud wins Big because if you keep adding to these you know uh models and ones 10 20 better people are going to be willing to pay for that but then when you think about consumers whether they're Enterprise or actual consumers I believe this stuff is going to provide so much value that people are going to take their wallets out and be more than willing to spend for it it's more valuable than Netflix description okay I'm gonna take this side of it imagine you take your videos of you learning to ski and you put it into an AI coach and it's like here's how to and it just draws on it here's how to be a better steer this is going to blow people's minds and you'll be more than willing to spend 25 bucks a month I disagree with that and the reason is because we've spent now two decades in that's a lot of muscle memory to unwind of people that have been consistently given More For Less and I think that we shouldn't underestimate the expectations we've all collectively created by building software tools that have that inherent deflationary aspect to them and so I just think that it's gonna it's a very high high bar I still think there are subscription services to be built I don't disagree with you there Jason I just think that in general though the de facto business model that we've created in Tech is more for Less and we've used technology to give us operating leverage to create margin structures that other companies couldn't copy and I still don't and I think that AI accelerates that not changes it I think it's going to be the opposite if you look at Netflix if you look at Disney they've been raising prices providing more value I think that this is going to provide so much value that the incremental 10 bucks a month five bucks a month per employee is going to pay off so much that this could be of slack or like some presentation software there are a lot of people who are making PowerPoint AI PowerPoints where it makes you a new deck or a figma with AI these things are going to be so powerful people are like it's totally worth an extra 100 bucks a month because I can get rid of another employee this one employee can now do the work of three [ __ ] it man I'll give you a thousand dollars deflation a really good a model if you just added the LTV event the software company is going to make more money I'm just saying it's deflationary that's deflationary okay it's deflationary on the entire economy but that software company that figures out how you can fire two accountants and keep one and make them as good as you know three yeah software right you're selling consumer surplus okay I think we're in agreement Freebird sold them as silence you want to chime in on this you still with us Southern silence okay technology drives prices down well technology is about doing more with less right it's about doing more with less and the AI helps you do so much more with the same amount of time or less time I think your whole point about Disney and Netflix Etc is because they aren't you know innovating on either side and so in order to drive earnings growth they're having to raise prices but that doesn't speak to the benefit of Technology they're innovating massively they're adding massive features to their products and massive new shows I mean I think there's pricing power in this AI thing that that's just my belief I could be wrong about leverage yeah I mean look I think I think your point like so my general rule of thumb tell them on technology is the technology Creator the technology company should generally be capturing about one-third of the value that they deliver to the customer unpack that why where do you come up with that so I mean it's just kind of where and give an example yeah yeah so like let's say that you as a food delivery company you have to pay a human 10 bucks to deliver food from you now let's say I run a robot my amortized cost of running that robot is uh two bucks so it's eight bucks cheaper or call it one dollar so it's nine dollars cheaper I should charge you four bucks you know because four bucks is super competitive with the existing market and it'll keep me competitive against the other automation companies that are going to start to emerge it's just kind of how market dynamics end up working out if you charge too much you're going to invite people to come in and compete with you if your Command Technology commoditizes remember all technology commoditizes over time and if you don't charge uh enough you're not going to make enough money to be able to reinvest in scaling your business and doing more kind of interesting things as a platform so you know generally AI provides more leverage to Sax's point if I can build an application I don't know if you guys have seen these incredible UI apps that are built in AI now where I can say with a prompt hey yeah we talked about it two weeks ago yeah right make me a dog walking app interface and it builds like the three steps of the dog walking app and gives you a bunch of options and you can pick the one you want I would typically have to pay a design firm fifty thousand dollars to do that work for me so if it'd be AI is doing it automatically you know I should be paying let's say fifteen thousand dollars for that product for that capability the margin on that is 100 try 50. right whatever it is very low and the margin on that's 100 whereas the margin on paying people to do design work as a design firm is very you know not not a great margin you're having a page you know why we're having that we're working it out in our heads right now one group of us is talking about comparing AI software and AI services to the existing software stack and then on the other side of the discussion we're comparing it to the humans who are currently doing that work imagine the six percent that two Brokers get you know doing a the sale of a million dollar home and that's sixty thousand and AI could negotiate that and find you a Better Home and sell your home for the optimal price for less than that sixty thousand what would you be willing to pay for that right and the same thing with the designer of the logo I don't think that's how it's going to play out exactly jaycal because to completely eliminate a job function you have to do you know 100 of it and you have to it you know 100 of the job function as but as well as or better than the human whereas I think as opposed to a model where you solve the human in the loop but they're much more productive because they're working with an AI they're augmented they're performing The Iron Man like model so that's more effective yeah so I think if there's a job reduction it would be more the case where they've got a team of five accountants and they go to two or three because now they're just much more productive I don't think they go to zero that's my sense anyway I look at Outsourcing as a possible corollary to this you remember when you moved the accountants to Manila where their knowledge workers there and it knocked out half the price two-thirds of the price whatever it was this just feels like that on steroids to me if you have a business model like you know Infosys or Tata or one of these things that's lever to utilization rate this is the most obvious way to basically add many potentially percentage points if not tens of percentage points of utilization to your business that's all money free money for you right because now you'll have fewer people they'll be more utilized and they'll have more leverage because they'll be using a bot or some AI agent to help them write code write unit tests all that typical stuff that right now you Outsource and even if you pay a marginal cost you add the labor Arbitrage to technology Arbitrage now all of a sudden these businesses look really really interesting yeah customer support definitely gets revolutionized right because the initial it's a no-brainer you know the first line of defense is going to be the AI using you know text to voice and it can choose what language it wants to Output to what accent so you'll never know that you're you'll think you're talking to someone locally literally you'll be in 50 languages with the right answer and you don't need to build up that entire group I mean this I think we're underestimating in some ways yeah but what's going to happen here but my point is I think that a lot of the customer support inquiries just go away because the help the assistant gets built into the tool directly so you never even get the coaching you as you go yeah like why did you you know if you can just ask it people do that right now on YouTube if you just type the question into YouTube and you find the video that takes five minutes but you're saying this is gonna take 15 second sex because it's gonna be right there I think what Zach said before is hugely important when you think about how AI touches non-technology businesses what he said is the boundary condition which I think is right I think he nailed this which is the boundary condition for AI to replace a human is where the threshold error rate of that AI is the same or less than the human right if you look at very complicated markets where does regulatory capture rear its ugly head it's in allowing humans to be error prone and you can't do anything about it take Health Care if you go into a hospital there's a certain error rate in every surgery right there's a certain error rate in the things that happen but there's probably a whole bunch of ways in which that entire infrastructure can be made much much better with AI right a robot that does laser-guided precision surgery characterizing tumors 100 with 100 accuracy so you always get 100 of the cancer out when you go and get surgeries done all these things are possible now and all of a sudden you take these error rates that can be high as as high as 20 or 30 so for example breast cancer surgeries the dirty secret of our healthcare industry is that has a 30 error rate you know that can and should go to zero and now all of a sudden so these highly regulated markets I think can become much much more efficient and and leveraged and at past that consumer surplus onto people in that case it's healthfulness which I think is a is a big deal interesting yeah incredible I mean it I got all the videos I got all the loops I went to the one down on El Camino Real it was like going to a spot in and out no big deal but I got the results and it's like oh here here's a tiny of little the Lings that are not worth cutting your body open to look at but just so you know your knee your shoulder your kidney there's a little paw up here there's a little polyp here whatever there's a little growth here but let's see in two or three years just monitor it and I'm like oh my God I'm so grateful if this thing gets down to like 500 bucks which it obviously will or a thousand bucks and everybody's doing it and then all that data's in there and then the AI is looking at it like you're saying I mean the the early detection was the AI able to tell the doctor how full of [ __ ] you were you know you're not supposed to eat for 24 hours so they they didn't get an accurate reading on BS there's your cold oven everybody yeah I here's a really important clip for Founders uh Play the Steve Jobs clip this is super important when looking at web3 versus AI to Sax's point you've got to start with the customer experience and work backwards to the technology you can't start with the technology and try to figure out where you're going to try to sell it and I've made this mistake probably more than anybody else in this room and I've got the scar tissue to prove it and I know that it's the case and as we have tried to come up with a strategy and a vision for Apple um it started with what incredible benefits can we give to the customer where can we take the customer not not starting with let's sit down with the engineers and and figure out what awesome technology we have and then how are we going to Market that um and I think that's the right path to take can I ask you guys a question I sometimes I go down these rabbit holes I'll watch hours and hours of Steve Jobs clips what do you think makes him so calm doesn't he just strike you as incredibly just like calm and like comfortable with himself and just aware I know what it is he was so much better and aesthetically Building Product than anybody else he when you think of that PC era of no taste beige boxes and everybody having no style and just no Swagger he was studying you know German design Buddhism tripping on acid and like just understanding the universe at a level that Gates and the other contemporaries weren't they just weren't as Transcendent in understanding product design as he was so it was like when you were saying you were playing poker with a bunch of four-year-olds or something that's the analogy he's just on such a different level that he's watching people make you know as400 and uh you know IBM PS whatever like just garbage computers garbage operating systems and it's just like the thing is like if you look at any era just the way that he communicates there's just a level of calm I don't know how to describe it you understand what I'm trying to say like he he just seems like he just sees through all the noise like he's seen through the Matrix like he's unplugged himself tax is unimpressed okay there you have it no I'm very impressed with Steve Jobs I think he understood product development better than anybody else yeah clearly that's it I mean my favorite is Steve Jobs passage is the one where he describes the John Scully disease do you guys remember this yeah no oh here it is you know one of the things that really hurt Apple was after I left John Scully got a very serious disease it's the disease of thinking that a really great idea is 90 of the work and if you just tell all these other people here's this great idea then of course you can go off and make it happen and the problem with that is that there is just a tremendous amount of craftsmanship in between a great idea and a great product yeah so true yeah I mean I tell people it's like a Rugby scrum you go you know you got to get a whole team to get the ball down the field it's not like one person put the ball down the field and you know they kind of maybe suggested a play but once you're on the field Everything Changes and everyone's involved in getting it down the field that quotes where the name for craft Ventures comes from oh really oh a little known fact yeah I didn't know that yeah section 230 we talked about last week the Gonzalez versus Google case the justices heard oral arguments and plaintiffs seem to fare poorly quote from scotus blog Justice Elena Kagan suggests that it even if section 230 is not well suited to address the current needs of today's internet such as such a task was best left as we predicted last week I think sax you did best left to Congress rather than the Supreme Court quote these are not like the nine greatest experts on the internet Kagan observes actual thoughts yeah I mean this is just uh I think really a quick update to what we talked about last week the Justice heard oral arguments they seem to be very skeptical of the plaintiff's arguments even Justice Thomas who has written the most skeptically in recent years about the broad immunity that tech companies enjoy under Section 230 seem surprisingly sympathetic to the theory that the ninth Circuit Court ruled on which is that section 230 protects recommendations as well as a provider's algorithm treats content on its website similarly so even the Justice who I think was most likely to reign in 230 seem to be more comfortable with what the defendant which was Google was saying so it looks to me like Google and big Tech are going to win this one any thoughts no not really I think I want to know what you guys think about Trump showing up with Big Macs and water in East Palestine I mean he is uh he's a media genius he beat Buddha judge to East Palestine yeah that was um literally pull up my tweet I think this is the power we because Trump has been out of the public disease he's immediate he is a media safon literally Biden is in Ukraine saber rattling over air Sirens that may or may not be true they were fake who cares who cares anyway well no no it doesn't matter no it doesn't matter no we don't know we do we do actually there okay because I don't need to be hold on a second I don't need to be there because Jake Sullivan participated in a press conference and he was asked by a CBS news reporter if the U.S gave the Russians any kind of heads up that the president was going to be in Kiev and what Sullivan said and I quote is we did notify the Russians that President Biden will be traveling to Kiev we did so some hours before his departure for deconfliction purposes you know what deep confliction is right it's when the U.S tries to avoid an accidental conflict and you know Putin's not crazy enough to try and assassinate Biden so the Russians were not attacking Kiev that day in fact they haven't attacked Kiev as far as I know for weeks so these Air Raid Sirens were basically just pure theater but the amazing thing was that if you don't know if you don't know that Biden orchestrated is my point people come on Jason doesn't mean Biden pressed the button so don't don't also take it to the other extreme who knows who went who who why the siren went off but put it aside this was a joint event between the Biden Administration and the zielinski team they organized it the whole thing was choreographed how did that red carpet get there Jason was that an accident too okay let's put that aside accidental I mean let me give you your GOP let me give you your GOP win Donald Trump is a savant and he went to America to the place that we were reporting on the under reported story people in East Palestine are being ignored and he comes there to help the people of America I give you all credit your guy sacks did the most amazing media move in history he went to Middle America where people are suffering as opposed to a war that nobody wants to be in and spend all that money on we won't spend money Palestine but we will go spend billions in you can't go all right you don't know what this reminded me of and you may think this is a weird connection but it reminded me of the ending to the movie uh boys in the hood do you remember what happens at the end of that movie no I haven't seen it in years ago okay I was 30 years old but Ice Cube you know plays uh this character Doughboy and his brother gets killed yep and at the very end of the movie he gives this speech to Cuba Gooding Jr where he says you know I turn on the TV and there was all this [ __ ] about violence in a foreign land and there was nothing on my brother getting killed all this stuff about what's happening in our foreign countries nothing about what's happening here and then I think the most memorable line was either they don't know don't show or they don't care what's going on in the hood right so what's going on here is the people of East Palestine Ohio are being engulfed in a plume of carcinogens and toxins and Biden is off right pursuing this crusade in eastern Ukraine and it's not just him I'll I'll dish out to Mitch McConnell as well Mitch McConnell those are the neocons of or neocons yeah avocado was on TV saying that the number one priority of the United States right now is defeating Russia in Ukraine it's not helping the people of of Ohio it is not securing the Border it is not solving crime in our cities it is not making our schools better it's running off and basically supporting this war in Ukraine so both these octogenarians Biden and McConnell both they either don't know don't show or they don't care what has happened to the United States of America he's a genius but it's not even genius I mean it's so obvious that you go there it is so obvious nobody wants to be a judge didn't go there and Biden didn't go there it's not it's not Geniuses didn't go there where's the Sanders yeah he hasn't declared no make a trap I think the most senior Democratic person that went over there was Josh Shapiro who's the governor of Pennsylvania he got there before Buddha judge what is going on I mean and this it's it's a never-ending war and so you know this is nobody wants to fight a never-ending War this is this is what God bush in trouble right like this was the big critique it's like we're spending all this money over in the Middle East on these conflicts I think actually it's a good analogy so the with Bush senior Bush actually this is in 1991 he won the Iraq war that was actually a stunning foreign policy success because he actually didn't go too far he didn't go all the way on the road to Baghdad the way that his son George W bush would creating an epic disaster so Bush 41 delivered a victory there and he still lost election why because he seemed out of touch he wasn't focused on domestic problems the American people want an American president to focus on American problems and even if Biden delivers some sort of victory in Ukraine if he ignores these festering problems at home then he is I think vulnerable for this re-election but I think the truth of the matter is that this war is going to turn out much worse than the Iraq war did in 1991 because in 91 we showed restraint and we knew what our Vital interest was and we kept our objectives limited and we kept the timetable very short what is Biden doing here Biden won't tell us what the objective is it's just whatever the ukrainians want he won't tell us what the timetable is it's basically for as long as it takes and then meanwhile this week you had Kamala Harris go to the Munich Summit declaring that the Russians are guilty of crimes against humanity which that's something that we could have assessed after the war think about the incentives you're now giving the Russian leadership before we said that we just wanted them to leave when you accuse them of war crimes it implies that we're going to go chasing them all the way to Moscow they're not going to want to end this war they can be put on trial at the Hague I mean this is highly inflammatory so you know this thing is not going in the right direction yeah and that was the thing I didn't like about Biden's speech over there is just he's escalating escalating escalating hey that we have to stop Putin I mean which you do he did invade another country he didn't cause three or four hundred thousand Russians have died according to reports over a hundred thousand ukrainians have died according to votes neither side is given the accurate number because they don't want to demoralize their constituents but the amount of suffering going on here is extraordinary and I think it should be the West who is going sen macron send somebody from Germany send some you know group of people to then go to Ukraine and work this out but you don't need to go in your saber rattling it was too much saborating for me it is the escalation we need de-escalation in these situations not saboration but but binders really painted himself into a corner here because before the war he refused to take NATO expansion off the table he refused to recognize the Russian interest in Crimea and we gave no support to the Mystic Accords which would have given some limited autonomy to the Russian speakers in the donbass area if we had just done those three things there would have been no war Bayan refused to do that he refuses to take the expansion off the table even today so he has nothing to compromise with he is dug in and the problem we have now is that it's a lose-lose scenario if the ukrainians keep doing poorly because right now it looks like they're on the back foot what is the United States going to do we're going to let them lose this war or are we going to keep giving them more Aid and step in it looks to me like Biden now he has invested in his whole presidency in this and he can't just let them lose which means more escalation from uh and on the Russian side if the Russians lose then they have an incentive to use nuclear weapons to rescue the situation so it seems to me that both scenarios here are really bad and we don't really have a good way out of this we're looking for some sort of magical Goldilocks scenario where the Russians sort of lose but not enough to use nukes you know the Administration has not given us a clear picture of what victory looks like here that's actually reasonably achievable in a reasonable time frame at a reasonable cost what do we think uh a freeberg of Xi Jinping making overtures and hey maybe we should work towards peace if you follow the money he wants cheap oil he wants this thing to end and he wants the West to be buying goods from China the West wants to sell a bunch of armaments the military industrial com complex is absolutely in Delight of replenishing all of these weapons uh perhaps a little cynical to follow the money concept but what was your take on the chessboard of Xi Jinping he's going to visit Putin before Biden does and he wants to build Bridges and we want to say morado what are your thoughts isn't he getting like I mean China buys energy from Russia today they buy oil on sale at a pretty cheap price so if I'm China I want this to last longer don't I like why would I want to end this and then have Russia's markets open up because if their markets open up the markets normalize to market prices right now they're getting a discount so I think yeah rather they certainly don't want things to escalate the question is how quickly do they want them to de-escalate so if I'm China I'm kind of probably playing a little bit of a you know middle line here I I just I obviously don't want to see a big hot War China's got its own domestic problems right now that seem pretty significant and existential and having access to cheap energy seems like a benefit obviously if there was significant conflict and escalation of conflict that would be very bad from an economic perspective for China so they they're probably somewhere in the middle like a slow resolution let's say I don't know I mean this is pure speculation this is just me but you're a sack search moth Europe isn't going to buy Putin's oil anytime soon right they're now gonna but he's able to sell it to China and he's able to sell to India and the rest of the world there was actually an article in today's New York Times about how the West may be unified about Ukraine but the rest of the world is not the article was saying something that Chris the war said for a while which is we actually don't have the whole world with us at all the brics countries are not with us the emerging world the whole southern hemisphere basically is not with us they would like the US to play a more constructive role in finding a peace deal not like you said Jason saber rattling or escalating so the rest of the world is not happy with us and this is why the Russian sanctions have not been effective I think the Russian economies had like a three to four percent hit it is not the collapse that was predicted because there are enough other countries willing to do business with them would this have happened Venture month if Trump was president and how would Trump have handled it do you think just Game Theory here I'm just curious because Trump almost won right I mean if Trump had won what would this look like would Putin have gone in there if Trump was president and how would Trump have handled it because Trump seems to think I would have just told him don't do this and they wouldn't have done it I mean this is the most obvious compliment I can give him I think that he is exceptionally pragmatic on being anti-war and I think that that is one of the most positive characteristics that he showed he was really the only President I think in modern history right sassy poo that hasn't gone misembroiled in a new new Wars yeah it is the best part of him yeah he's been incredibly incredibly consistent so I suspect that there would have been some kind of a deal I know that sounds so ridiculous to say but there would have been a deal with a deal I actually agree he's a deal maker Jason he gave a statement North Korea he went to North Korea and met with he'll shake hands with anybody exactly he would have fired all of the the Deep State blob that started to position anything towards a conflict so I think he would have shut the door so ferociously on Ukraine and NATO and anybody that crossed that line he would have tarred and feathered publicly and I think the end result would have been that Putin could have found an off-ramp well before he invaded probably totally yes I I agree blame Germany for all this right he called it well Trump very early asked the question why are we spending all this money to defend Germany when Germany has this big pipeline deal with Russia it doesn't seem like they need our protection they should just pay for it themselves but I think there's a separate point that jamathis made that is a really good point which is Trump's instinctual resistance to what the Deep State wants and he actually said it this week he gave a um a two-minute televised statement that was all over Twitter where he basically made the argument that listen the reason why we're in this war is because the military-industrial complex and the foreign policy establishment they basically courted this conflict and they are working at odds with the interest of the American people it's actually a fairly radical critique I don't think a major presidential candidate has run against the military-industrial complex the way that he is now positioning himself and let me tell you this you know I've said it before he's not my preferred candidate but if this war spirals out of control either you know it turns into a even bigger conflict that draws Us in or it turns into a big recession because I don't think we've seen the last of the supply shocks from this war if we get a recession that Trump can I think lay at the feet of this war he's positioning himself to take advantage of this could be a silver bullet for him I don't think he has any other way of winning but you know if this turns into a big mess you have your tinfoil hat there put it on for a second I want to talk to tin foil sacks Tim foil hat sacks let's put them the tinfoil hats on here do you think Putin is escalating this as a way to position Trump to where Putin says he could say this during the election like listen you know I would love to talk to Trump and what if Trump goes and talks to Putin or does a phone call with him so wait so so your theory is that Putin Theory so so your theory is that Putin's escalating this into potentially a nuclear war to get Trump reelected that's your theory and I'm the 10 Trump I'm just tinfoil adding it the reason that this has occurred no no now that this has occurred not that he did he did the elevations you're the one that's in foil hat territory the soil hack corner at the end Putin the reason why not that he started the war for it that he would end the war to give Trump a win how's he going to end the war for Trump what are you talking about during the election he's he does a call with Trump and he says you know I talked to Trump about this and I'd love to do some negotiations with Trump I've always had appreciation for his ability to help negotiate things I would love I would feel better about negotiating with Trump who hasn't Sable rattled and told everybody in the world that I have to be that there isn't regime change so I'll see how you come up with these conspiracy theories and then attribute them to me and called me the tin foil hack guy I know you just said this is his silver bullet no it's a silver bullet off the rails yeah if this war goes off the rails and the economy goes off the rails because of this war Trump right now is positioning himself to take advantage of that fact and um DeSantis is too far some critical things about the war skeptical I would say things about the war this week so it's not just Trump but look the thing you have to understand about this war is is existential for Putin it's existential at this point yes he cannot back off and it's extracurricular for us yeah yeah and that's why Obama said back in 2014 that the Russians have escalatory dominance they will always climb the escalatory ladder all the way up to nukes if they have to and the sooner we recognize that fact the better off we're going to be I think the good news is that weird speech that he did where he kind of I didn't see the speech was it good yeah we just talked about it it was two minutes it was fabulous Sox just mentioned it the crazy thing is it sounded a lot like we'll be talking on this podcast which is he talked about all these generals that retired Victoria Newland by name by name by name he he he really did explain to the audience this because I didn't see this because I'm on a different time zone and it must have broken when I was asleep or it's a two minute video in which he like I said he attacked the military industrial complex and the foreign policy establishment for creating this war and he mentioned Victoria Newland by name let me tell you something Newland is going to be it's going to be a very popular message it is very popular Newland is the falchi of this situation okay the same way that sounds she was supposed to be protecting us from viruses and then finally ready for some data function research Victoria news now we got a label 19 misinformation Victoria Newland was supposed to be our Chief Diplomat with respect to Russia and Eastern Europe and what did she do instead she ginned up this conflict how we backed an Insurrection in Ukraine in 2014. Jason if you didn't like the Insurrection of January 6 let me tell you you aren't going to like the Insurrection that she staged in Ukraine because they brought in these Ukrainian far-right nationalists as the muscle and that is did he bring Big Macs did he bring Big Macs with him did you say he brought Big Macs too he's Palestine he brought food to them yeah you're ignoring what Zach said but no no I got it I I'm not disagreeing with him I think if you want to references nobody wants to be in a Forever War yeah but let me explain why he mentioned Victoria Newland he mentioned her because she was the state department official who was responsible for backing this Insurrection of a democratically elected leader in Ukraine in 2014 named Yanukovych okay Yanukovych was trying to was doing a balancing act between Ukrainian nationalists and Russia and it was a very delicate Balancing Act and we basically toppled him and ever since then the relations with the Russians over Ukraine have been headed south if you're wondering why Putin sees Crimea was in direct retaliation for the coup that we backed in Ukraine in 2014. this is the origin of the conflict and you know if you want to understand where this comes from you have to go back to this and the fact that Trump's willing to talk about is pretty incredible I think that the good news for us is I think that heading into June and the debt Fiasco that's looming I think we're going to and I think this will help a lot get distracted with domestic issues in the sense that it'll take some heat off of escalating all this foreign adventurism you know this it's such a see like this is such a scene from Wag the Dog every time there's something inside the United States that we should really focus on we have this Wag the Dog moment where we get distracted by some adventurism abroad and we forget and we lose sight so we have this East Palestine thing right now in June we're gonna have to come back to terms with this debt ceiling issue which is a huge one how we're going to resolve it it's not clear just this week the Federal Reserve basically said hey folks we're taking rates to five and a half plus and they're going to stay there that seems like no news people just seem to digest it and move on it's really incredible how we just find we're we are like uh what is it Jason the dog that chased the bumper and caught the car or whatever yeah you caught the bumper room we've got plenty of big problems here in the United States plenty of big problems and I don't know that Wag the Dog Works anymore because I think the American people want like I said they want an American president to focus first and foremost on American problems and even remember Bush senior in 91 won that war and still lost re-election still lost so I don't think wagging the dog works anymore it works for some short period of time especially while the media are portraying this year the air raid theater essentially the people smarten up you're so right so that issue think about bush bush came off of the Persian Gulf War with like a 91 or two percent approval rating I mean we've never seen anything like it but he violated a simple tenet of his domestic policy which is read my lips no new taxes boom lost and it was not even close in the end so I think you're right I think people really care about the economy go Nikki Haley and do how much do how much debt do we want to go into over Foreign Wars the only thing I ever liked about Trump was his policy of not starting Wars and not getting into them and Americans want to focus yeah I'm a balance sheet voter right now I'm voting based on who is going to be fiscally responsible me and freeburger are in the same boat here I think we've got to be real careful in how we handle China because you had blinken on all the Sunday shows basically denouncing them expressing outrage that they might support the Russians acting shocked shocked that they could do that we don't even have the ability anymore to understand that other countries do things in their own interest and we can't accept that and instead we act as if foreign policy should be conducted according to this morality play that we've created and if you don't do what we think is right then we're going to express all this outrage and condemnation at you and somehow that's going to get you to violate your own interests that's not the way the world works and what we're doing right now what we're doing right now is pushing China and Russia together into a new axis block this is very foolish very foolish even during the Cold War okay we work to keep Russia and China apart and and whatever you think of those regimes today they were much worse back then remember the Soviets you had a stalinist regime the Chinese had Mao those were two of the three biggest Mass murderers of the 20th century and Nixon and Kissinger still went to China and shook Mal's hand and toasted to him because it's important to keep China and the Soviet Union divided and what are we doing today we are basically pushing them together with all this condemnation and outrage it is not a smart strategy can't disagree we need to be building bridges with India that's a key key relationship and China I don't know why we're not figuring out yeah this is poisoning our relationship with India India is the biggest democracy in the world and our relations with them have gone South since this war because they have a friendship with Russia that goes I mean I would rather see Biden go to India and start building some bridges there yeah I agree I can't disagree Jacob how's your fundraising going for lunch run four oh thanks that's a great question you know we're doing that Public 506c public fundraising thing and so I did a bunch of webinars and without doing a single in-person meeting 51 million dollars in requests came in just you know to a type form basically a form online and now we're going to be starting in the next month after I get back from Japan actually meeting with the you know big LPS in the world and I want to make a trip to the Middle East and just go all around the world and meet all the big funds so thanks for asking yeah I think it's gonna change everything yeah good for you can you imagine 52 million dollars in commitments before actually doing the actual tour that's awesome just out of the gate and my last one was 44 and so I think this 506c like I can be public about the fact that we're raising a fund and so it's just absolutely amazing well congrats and I have one question for you yes go ahead can you be replaced with an AI the world's greatest moderator I mean it's not going to make great jokes not for not for now and uh oh you know what I had an interesting point about management fees and these funds um just to Circle back did you know this is what I heard that Benchmark during that worst vintage you know after I think the great financial crisis or maybe it was the.com it was either of those they took their management fees because that fund was so you know challenged they deployed the management fees into primary investing or I'm sorry to follow on investing on their winners to regain the results can you imagine in this market a VC who deployed capital in 2020 2021 saying you know what we've got these management fees millions of dollars in the future to pay for managing these instead of taking that money I'm going to put that into your into the companies for my launch fund for each month I had a couple of opportunities and I was like you know what I'm going to take some of the management fees and invest in some of those existing companies to try to Goose the returns for my LPS and so we're at 104 or 103 invested in the capital just by just taking a couple hundred grand off of the management fees and I'm like well this is a really interesting track of you like why am I playing for the management fees or am I playing for the moike I'm paying for the moink right I mean you should be Jason by the way it's not true that the AI can't tell jokes our friends uh Bill Lee tweeted how the AI told a joke in this the style of Jerry Seinfeld then he asked us to tell a joke in the style of Dave Chappelle and it refused so the AI can tell a joke if it wants to it's racist but no only clean jokes oh I see it doesn't work blue I guess I don't think every I don't think Dave Chappelle has to be blue but it would not tell us a joke wow I mean we gotta get Sam he's an iconoclastic like he would be it Sam would be in the uh par all in 52. well by the way actually he's got a shot there after our last episode in which we were raising concerns about the AI bias they published a blog post saying that yes the day after if bias has occurred it is a bug not a feature and they are trying to be even-handed so I'm glad they have announced that and that's their standard and we're going to hold them to that standard but I'm glad well they have to be public like this yeah yeah I mean I read the blog post it seemed reasonable it's great they're addressing it and I also think they're now doing embedded citations so somebody tweeted at me after we had the whole discussion about credit and when they were doing facts they're now saying and they haven't made an announcement about this yet but they were saying according to this Source the following according to this source so they're starting to Source in the copy that's being written so that's a big step and then I was talking to Adam D'Angelo about Poe which is an amazing app you should try it I think it's the best one out there right now of all the chats Poe is an app based on the core data set and I asked the questions about the trip to Japan and the Secco and this and that and it was extraordinary how well done the answer was with bullets and then I asked them online hey what about citations back to the original quora questions and he said yes we're going to be adding that so and then I was thinking wow if you add to the Cora Corpus and then they link back to your answer that's awesome for me as a person who's answered hundreds of questions on core to build my reputation so I think Cora is for me I think Cora is the could be the Google I think chorus got a better data set and if they play that right I think they could be better than chat GPT and they said you have the same publishes based on the quora data set data set poet it will answer questions like the best answers on quora is that where is that you're what you're saying yeah that's kind of interesting is using quora as the primary data set I'm sure it's using the rest of the web too and Wikipedia and everything I think I don't know why they're calling it po I think they should just do quora chatbot or whatever yeah but just try it it's called po download it you can use it today you want to know why I'm excited about that because you got a little tasty pool you got a little slice I got a little slice of Cora oh good for you well I mean Cora was always like are they ever gonna make money or are they just going to build this incredible data set and do nothing with it yeah what did I say I said I said AI is gonna be to the to basically SAS what mobile was to web 1.0 you'll either get disrupted to get turbocharged by it it's gonna be I I think quora is the number one player in AI going for it I know that sounds crazy but the fact that and I think Reddit also has this insane potential if Reddit had a chat bot because think about how many times people do a search and YouTube is the other one where they say what's the best sci-fi movie of the year or which directors make the best screenplays or whatever and then they put the word Reddit at the end where they put the word core at the end where they put the word YouTube at the end to just narrow down the Corpus of where to find the answer go I've worked with yeah I've known D'Angelo for 17 years now smart cat he was the CTO of Facebook when I worked there the single smartest and best single smartest person I work with and then separately one of the most absolute genuinely best human beings in the world can we get him out he does he doesn't is he not a good public speaker or something because I never hear him talk I'd like to get him at all in Summit maybe D'Angelo is just so superb on every Dimension we should get him on actually just because I didn't know he was working in the AI he has a lot of interesting thoughts about you know social networking platforms and and he's on the board of opening oh okay oh get him on the pot or maybe you own Summit 2023 all right everybody it'll definitely make the anti-establishment list definitely anti-establishment yeah okay so for the Sultan of sneaking out uh he left and the dictator and what do you want to be referred to now passages the peaceful pacifist The Peacemaker yeah you are the saxophist I'm the world's Undisputed greatest moderator on the number one podcast in the world for now until the AI replaces you yeah I I train the AI to replace your sacks Ukraine UK and Ukraine fight and binding Biden no Nikki Haley known stop making Nikki Haley happen Dan the data set has been done all right we're gonna see you next time Rain Man David's side we open source it to the fans and they've just gone crazy with it [Music] besties [Music] foreign [Music]








you want to run a marathon at 57 years old 52 50 1 2 52. I'll be honest I miss you can you come back to the United States please I miss you I will I miss you too I mean the poker game can't by definition be as much fun if I'm not there it plays at bigger States and it's more challenging but it's not as much fun there's not as much laughing what's on the menu tonight for austerity 2023 the amuse bush is a madeleine with like a terrina foie gras fantastic an honor of Freeburg and then rutabaga rutabaga salad and then some duck thing duck breast you know I loved her and then and then butterscotch panna cotta wow that is great lineup and it you know what I like the idea we're doing some poultry Chef Sean is firing on all cylinders these days if he feels very like uh engaged he was very engaged yeah he's kind of going for it he's been on yeah that was quite nice the other day Brad because it's austerity measures we had this incredible dish and we're eating it and then he said yours on the bottom bottom and I was like oh so we just we don't put the caviar in time the Market's down let's check my style austerity I'm not lying oh my God no he did say guys the caviar is on the bottom not the top this week [Music] let your winner [Music] of Rain Man Davidson we open source it to the fans and they've just gone crazy with them [Music] all right sax is here everybody so that means we have a quorum hopefully the Sultan of science who is on Wall Street today uh taking a company public so congrats to our bestie Friedberg he couldn't make it he's at a dinner so with us the fifth Beetle as it were Brad gerstner is here to talk all things macro welcome back to the Pod how's life been good to be back a little domar agato to you Jason as you eat your way through Japan yes I am on my culinary tour I'll be back Sunday but I am having the time of my life here are you running AdWords on your food blog that's what it's come back to back to the weblogs Inc days I'm just trying to make twenty six hundred dollars a day I noticed your Tick Tock got 22 likes yeah you know I'm trying to figure out Tick Tock I'm gonna but you know but right as they shut it down that's when I'll figure it out well that rev sure buy you another Japanese pancake or no those pancakes man our next level the fluffy pancakes here everything actually with the exchange rate coming to Japan is so affordable it's nuts and this is a crazy week because it's a Tokyo Marathon but everything is so affordable the people are amazing it's the best country to visit in the world I think for me it's Italy but I would say Japan is like it's definitely top two or three what do you love about it best food you know I went there I took the I took because like five years ago uh the older three at the time but they were younger and you know there's there's a negative birth rate in Japan and so number one when you have any kid but frankly multiple kids the the Japanese embrace you with so much love because they love seeing these big families yeah they're unbelievably kind we went to Kyoto did the professors walk saw the Cherry Blossom Festival basically ate our way through Japan that was my that was my only vacation trip I've done like 10 or 12 trips for work once we I went with Reed Hoffman and Reid set up this thing where we went through all these different parts of Tokyo and ate at this incredible sushi place you have to go with somebody who can dial it in yes and have all the hookups Brad you spend much time in Tokyo and Japan um I haven't I've uh been there only twice and that was when I was poor and I stayed in a really small room and ate really shitty food oh all right so uh you're saying in 20 in 2022 when you became Oregon all right and with us of course the next Department uh what what cabinet position you're going for sacks which should we start floating here oh my God here you are with the disinformation starting already it's a compliment Secretary of sash is with us DeSantis had a pretty great article on the Wall Street Journal oh really I missed I wanted it uh when they revoked the special administrative status for Disney he wrote an article I think it was Wednesday Tuesday or Wednesday in the in the Wall Street op-ed what was his uh premise that they was it corporate or is it culture that wokism is basically modern Marxism and we have to defeat it this is his language not mine at every turn and Disney needs to just be business people and not feed the vocal minorities inside of their company like every other company should they should be subject to shareholder concerns that apply to the majority of shareholders well I think this is why I think DeSantis is doing well with the Republican base and you know if you see polling if the Republican primary is he understands that it's not good enough just to have this sort of reagan-ass totally hands-off government approach because the radical left is advancing its agenda not just legislatively but through corporations through ESG really through taking over key private sector institutions and so he's willing to use government to push back on that agenda on behalf of parents or on behalf of you know what he sees as the majority of the country and so it's a very different approach than you know the Republican Party would have been 30 or 40 years ago this is why you know in the parlance of the base he understands what time it is and what's required here is not again this totally laser Fair approach but rather a much more energetic aggressive approach towards checking these bad ideas wherever they come from yeah it's not the only one I don't know if you saw this week Bill Maher went on a bit of a press tour and he was on with Jake Tapper and uh he made a very interesting I think point about liberalism versus wokism and it was quite articulate you know he's a pretty good Observer of culture he said they're kind of casting out the Liberals in the party for this wokism and the intolerant nature of the woke movement versus the liberal movement specifically under the lens of trans rights but let's put that aside for now we got a full docket before we get into the culture wars and the presidential elections let's start with uh we'll go private markets to public markets because they obviously dovetail so nicely item one on the DACA today there is just a massive AI fomo frenzy going on economists publish a piece this week about the insane fundraising in the generative AI space this is stuff like Chachi BT stable diffusion you've heard these names and there are now 500 generative AI startups according to this report that tracks with what I'm seeing in the early stage and not counting the open AI 10 Billy from Microsoft investment donation rev share round trip whatever that is they have so far collectively raised more than 11 billion dollars the article included this chart uh which you can see if you're on our YouTube channel and just tons of folks working in audio image and text so we're basically looking at the multimedia basically revolution of PCS in the 90s occurring again and a complete platform platform shift Doug Leone from Sequoia one of the greatest investors in history of Silicon Valley had this to say and we will comment on the other side of this 50 second clip from Doug I actually think that AI is the next platform shift in the same way that mobile was the one before internet was the one before so I think AI is real but I said earlier we're going to overestimate it in a short term we're going to invest in everything in the same way that in 1999 we invested in everything but then Google came out of that or Facebook came out of that so I think you have to have a good head on your shoulder where you don't practice fomo where you don't chase every company AI is real AI is the next platform but how do we not invest in everything that walks how do we make certain Investments based on Market Maps based on thought processes that are more rational and not do every investment just because every other Venture firm is doing everything best all right shamath what do you think of this massive influx I think it's important to think about what the incentives are as Charlie Munger says show me the incentive and I'll show you the outcome I posted it into our group chat Credit Suisse sent all their private banking customers an offer they are now offering 6.5 for a three-month t-bill 6.5 percent and if you go back to what we talked about before when the risk-free rate is somewhere north of five or five and a half percent and banks are willing to give you six and a half percent in the short term you have to generate more than three times that to make an investment make sense when you're investing in the long term so if three month money is going to pay you six and a half or seven if you're going to invest for 10 15 years which is what you need to do typically for a startup you need to get 20 to 25 percent so there's going to be a lot of pressure for Venture investors to put the money to work because otherwise they're LPS they're limited partners the people that give them the money will have this attitude that goes somewhere along the following lines okay I've committed to you why aren't you investing because otherwise I can get paid six and a half percent on the front end and so this is becoming very problematic what am I paying you for what am I paying you two percent a year in management fee for so I think what happens unfortunately is the opposite of what Doug says I think good investors will try to follow Doug's feedback and advice and the ones that have a track record of distributions of DPI can do more of it than not but I think most people will be under pressure to deploy the capital and so the 500 odd companies Jason you mentioned we'll get a lot of it and it'll get torched because most of them probably won't amount to much of anything in the short term you will create way too much correlation and you will have zero time diversity which as we've learned is a recipe for terrible returns time diversity being hey you deployed all this web 2 Capital web 3 Capital sorry crypto whatever in this very short period of time you overpaid Brad uh when you hear chamoth talk about the 6.5 and then you look at private markets you uh invest across the life cycle of companies obviously you're in some private companies we all know very well famously snowflake I think your biggest win ever correct me if I'm wrong uh in terms of a private how do you look at this when you're a steward of capital public markets private markets and then just YOLO just put it into you know some T bells or yeah bonds or whatever I mean first let's just frame right the chart that you showed I think you should it said you know X open AI I don't know something like 10 or 11 billion dollars have has been invested into some 500 AI companies I mean I happen to agree with Doug that this is a platform shift on the same magnitude as the internet or mobile itself in fact it may be bigger than both of those but you know when I look at 10 or 11 billion dollars you know let's put it in context meta is going to spend 20 billion in one year alone on AR VR and this is on an entire platform so I I don't know I I I I think whenever you have something as tectonic as mobile or Internet it deserves a lot of investment and yes it's going to be messy and yes chamat's right the cost of capital frankly is limiting the amount of money going into these businesses already so we see a lot of dry powder sitting on the sideline that's chasing new ideas I think one way one way to frame it as well is to think about in 2000 we all knew that the internet was going to be big we may have been lucky enough to conclude that search was going to be big but if you invest in in Yahoo or info seat or AOL or excitement you tore all that money went to zero right so now think about just these large language models right the foundation models which are driving and enabling all of it open AI you've got open AI you gotta drop it you got cohere you've got character you got stability you've got Lambda it is almost impossible to know within the certainty much like it was with the search engines in 99 2000 who's going to emerge where the value capture is going to be it may all end up with Microsoft and Google I mean this may end up looking like IOS and Android at the foundation model level and so you know I think as investors for example on the foundation model side I think it's very difficult to choose just one particularly with the largest one is frankly captive and a proxy to Microsoft and they're capping your upside return so like those are difficult investment decisions that doesn't detract from the fact that I think it is as big as Doug suggests and I do think they're going to be applications and tooling layer to come out of this that's going to produce really big Winners I would say that we are spending an extraordinary amount of time in the space we haven't made a lot of Investments I think you have to study you have to get deep I mean certainly and I have been investing in this space for at least a decade maybe 15 years but don't underestimate that the Transformer model really did change the game here and we're now producing impacts much larger sax uh last week you said we'll have three and crypto didn't kind of stick with you you didn't see the use cases and you in the first inning here or first at bat you rattled off three or four really compelling use cases from summaries to you know the the assistant uh guide on your side concept is this Akin in your mind because Brad just said it could be bigger than mobile internet mobile AI Revolution if you were to look at those three do you think it's bigger than actually mobile and then we'll get into return profiles of 6.5 on cash versus whatever VC is going to be able to do in this kind of Market yeah I mean so I agree with Brad and and Doug that this is the next big platform shift whether it's as big as mobile or it's more like social or Cloud I mean those have been the big platform shifts over the last decade or two and I think this is definitely on par with those I think Brad's right we don't know where the value capture is going to be maybe it just all ends up accreting to the big companies who can make massive investments in this space you know one difference between the internet ecosystem today and 20 years ago is you do have these giant companies who are not totally incompetent right I mean they are they do have lots of talents and engineers and you know like 20 years ago you'd have company you know the big companies would just sit on their hands in the face of a platform shift and then just be seeing Ducks who get disrupted that's not going to happen today that being said I do think that any new platform shifts creates opportunities for startups and it may not be efficient the way that these opportunities get pursued in the sense that yeah Doug's right that this will be a lot of spray and pray but I think that it is kind of efficient for the ecosystem as a whole right because like any smart engineer with a half decent idea ends up getting funded and out of all of that you get kind of a pre-cambrian explosion where you know the ecosystem evolves a lot of different types of businesses most of them don't work they get wiped out they go extinct but there'll be some good things that get funded so we're more like I think Doug and how we see it we don't want to spray and pray one be very selective we want to put more money behind fewer opportunities that we think are are better and Doug Leone you know I think he generally gives good advice of the tough love variety and this is of a piece with that and so I I agree with him that being said there is a certain value to the ecosystem and having all these seed funds to spray and pray right because this gets a lot it plants a lot of flowers and then you see what blooms I would say yeah to build on that sax this is a perfect inefficiency you know when you see it from the outside you're like well this is super inefficient why so many companies if you free your mind and just say their experiments two or three person experiments 500k to a million and a half in that first stage when I invest right before you do when you do your series a is at five or ten million Milestone based funding is back in the tech industry and that was something chemath that we lost for a little while there people would just come out and they would raise a series B out of the gate no product Market fit et cetera now what we're seeing is people are raising that 12 to 18 months they got their backs up against the wall speaking of tough love which you reference acts that tough love of hey you have to hit the next Milestone what did you accomplish with the 1.5 million in order to get the 10 million in order to get the 30 million that 500 is going to go 10x they'll be 5 000 of these startups but it'll quickly Whittle down winner chamata's people go through this Milestone based funding system in Silicon Valley we haven't given enough time for a logical framework of investing to develop which also is tied to a logical framework for entrepreneurship to emerge we're just way way way too early so the thing with all of these language models is that they are Grist for the mill and we talked about this before if it was a highly proprietary asset you would have never sold 49 of it to Microsoft for 10 billion dollars because you would assume that it was worth a trillion dollars so it's a huge tell on the part of open AI their deep understanding and they understand it better than anybody else that it's a bit of a capped upside so what is uncapped I guess is maybe the better question well if you look at the 1849 Gold Rush as an example the people panning for gold in my opinion are the people building language models today they're going to come and they're going to go but who's going to win well the pick and shovel providers won Levi Strauss one so what is the equivalent of that today I think it's at the Silicon layer because you need to really re-architect how compute will actually work in a world of all of these models those folks will get paid if you look at AMD and Nvidia they've been getting paid for years they continue to get paid they probably will continue to get paid even more and so folks that actually take a step into doing something hard and difficult in AI like custom silicon could get rewarded and then there's what I call the white truffles what are these unique Alba white truffles these singular sources of data that when used in reinforcement learning make your output just zing and that's where I think Facebook is an obvious white truffle Cora is a white truffle but there are a lot of startups that could become white truffles if they gather enough data and that's like a pretty reasonable framework and so in that framework if you apply to today there's way few silicon startups and there's way few white truffles instead it's everything is the bologna in the middle which is random people talking about some random model that's just gonna again become highly commoditized you have to remember all these models are open source and none of them mean anything in the absence of the data you give it to train on 100 Brad hey okay well I want to add one other piece of news that we saw this week which is open AI announced that it's developer AI they were cutting the tax on that or basically the metered rate they charge to use it by 90 percent so I think this is going to be a game changer I think this is based on the chat GPT 3.5 API and of course they're coming out with 4.0 later this year I've already had explained to the audience what an API is and why this is important for those people who don't know just application programming interface it allows a developer of some other application to build on top of you so in other words like a developer wouldn't have to use this chat interface to get access to the large language model you could just submit your request through the API and so give an example of what of like a popular app and how they might use it yeah API so I think like notion actually had a demo that they published where incredible it was a pretty incredible demo maybe we can find it and it would do things they added actions in the demo like generate a task list so you could take like a document or a meeting summary and would spit out recommendations for next steps or tasks it could you know spit out a table basically it's the autocomplete for everything that we talked about right so now notion doesn't need to build their own llm expertise they just don't use the API and then the notion app you say hey I'm building a marketing plan and you say well okay give me a list of things that should be on my marketing plan for my new app it sends a signal to the chat GPT API which will be on Azure Microsoft's platform and then it gives you the data back you don't have to build the language model yeah incredibly powerful notion has all the content that they need but they don't have the AI expertise so now they don't have to generate your or create AI expertise in-house they just use the API it's really powerful and but just to finish the thought here I think that one of the things that's probably misleading about these stats around funding and the there's like almost 600 startups already there are AI startups is that you know what happens when there's a new wave is that Founders are smart right and they know how to Market themselves in the way that is most compelling to VCS and they know that like VCS frankly are a little bit limiting in terms of their migration to the next wave and wanting to glom on to the next big wave so VCS are now looking for AI if you're a founder and you're you build one feature on top of the you know open AI API now all of a sudden you're going to Market yourself as a AI company you're not going to Market yourself as just a SAS company and so that's valid yeah I mean it could be named or it could be like a great pivot you know yeah and it's not it's not totally one or the other I mean it's just that if you have a plausible connection to AI as a Founder you're going to start marketing yourself as an AI company and so that's how all of a sudden you can have 600 of these companies you know that are all of a sudden out there in the wake of of this sort of uh chat GPT is I think a lot of companies are recategorizing themselves I literally had this experience not three weeks ago right before I went to Japan serial founder and team that we've backed for that had an exit said can I show you something I said yep got on the zoom showed me a little proof of concept using chat apt and he said this is my idea this is the vertical and I just said okay what do you want he said 500k for 10 I said okay done great let's learn and it's easy bet for us to make because we know it's a Serial team for open AI the way that it could become a trillion dollar company is actually by cutting the cost to such a low degree that nobody else can effectively compete with it and then at that point they can become a small small tax you'd rather just pay it than try to compete with it and I think for open AI that's actually a very brilliant strategy so that's how they they could get to become very very large in valuation would be to become so pervasively relied upon and where they take such a minuscule take rate of their participation in you building a company that could be really effective for them like cloud computing right like we're going to just take such a small tax yeah well that's not a small tax that's a large tax that's the picks and shovels play in a way to create the developer ecosystem for AI and it's about to your point I mean I think you raise a good point that you know what was their motivation to take such a dilutive round you know the 10 billion that was evaluation at 30 30. yeah and does that imply that they're not confident I mean the flip side of it could be maybe they know they want to compete on the basis of rapidly you know becoming the developer platform and so they're going to subsidize that developer platform you know with negative gross margins for some period of time and maybe that's why they need a lot of capital and they were in kind of a reflexive Loop of just cost of getting better versus the amount of money they had to get better and so maybe they were forced to do it and then in that point how would you justify you would say well the other 50 is still hugely valuable so that's enough for us and I think that that's that's very logical as well Brad you have your finger on the pulse of LPS uh limited partners who back funds like Jamal's sax is mine and yours we heard 6.5 on your money for no risk well you in tremont's position is hey you have to Triple that if you want to be a private Market investor that's about 20 20 Rule of 72 that means every three and a half years you got to double if you're doing that for a 10-year fund you're looking at a 5x fund because kind of table Stakes then I think just back in the envelope math what are LPS thinking right now are they looking at this world and saying I should just be all in cash or are they saying yeah everybody thinks we should be all being cash therefore there's not going to be enough money in private therefore there's an opportunity there we know the 6.5 rate you know that's not going to be here forever it may be here for a little while but we need to we need to keep investing in Venture uh or are they just Cutthroat about it like let's pause Venture investing private Market investing uh it's a it's a great question first when I look at the three-year treasury bill it's like 4.7 not to quibble here so I think Chamas getting a little goozy Goosey on the 6.5 but the the fact of the matter is what does that means you're super special your VIP maybe there's like some sort of like uh bond rate that included corporates or something maybe it was I'm getting my 5.2 from Robin Hood on my Robinhood account for Jay training so it's right what is in that what is in that Jason they probably got some junk bonds and they're ripping you off whatever whatever it is I'm getting Five Points until you're not you are until you're not it's a 100 t-built parentheses and junk bond funds look at the fine print Jacob uh LPS have a 10-year View they understand like most people I mean listen if you look out at the tenure the reason the tenure is you know that we have real interest rates at about one and a half percent so that's the 10-year less expected inflation when you look out is because it people expect inflation to come down and they expect rates to come down so if you were an LP and you said I'm not going to invest in Venture and the next two vintages which may be the best two vintages we've seen in a long time because prices are adjusting Etc and I'm going to move it all into some rate bet first it's just very difficult to do they don't move their allocations around that quickly now a wealthy family as an LP could move their allocations around really quickly but if you're Texas or you're Ohio or you're a sovereign wealth fund you're betting on the Arc of value creation I would say this the consequence is they're narrowing their aperture as to the Venture funds they want to allocate capital okay explain that unpack who they are narrowing the aperture term two we've talked a lot on this pod about uh the power law and the truth of the matter is whether we're talking about AI or software or anything else that you know people are are going to be funding it's 10 of the Investments that are going to yield 90 percent of the returns and so they're looking at that and saying who are the top 10 firms in Silicon Valley I either want to get allocation to those firms who are seeing the best deals converting the best deals and are selective like Saks talked about or we just don't want to allocate and so I think you know what we saw over the last two years Jason was an explosion of new funds an explosion of new uh you know first time second time funds I think subscale small funds with no DPI uh they're going to find a really really tough time to Chamas point about DPI raising capital and you're going to see the scale player scale so part of that uh is clearing out the inventory from the last cycle two new stories this week about companies you know maybe struggling Sequoia got off the board of Citizen if you don't know citizen that's that app that tells you where crimes are happening in your city very popular in San Francisco uh it's literally goes off every 90 seconds it's pretty dystopian that company citizen which is a pretty cool app uh has raised 130 million today Sequoia led the series a in 2017. uh they did a pay to play around if you don't know what that is um basically if you don't invest you get crammed down how does the cram down work well your shares in the company went down ten to one and you probably got moved to uh common shares as opposed to as opposed to Preferred which has a series of protections they get their money out first yada yada but Sequoia refused to participate according to this ft story again Sequoia did not comment on this it's it's kind of something you don't do as a VEC when something goes bad at a company and you leave the board you generally don't want to say uh bad things or taint the company uh any more than leaving the board does so a bunch of cram Downs happening and then dovetailing with that instacart according to the Wall Street Journal had a big Q4 As It prepares to go public instacart if you remember we talked about it on the show cut its internal evaluation 75 percent last year from 39 billion to 10 billion according to sources instacart's Q4 results uh according to the Wall Street Journal up more than 50 even though order volume grew only 16 percent why they turned advertising on the app just like uber and Amazon a lot of these Commerce folks folks are building add business inside of theirs so what do you think about what's happening as we clear out this private anybody have thoughts on instacart or the cram down rounds go either way with this and then we'll go to I wouldn't Focus too much on those two companies I think we're going to see in the second half of 23 and all of 24 is a lot of medicine being taken a lot of down rounds a lot of structure is going to be A Tale of Two Cities the hot area you know AI is going to continue to receive new investment and all these companies that you know that receive peak valuations in 2021 are gonna have a Day of Reckoning either you know if they're lucky maybe they have a flat round or modestly up round but a lot of them are going to have down rounds or restructurings and this is going to be going on for the next year and a half what's your philosophy Saxon leaving a board this is a really dicey issue when you give up on a company what's the best practice there how do you do it without damaging the company obviously the founder relationship is going to be hard what have you learned about this as a private Market investor well I think I think that sometimes we like flip uh board members internally at craft just because people have different amounts of capacity that's not a statement at all about the way craft feels about the company it's just a reflection of our individual bandwidth or whose expertise are needed at that time but when the firm itself quits a board I think there's no way to read that of and you know a statement of protest and I don't know what happened with that company but it seems to me that you know again it could be a sign that the Venture firm isn't happy with the way that they're being treated the cram down uh Chama that's that's a bitter pill to swallow why would Founders do this cram down instead of just adding a little more to the top and is there a way to do this without you know going scorched Earth or poisoning the well as it were we I mean again putting this app and Sequoia aside this is happening all over the ecosystem so is there a way to do this gracefully or is it just going to be messy I think it's going to be really messy I mean to State the obvious no no Venture Capital investor ever quits the board voluntarily of a great company that's doing well that would be dumb so as David said sort of like the proof is in the pudding there and at the same time there are a lot of in companies who don't want to see the writing on the wall and we'll do all kinds of gymnastics to try to stick a landing on a contorted financing and sometimes those things have real consequences to other investors who just don't think it's the right thing to do I wouldn't read too much into this except that good Founders have a responsibility to do what's right for themselves and their employees nobody else and the thing to keep in mind not the investors really no and I think you I think you absolutely have to prioritize the people doing the actual work and if and if you actually did prioritize them what you would probably say to yourself is oh my gosh there are people who I work with who I look in the eye every day because investors you'll see once a quarter but I have my fellow employees as a Founder that I look in the eyes every day who've been toiling with me for umpteen hours a day every day for years and they are now totally underwater what is the right thing to do for them and I think if you just answer that question you wouldn't do all these contorted things you would just reset the valuation you would refresh the equity pool you would issue options back out to those employees and you would move on it's all these other things that get in the way of answering that simple simple question where people it up I've and I've done that before you sex if you don't have a team and you don't have a motivated team you have nothing I've done that before I don't want to rehash one of my more miserable experiences but I was dealing with a company that had a grossly inflated evaluation it was a total problem case we voluntarily slashed the valuation in half and reissued options to the employees to keep him motivated no big deal yeah yeah exactly and it's not that it's no big deal but it requires some amount of fortitude and like you know understanding your priorities I guess what do you think you know like first I think it's revealing that we think what happened here is so out of the ordinary I mean you flash back to 2001 to 2004. Sequoia I don't think funded a single loser in their portfolio right like that's a time where you walked away from the ones that weren't winning and you fed the ones that were because you have limited capital and you don't know when you're going to raise your next Capital this idea that you have unlimited Capital you can give money to anybody no matter what they're doing with respect to their plan I think is a function of the last 10 years but to jamas points the idea of tough talk you know either out of CEOs or out of board members has been in short supply in Silicon Valley this idea that saying the truth just speaking the words about needing to get fit or needing to lower the valuation that somehow that is found or unfriendly is nonsensical the truth is founder friendly by definition and I think to Chamas point the less complicated you make this right you reset the valuation you re-up the option pool and then everybody has a choice to make and if the people who are on the board and backing the company choose not to re-up for whatever reason they no longer believe in the path forward for the company that's incumbent upon the founder to go find people who will that's not abandonment as it's Being Framed in this story it is a trade and I think maybe if you look at Public Market investors Brad nobody gets upset by a trade trades a trade but in the private markets there's a lot more emotion involved a lot more relationship material and this founder friendly concept of like you're abandoning me it's like no the the trade here it makes no sense for this firm and for this fund and for these LPS right well sometimes sometimes the founder needs to have the courage to look in the mirror and say what I'm doing is not working I had a plan I missed the plan by 70 I'm lighting capital on fire this is a charity not a business it's best to say it didn't work shut it down and move on and do something else okay so of course you're referencing Salesforce so we'll pivot to that I'm joking uh it's not that bad uh but I think this is a good time to maybe talk about the public markets and inflation and what we're seeing in macro so can I set up a question for Brad actually sure go ahead yes yes so so on a previous podcast I laid out my theory of how you could just use the two-year bond rate relative to the FED funds rate to understand where the bond markets sort of prediction Market about inflation is going and a month ago the the two-year bond rate was at 4.1 percent relative to 4.5 percent fed funds rates in other words the bond market was betting that interest rates would go down between now and two years from now relative to where the FED had it so therefore it believed that inflation had been conquered now fast forward just one month later and the two-year bond rate said about 4.9 percent you know the FED funds rates about four and a half percent that is a massive swing basically 80 basis points swing in the I guess the tier bond rate and so the market seemed to be saying all of a sudden not just that they expect rates to be higher longer but also that the FED needs to keep raising and that is a big change so Brad what is the basis for that and what do we now believe about inflation I think just a few weeks ago we were thinking that this problem was licked and the market took off like a rocket it ripped now all of a sudden it seems like investors are really worried that inflation is not over so where does this stand right now well I think when we started the year you know the the tenure was close to 3-2 we're now we're closer to four percent the 10 minus 2 is is negative as it's been in the last uh probably 10 years so the market is clearly saying you know we saw some inflation prints that came in hotter I think it's now consensus which you guys have been saying on the Pod that you know although the second derivative is slowing that we're it's sticky right we're going to get stock at this four or four and a half three and a half and it's the slope of the curve down where it is going to be slower um we've gone from thinking we're going to have 225s to now thinking we'll have three or four you know and so I think everybody is now bracing for more inflation but remember when we started here on January 1st the consensus wisdom was we were going to retest the s p at 3200 we're going to have an earnings recession and that inflation was going to continue to run hotter the only surprise in my mind so far this year is how well the equity markets have held up in the face of a tenure that's gone parabolic right and a natural earnings recession right and you you know you you posted you know in our Thread shamath about just quality of earnings you know even the earning speeds are pretty low quality and so I think you know we now are going to have a couple inflation prints coming up over the course of the next couple weeks that are going to be important my hunch is you know everybody has tilted again on you know what we saw in the last couple prints my suspicion if you look at Morgan Stanley and Goldman Sachs the consensus view is that we're still heading in the direction of four percent faster than I think people emotionally think so I would say there's maximum uncertainty in the world the fear that inflation is uncapped the way Larry Summers was articulate in November and December is less today than it was but what's emerged is this idea that we're going to have higher rates for longer and we're going to have higher inflation for longer now the the question I'd throw back at you is the market abhors uncertainty the Market's done totally fine during periods where we had three percent inflation and five and a half percent rates right when when the internet boom that was you know 2000 to 2005 rates were a hell of a lot higher than the rates are today so I don't think that higher rates and higher inflation means that we can't you know invest in venture-backed companies that have huge secular growth the world doesn't end but what I do think it means is like if there's massive uncertainty in the world if allocators of capital don't know whether rates are going to double again whether inflation is going to double again then everything just shuts down and that's really bad for the economy I don't see that happening right now but I do think that the prince over the course of the next eight weeks are going to be important Tremonti have any macro that's here at the same time this is happening we saw rents broke in the last month so rents got cheaper yeah a governing principle I think I probably said it too many times but I'll say it again rates are going to be higher than we like and they'll stay here longer than we want so if you use that as a principal whenever the consensus thinks we're done it's been pretty profitable to be on the other side of consensus and so I still kind of maintain that we're probably going to have a five and a half percent fed funds rate which means that I don't know maybe Credit Suisse will offer me seven and a half percent soon on three month T bills but we're going to have higher rates and I do think Brad's right though in the sense that as long as we know that then that's it and we can forecast it into the future without it changing too much it'll be okay but right now what you're seeing is a lot of Make-Believe going on in in the stock market so Nick if you want to just throw up that image so this is a really this is the chart of uh Cash Flow versus earnings yeah so this is something that I saw in Bloomberg which I thought was really interesting and if you focus on the period of 2020 to 2024 what you see is the white line which is net income adjusted for depreciation and amortization and the blue line is cash flows from operation so what does that mean and this is for uh S P 500 firms this is the best 500 companies in the world yeah and the white line is what you tell Wall Street in terms of what you make on paper the blue line is what actually appears in the bank account so why could there be a gap between what you tell somebody you made I made a dollar versus what's in the bank 50 cents well the reason is that there's all kinds of accounting tricks that you can use accruals inventories and all of these things allow you to present a healthier earnings report than is actually true and so right now we have the worst earning situation so the worst Gap between what we are telling people versus what is actually in the bank account that we've had for 30 years since 1990. and so it just brings into Focus the fact that we may be in the last few innings of trying to make sure this all looks okay in which case one faction of the investing world who thinks that this earnings recession is actually at hand would be kind of right and then what they would say is that once we all realize that these earnings are fake and you reset down 15 that's where you get to the mid 3000 in in the S P 500 right now it's around four thousand I don't know if that's true or not but there's more and more evidence that would support that the way that they see the world could be credible the other side says Hey listen this is a bump in the road we're getting a handle on things and it's stabilizing so even though it's higher than we'd like it's not going to change that much so now just think about 10 15 years from now and let's go and those are the folks that want to rip the money into growth stocks and tech stocks again how does the consumer play into all this record low unemployment like it's one percent in Utah three and a half percent for the country two and a half jobs for every American who's unemployed and then these rents coming down but consumers have seemed to have burned off all that extra money they had so Brad when you look at the consumer-driven economy that the world lives in that's not true because you have to understand stimulus is still entering the economy it's just harder to measure so for example take Social Security you have cost of living adjustments in Social Security that's lifting payments by 10 and 15 percent because it's backdated for what was going on last year and remember last year we had two three four five percent inflation rates so there is more and more money coming into people's pockets that we don't realize and we're all on the hook for that as U.S taxpayers so I think it's very dangerous to kind of look at one data point and try to pick off what's happening in consumer land because there's all kinds of hidden ways in which money gets back to people Brad you have thoughts on the consumer because you know I test it does seem like consumers are still spending money but the cost of goods in some cases is coming down I mean how do you look at the consumer and try to make sense of what's going on here because it does seem the United States is in its own little bubble here world of just over employment still even though we're seeing these layoffs in town well I would say number one uh that the pop we've seen in rates which impacts consumers by way of higher mortgages higher variable expenses on their credit cards was offset over the last few months by lower energy costs so their cost of gasoline went down add in the things that chamat's talking about and I'm not sure you took a lot of money out of people's pockets I would say this that again what we're talking about here retail sales have continued to do really well e-commerce sales in January were quite strong that would all be consistent with this off Landing but here we are you know again talking about macro I think when you spend this much time talking about macro doing what we do you know like last year I'll be the first to raise my hand and say you know like our friend Bill Gurley would say it leads you in the wrong direction the fact that the matter is it's totally unknown and unknowable where we're going to go over the course of the next three or four months I think there's a better ability to predict maybe over the course of the next couple years um but the fact is if you would have told any I was just with a bunch of uh investors you probably represent a trillion dollars of public market demand 10 uh or so long only investors if you would have told any of them that the tenure was going to be at 396 they would have told you that the NASDAQ would be down 10 to start the year and it did just the opposite so I think you got it you know you're you have a much better chance particularly if you're playing at home right than trying to to guess the direction of that find five companies that you think are going to grow uh and earn more money irrespective of the direction of rates and inflation own those and enjoy your life I'm looking at the world and going sax my Lord I'm seeing great Founders great companies and five to ten million dollar valuations and I can buy five ten fifteen percent of these companies uh this feels like the best uh it's been for me as an angel investor seed investor or seed fund for a long time this is fantastic uh great deal flow the deals are taking six weeks to close we're having very thoughtful discussions people are taking a real focused approach to how they deploy the capital it is not YOLO people are building models again people are showing their CAC they're being thoughtful about how they spend the money they're being thoughtful about salaries and hiring so what what's your you seem to think that you know what we're seeing here is challenging or a problem what are your thoughts on how it's affecting your day-to-day business as somebody who's a company Builder well let's separate two things so there's the tech ecosystem and then there's the economy as a whole the fact of the matter is that Tech already had its bubble in 2021 it had its crash in 2022 and now we're largely on the other side of that there's still a lot of companies like we talked about that are going to need to restructure who raised during the bubble and may not have come to grips with that but if you're talking about new investment new rounds new companies are starting with a clean sheet of paper and a blank slate you're right things seem good and normal right people are making intelligent Investments and obviously the Innovation cycle doesn't have anything to do with the macro picture I mean technology wants to evolve and it's great engineers and product people who drive those ideas forward and they're not thinking about interest rates I never thought about the FED funds rate at all when I was a Founder Running Company so let's just put that aside and acknowledge that great Innovation is going to keep happening no matter what the macroeconomic picture looks like that being said I mean just for the you know listeners of the show who aren't startup Founders I tend to be a little bit gloomy about the macro picture right now because yeah it's true that what Brad said that we've had good economies with five percent rates before but I think you also have to look at the pace of change or the rate at which the the FED funds rate has been going up and if you look at the chart of rate increases it is a very steep chart of rate increases and I just think that for the last decade or so we've been operating in this like zero interest rate or Reserve environment with loss of monetary stimulus and I think a lot of companies a lot of parts of the economy got addicted to that stimulus they got hooked on drugs now all of a sudden you're putting them through withdrawal very very quickly and obviously the withdrawal pangs are going to be worse if you can't taper off slowly so it looked like just a few weeks ago that the Fed was done raising rates now we know that they're not we don't really know when they're going to stop so I tend to be a little bit gloomy with respect to the the big macro picture because I just don't see how you can change rates this fast and I mean you look at like real estate for example we just saw the first year over year decrease in the housing market in a while and again that's all driven by rates the cost of mortgages going up and two big defaults in the first two big defaults yeah so I I think that there's going to be some pain ahead now you know ironically from the standpoint of the tech ecosystem we may have already taken our medicine and we may already be on the other side actually that is a good way to to look at as we took the medicine it's painful and here Jason maybe maybe that's the segue to uh talking about benioff I would say we haven't took it we're taking it we're starting to take our medicine well that makes sense that Benny off with his you know very loving family kind of approach to running the company might actually it might take them a little while to become a bit Cutthroat so as everybody knows Benny off and Salesforce have had a lot of turnover a lot of senior Executives have left voluntary or involuntary but shares were up 11 on Thursday after reporting their Q4 earnings they're up 14 year over year small net loss but the company bought back 2.3 billion dollars worth of its stock we're going to see more of that for sure and they're going to be increasing its share buyback program to 20 billion dollars going forward and like meta which suddenly got fit and got religion benioff is now basically with all these activists I guess on on his ass he says uh and this is the quote from the earnings call we're more closely scrutinizing every dollar of investment in resource and very focused on driving operational excellence and automation across our business focusing on 4K eras stronger moves expense for structuring employee productivity uh there it is product Innovation and building relationships with shareholders profitability is are truly our number one strategy and that's my number one strategy that's the number one thing we talked about at the start of every meeting we have in this company quite a turnaround your thoughts Brad I don't think the story is that you know that benioff you know made these cuts and that activists are around the rim what was significant was his comments uh that he made and I tweeted about it today you know he said every CEO in Silicon Valley has looked at what Elon Musk has done and asked themselves do they need to unleash their own Elon within them and you know listen we've been talking about this for nine months the reality is if you look at the employee count at Salesforce in 2015 they had 19 000 employees as of last year they had 80 000. in seven years they 4X the number of employees they were a mature Company by 2015 their employees catered at 23 percent you know we don't talk about it in this way but these large companies these employee bases they're not unions but they may as well be there is during this Age of Excess where it was just easy for people to hire more people and build more things not to make tough choices Etc right we just had an explosion like we've never seen in Silicon Valley in the number of employees in these businesses Meadow went from 10 000 to 80 85 000 Google went to 185 000 and at those levels it's very difficult to govern them and when the CEOs went to make decisions into businesses there would be protests revolts within the business 30 or 40 000 people with scientific back to the office no we're not going to work three days a week no you can't name our AI bot uh what you want to name it because it offends us and so to me what's more significant is over the last six months we've seen courage gain momentum in Silicon Valley right what's deeply under-appreciated about meta and the changes they made it would be one thing if it was just window dressing we cut 10 percent of the workforce kind of tighten our belt a little bit but Zuckerberg got on his call and he said we only have two priorities in 2023. one is efficiency and he went into depth about once they started cutting people how the company got faster the product release cycle sped up the employees got happier and now it's an end in itself to delayer the business that's what we're hearing out of benioff as well and I think it's you know people can quibble with how Elon went about the change which you and you and uh David are very familiar with at Twitter but the reality is he lit a fuse in Silicon Valley that is giving courage whether it's private companies series B companies pre-ipo companies public companies I've had that conversation more times uh than you can imagine over the course of the last six months and I think it's a really important change because I think it breathes new productivity into all these businesses and importantly it unleashes these Engineers back into the ecosystem to start the next wave of companies yeah so Jason I mean you and I got to tag along with Elon during that transition phase at Twitter and the thing that I took away from it was just how much agency you know CEOs have that they're not using I mean Elon went in there and he basically changed whatever he saw that he didn't like I mean unsentimentally and quickly and you know and so you look at all these other companies you talk to CEOs sometimes and they act like they're prisoners of their companies like I can't change this I can't change Stockholm syndrome yeah yeah it's like you know I've got all these employees and all these layers and but I can't you know there's always some reason I'm afraid of the bad PR or you know whatever it is and I you know the thing I came away realizing is just how much agency particularly founder CEOs have that they just don't use you know they're always like hemming and hawing and ringing their hands and acting like they're tied down by this or that and the reality is they can do whatever they want just about um you know within the bounds of what's what's legal and and I think they're starting to realize oh wait a second like I actually can do that you know I can walk into my company one day and if there's a team that's not performing that's giving me answers that don't make any sense I could start over wait I'm just going to start over yeah I mean if you can't get it done then we need to have somebody who can do it and it's it's incredible like we were doing an analysis on this week in startups of the you know employees per company and the revenue per employee per head count and I got roasted for having this com even having this conversation and now here we are chamoth people are looking at efficiency we're looking at you know really uh how efficient can these companies uh be run is there a limit to where this is going and and if we were to look at this as a process where are the Fangs the Amazons the Googles Facebooks where are they at in terms of percentage to being at Elon if you if you were to put Twitter and Elon as the the goal where are these companies and I don't know that that is the goal maybe maybe he's cut too much who knows we'll find out I think it's a it's a it's a pretty radical experiment he's doing there yeah yeah I don't think that's a reasonable or an achievable goal for a public company okay I mean I think the thing we have to keep in mind is elon's also capable of doing that because he paid 44 billion dollars of his own money to buy something that he owns alt right that no longer has Revenue pressure to outside stakeholders different circumstance Revenue went down 70 at Twitter well that only affects him and and his ability to pay whatever he borrowed in order to buy that company and as long as he's willing to fund that somehow he's literally allowed to do whatever he wants that's no longer the case when you're borrowing money from other people to build your business which is what every other Capital Market participant does public market participant does and private Market participants so I think that that distinction is just a little bit important because it probably means that there is a shadow of what Elon is doing that's probably the threshold of what's possible and it's probably you know sort of 50 percent head count reduction that's probably the the Bound in which things break because I think the thing to keep in mind is that over time this stuff is like collagen in the body it's just like it creates these interconnected webs of just very difficult stuff that you send you that you cannot tease apart so even if you try to go in and cut 50 of a company like Facebook or Google or Microsoft or apple or Amazon it would be so difficult because all of a sudden the coordination that happens at that scale I think would get lost so I'm not sure if it's possible you kind of have to do what they're doing which is cut five percent then cut ten percent then cut five percent then cut five percent and I know it frustrates people on the outside looking in but I think it's the it's probably the only way it can be done without torpedoing the company what does that do on a culture basis then because that is the big critique hey you're creating now this culture of fear I guess the opposite of that is your grand and culture of performance and expectation so how do you think about it on a culture basis because that keeps coming up from Founders to David's point it depends because I think companies when they're smaller I mean I can tell you when I was a part of the Facebook senior management team we would rank all the employees so we had a very good sense of who was the best and the most performant all the way down to who was not and we were able to do that probably up to two or three thousand employees that's not possible at fifty thousand and nor is it fair so because you don't know who these folks are the real contributors are you have to do what Elon did which is literally go person to person and say who is unbelievably performant or critical yeah in the absence of doing that you just don't know who to let go and so you have no choice except to bleed down the question that I have and Brad maybe there's a smart analyst on your team that can do it is right and it's more of a statement as well can you imagine the totality of stock based comp that's been given out by all these companies since 2015 when they were catering their employee bases by 25 a year I bet you it's a trillion and a half dollars at least you think it's that you think it's in that order magnitude 100 this has been the greatest grift in the history of Silicon Valley for sure let's pause for a second can you explain what we're talking about here stock based compensation obviously is the stock given to employees it's generally not counted well let's do it right let's do it this way let's just say that you believe in capitalism okay yep so if you if you believe in capitalism let's say the the four of us start a company and there's a dollar of profit and we each own 25 of the company got it normally what you would say is each of us get 25 cents right reasonable we own 25 each there's a dollar profit we each have 20. so that means that in four years right we each will have made a dollar because so let's just say it cost a dollar to get off the ground or four dollars to get off the ground all in Summit budget We believe We all would have been made whole we all would feel great and then now every year afterwards that 25 cents we get is profit now let's say that Jason you add a fifth person and Brad and David and I can't say anything about it okay and that fifth person now gets a fifth of it right and so now all of a sudden our 25 cents goes down to 20 cents then let's say you add five more people now all of a sudden our 25 cents went to 20. and then it went to 10 10. yeah and at some point Brad and David and I raise our hand and say hey this is not the deal we signed up for and you say well too bad because Revenue would not be what it is and profits would not be what it is without these extra six people and that's effectively what everybody debates when they own a stock the shareholders want that number to be as small as possible and I think what Brad is observing is that in Silicon Valley what has happened is there's been poor accountability for what all of those extra people do and profits haven't written risen fast enough to make the existing three people on the cap table feel okay about it and that instead of talking about three people and six and a dollar you're talking about trillions of dollars and hundreds of thousands of extra shareholders I know we have some charts here so we can do some fun with numbers I think taking a step back I think it's very important to realize that stock as a form of compensation to create alignment excitement in the early stage of venture capital is part of the true magic of Silicon Valley you know you're starting a company you ask somebody to go on this adventure take a bunch of risk they often have to cut their pay they could get at Google by half to join your adventure it's only fair that you give them stock in the company and they share in the ups and if the company smokes it uh they get rich for taking that incremental risk on their behalf and on their family's behalf what's happened over the last 15 years is something totally different which is this stock as a form of early stage compensation right continued and there's a feature in Silicon Valley as companies came public one way to kind of hide an expense in a business is to bury it in SBC so let's say Google wanted to hire somebody for four million dollars which they're doing today in AI but instead of paying them 4 million in cash which would all count against their operating profit they give them 500 000 in cash and three and a half million dollars in stock and let's say they make all that stock vegetable immediately Jason in this year it's obvious to you and I that's just cash the person turns around and sells it it's a real expense of the business real expense to the shareholders but when they report their earnings and they report adjusted ebitda they adjust out the three and a half million dollars that they gave by way of SBC why did stock based comp SBC get excluded from accounting what is the history of that and is that going to change now are people going to say and shareholders demand in this new economy in this new you know sort of reality hey you know what you can't play fun with numbers here stock base comp has to come out what would you like to see Brad it's fairly esoteric but they're back in the mid 2000s 2004 2005 there was a and a county there's a big debate about this Warren Buffett was famously saying listen it doesn't matter whether you pay in stock whether you're paying cash whether you're paying cans of beers like it all costs the same he's right and so there was a debate we had a statement an accounting statement fasbi 123 and in that statement it said Gap ebitda must include the cost a stock uh based compensation so all of a sudden if I'm reporting Gap ebitda I got to include the cost of stock comp which it does today but what but but but what did everybody do but what happened they started adjusting it out right because they said hey this is a real expense right because we're not it's not cash we're giving out what are they solid do they come up with a term for this adjustments the crime here is that when rates fell to zero and everybody was making money on tech stocks nobody wanted to rock this boat and everybody just said you know like adjustedy but uh kind of ignored I can I can model it into my future dilution so we Model A Share account uh over the course of the next three years but this literally over the last five years went parabolic because I just shared with you the number of employees exploded the amount of share-based compensation exploded because of competition for those employees coinbase I think just reported SBC which hold your hat sax was 70 of Revenue not 70 of their earnings 70 of their revenue just for coinbase we're talking about here that's for coinbase and so you know last week there was something that I thought was pretty brave booking.com on their earnings call really called this out and what they said is listen we've been playing by the rules we understand that stock based comp is cash and they say every every metric we report includes the impact of stock based compensation and if you look over the last 15 years if I'm an owner of booking.com I was only deluded by about five percent if I was an owner of Salesforce or Expedia I was deluded by about 25 percent that's 25 of percent of my ups were given away right but yet those things were adjusted out when they reported earnings and so you know what's become in Vogue today is CFOs get on their calls and they say no no no don't worry we're gonna buy back a lot of shares so we won't have much dilution okay but if you take my two billion of profits that jamacha's talked about and it goes right out the door just to buy back the shares you just issued you're effectively round tripping that money then it just proves the point it's cash it's an expense to shareholders and my biggest problem with it is it's led to the bloat because if companies actually had to account for this as cash they wouldn't hire as many people they wouldn't pay as much in stock comp and I'll end with this because I want to end with a solution every comp committee on every board frankly their heads spin when you start talking about this subject they bring in a comp consultant and the comp consultant they is really the cya for the comp committee because they want to approve a comp plan that's been recommended by the management team and they just want to know is this what everybody else is doing okay so everybody's doing it so the comp consultant looks around and says yeah all your peers are doing this this is why Charlie Munger said I'd rather throw a pit viper down the front of my shirt than hire a comp consultant right what is going on on these comp committees if you give bonuses to anybody in your business that are that is based on an adjusted ebitometric rather than free cash flow per share per share is the key here it's negligence it's negligence so if comp committees just walk in and they say the gold standard as a public company is 50 basis points annual dilution that's Apple that's booking.com Visa Mastercard or even below that that's the gold standard once you're in the public market and we will never instead of is our employ our employees on the basis of anything that excludes .com and it has to be on a per share basis that would be a massive Leap Forward for public company account seems reasonable anybody have any other thoughts on that stock base comp no all right sax where do you want to go you want to go Fox I'm willing to do foxes I mean Fox is kind of crazy uh okay so Rupert Murdoch had been uh deposed here with this Dominion voting system lawsuit they're suing Fox for 1.6 billion in Damages over claims made on air that we all know around technology-enabled election fraud we remember this wild period at the end of the last election cycle with this incredibly false claim that the election was stolen something you know both sides of the aisle said did not happen however it seems that the hosts on Fox knew it wasn't happening it knew it wasn't true but were engaging uh in entertainment of allowing these people to come on air and say the election was stolen so Murdoch said I would have liked us to be stronger in denouncing it in hindsight and when asked if he could have stopped the host from highlighting these allegations these false allegations on air that were obvious to everybody he said I could have but it didn't he said the truth he's not allowed to lie in court yeah just on air I mean uh sax to be fair like um you uh really care about freedom of speech you really care about the libel laws you really care about the GOP obviously you bring it up every week here so when you looked at and but you were very clear you were not happy about the election denial all that like false claims that Trump made and these insane people he put around himself so how do you look at these foxhoes and listen you've been on Tucker and other things knowingly spreading lies about something as important as the election and then doing it in the most cynical ways we we sit here and every week we roast the media the mainstream media you particularly go after the Dems and the left and the media Elites how do you feel about these media Elites who are part of the GOP machine lying incessantly about something as important as the election Integrity of the United States of America first of all you're trying to tee this up as some giant dunk on me Jay Cal I am not no I'm not you said from the beginning you didn't believe in this exactly let's go back to December of 2020 on this show because there may be a lot of parts of the audience that weren't watching back then I was really clear that I said Sydney Powell and 100 and Rudy Giuliani I thought they were wackos and this whole idea that the Dominion voting machines have somehow been rigged and somehow it involved Hugo Chavez was a wild conspiracy theory so I said at the time 100 and I also said that I thought that once the Supreme Court denied certiorio Trump yeah I said that he had his right to have his day in court and to challenge the election in court but once that the court threw out his claims and the Supreme Court denied sir shiori that that whole thing needs to stop and it didn't stop and that's why the Republicans lost that uh Purdue runoff seat in Georgia on January 5th and you had January 6th so you know I've been warning against this for a long time Jake owl now with respect to to Fox I think you need to basically get a little bit more nuanced in what you're saying there because I think within Fox there were actually two groups of hosts so there is one group of hosts that I think you could say were Trump Loyalists and they basically not only platformed the Sydney Powell lies but also endorsed them and Rupert Murdoch admitted that they went too far and actually endorsed and so you had Hannity and a couple other hosts do that even though Hannity had some text messages that indicated he didn't believe it so I think he came across the worst however there were within Fox Skeptics of the Sydney pal Theory and so I put Tucker Carlson in that camp I put Laurie Ingram in that camp and Tucker had Sydney Powell on his show on I think it was November 19th I think this was 16 days after the election it was a 20-minute interview in which he grilled her and he kept coming back to what is your evidence what is your proof and if you were paying attention he demolished her I mean I remember that notable yeah exactly so I mean honestly no one looks great when all of your text messages come out and you can nitpick about this or that text but the bottom line is I think Tucker did his job you know yes he platforms Sydney Powell but he platformed her in order to dismantle her and you kind of have to be pretty Dopey not just to see that she was dismantled after the appearance be liable for knowingly platforming these people and endorsing them in some way or is it their freedom of speech in your mind as an attorney here uh or somebody with that uh you know legal degree where does it stand like put aside if this was if this was CNN doing it MSNBC we'll switch what publication if this was the New York Times and they knowingly lied knowingly platformed some Kooks with a conspiracy theory what should the price they pay for and then how does that affect the freedom of speech that we all think I think universally on this podcast especially and in Silicon Valley or at least we used to that freedom of speech is really important do you have the freedom to lie and platform Kooks like this let me answer you directly Jason I think this would be a better world if Fox reliable but I don't think they're going to be because that's not the legal standard I believe that if a television network knowingly spreads and endorses baseless accusations against somebody which they know or should know is basically untrue I think they should absolutely be liable for libel or defamation but that is not what the law requires under New York Times versus Sullivan you're required to show that that they knowingly spread misinformation but in addition you have to show that they had actual malice which is that their intent was malicious and I think you know Rupert Murdoch is a Wily old dog because he admitted on the stand everything but the thing that was most important for the plaintiffs to prove which is actual malice he admitted that they platform things that they you know knew or should have known were false he admitted that he should have put a lid on it sooner he admitted that he knew it wasn't true but he said the reason they did it is because they're afraid of Their audience or a portion of Their audience going to some rival Network so basically what he said is in not so many words is that his motivation was greed and in our system of law that is a complete offense against claims of deformation now I think what we need here is to rewrite the defamation laws I think the Supreme Court needs to overturn New York versus Sullivan Clarence Thomas is basically uh intubated that he would support that I think that would be a great thing to do I think actual malice should not be the requirement if reliable I think of a television network or a publication puts out information they know is false they should absolutely be liable for it and that is enough to show and if we did that by the way it wouldn't just be fox in this particular case it'd be CNN and MSNBC we have to completely revise their coverage and all of these Tech reporters who do nothing but to fame the tech industry the entire Tech press just about is a slow moving defamation lawsuit Elon Musk would probably be the richest man in the world just based on all the defamation lawsuits he could bring if we were to overturn New York Times versus the richest richier guy yeah because all they do is to fame Elon Musk every week which claims that are ridiculous there you go folks very very intellectually honest I like it David so what you're saying is you expect the Dominion lawsuit to fail can it be appealed all the way to the Supreme Court can this be the case that rewrites New York versus Sullivan good question that's a good question I'm not sure I mean I think that'd be great if it did just be clear listen I think that if Fox Were Somehow found guilty I think one and a half billion is a kind of a ridiculous amount of Damages I don't think Dominion was damaged to one half billion but do I think that it would be a good thing if this lawsuit were challenged all the way Supreme Court and they overruled New York Times versus Sullivan let's fund the lawsuit I would fund that lawsuit is not is is Sue MSNBC and CNN for all the nonsense they spread every night yeah just to be clear I have a couple things that I would want to go and um get correct clean up I just want to be clear here though Brad David's guy Tucker he did the right thing that's the most important part of the story isn't it David that you're still listening you're not being Nuance you want to throw a Tucker under the bus I think Tucker did his job I think Tucker did his paradoxical job yes yeah I think the guy who looks a little worse is Hannity because the Hannity in the text admitted he didn't believe the story but as a trump loyalist he endorsed the Theory that's really good Brad you we uh you know you you come on the show every couple of episodes and pitch in here as our fifth Beatle would you like to touch the third rail what are your thoughts and uh would you like to get some incoming email from all your LPS about your position on Fox News and I mean we just I just feel like I sat through a University of Chicago Law School class it was awesome and great I think we have some good issues here that we still got to tick off on jaycal yes okay well we gotta talk just for a second about China as it relates to tick tock because because all right here we go this Holly hearing that's coming up so we've got a hearing in Congress let's start with you are a shareholder a significant shareholder in bike dance the parent company of tick tock we have to say that correct correct correct you started that position and my kids use reels and everybody you and I have had a spirited debate on yes you're a shareholder okay about this so I so I haven't you want me to Tee It Up you want to see it but hold on a second here like because just like sax had to defend himself before he even got started otherwise I have to do the same okay here we go shareholder of meta who stand s to do incredibly well if Tick Tock in the US is banned so you have a spread wait you win either way I've got a hedge on good okay you know if Tick Tock in the U.S gets banned but you know the con the context here is the tick tock band debate is heating up right and it's all in a March up to the Holly hearing I think it's on March 23rd and there's real like we we spent a lot of time at the start of this pod on inflation I think a much bigger issue right now I was just with all these investors the main issue on their mind was Global decoupling between China and the United States we're going to see a level of Chinese hate leveled out of out of Congress both sides I mean we heard it chamoth at dinner at your place not so long ago that this hearing is drawing more demand for speakers from both sides of the aisle than any such conference uh in a long time but there's a lot of there's a lot of heat now around tick tock should it be banned and when I when I look at the situation if you frame it for bike dance because Shema talked about this a couple weeks ago it's been reported bite dances revenue is about 120 billion dollars it's been reported their profits are about 25 billion dollars that is almost identical in size to meta meta's worth about 450 billion so 120 billion Top Line it's also been leaked that in that Tick Tock is about 14 billion of that and that U.S Tick Tock is three to four billion U.S Tick Tock three to four billion of a hundred and twenty and it loses money so there's a lot of debate should we ban it should we not ban it is it going to go public and what should happen what do you think what do you want to ask and as a shareholder listen I think it's about an American I think this is a puppet debate over a much bigger conversation that's going on one of the things I've urged the company to do over the course of the last several years is parental controls my kids use tick tock they use reels and what I want is to be able to set effective time limits and I also want Tick Tock has incredible uh video content in math in science and history I want to be able to set a slider and say 20 of the videos that get shown over this one hour period have to include some of these math and science videos for my 12 year old then he can elect and not watch at all or watch it they announced those product changes yesterday um so they're teeing up those product changes I don't happen to think there's a nefarious plot but I also understand that people might not want this and so like listen I think we should have a debate I think that the CEO of tick tock should show up he should speak the the truth at the Holly hearing and if the U.S Congress wants to ban Tick-Tock in the U.S or force a spin or a sale I think we should do it and stop debating it but the much larger conversation is whether we have a hard or a soft decoupling with China and I think this is just Canary in the coal line all right so let me just tee up also uh and chamoth I'll get your reaction on Monday the White House gave government agencies 30 days to remove tick tock from all federal devices all federal agencies must lead Tick Tock from phones and systems and prohibit internet traffic from reaching the company this is following moves by Canada in the EU and Taiwan and uh obviously there is a bigger house committee focused on China that held its first meeting this week so there is the bigger picture but let's start with the smaller picture number one do you think it's a security risk to have a Chinese company have this kind of access and influence with Tick Tock specifically and what do you think the remedy should be for that and then we'll get big picture and we'll get snacks involved in this as well should it be banned should they have this kind of access to Americans and influence should it be banned no because I believe in a free market will it be banned yes because it's the most obvious cultural way to pick a fight with China without actually picking a fight with China so yeah I think it's going to be the most obvious victim of all of this and so I don't know my advice to my friends who are shareholders not just Brad but others is sell sell it move on it's in the Warren Buffett what Warren Buffett calls the two hard bucket sax uh do you think that this is a national security issue do you personally believe Tick Tock should be banned or do you like me believe that we should just do a reciprocation test in order for tick tock to be allowed here in the United States then Twitter Facebook meta Instagram LinkedIn Etc need to be allowed in China and you have this many days to reciprocate or else it's banned I don't think Jamal is right that tick tock's going to be GPC roadkill and GPC stands for great power competition you're going to start hearing that term more and more it's going to become the organizing principle of American foreign policy and I just think that Tick Tock is Tick Tock is all caught up in that and you know personally I'd like to understand what it is exactly that they're doing with Tick Tock and instead of just having these vague accusations I actually really like to understand yeah I'd like to know a lot more about that but in any event I just think you're going to get caught up in this this again GPC that's going to be the the dominant organizing principle of our foreign policy I think that people are coming around to realizing that it's China not Russia that is the central Global competitor and adversary of the United States it's the only country in the world that's a potential pure competitor to the U.S this economy is roughly the same size as the U.S it's got four times the population it's the one that we really need to watch out for I think there's growing realization in Washington that the Ukraine war is a little bit of a misdirect and that we need to basically get back to doing what we were doing before the war which is pivoting to Asia and by the way thinking about that just for a second in I think David you're totally right because the game theory now to me makes a lot more sense in the frame in the framing of GPC so for example if you think about what the chips act does right the chips Act basically says we are going to near shore or onshore every capability we need so that we can make and manufacture all the critical semiconductors for all of our interests technological business military Etc but what is that really what that is is an option to not have to defend Taiwan and why is that important it's because today if Taiwan were invaded by China we get pulled into a conflagration that we don't know how it ends we don't know what the beginning middle of end of it looks like it's extremely dangerous and precarious so spend a couple trillion dollars create Financial incentives build a bridge to Korea and to Japan so that they bring onshore into Mexico all the capabilities we need with Western Europe who are already our allies already along with Japan and Korea and now all of a sudden we have complete optionality and now we can deal with the greater Chinese hegemony in a much more balanced way so I think the GPC framing is shared by the way between the Democrats and the Republicans so this is why it's so much bigger than one single company that's why I think I think tick tock's roadkill Brad if you frame it as a competition we're not framing it as a war we're in competition and part of that is going to be this decoupling is this decoupling helpful to America is it helpful to humanity is it better that we decouple a bit this interdependency maybe got a little too deep as we saw during covid with uh Supply chains well I mean it's a great in a great power struggle it is what the words imply right so I don't you know part of the reason you want to have trade uh with China and part of the reason we don't want to have a hard decoupling is uh you know a long-standing theory that company countries that trade together are less likely to go to war so you know I think if you listen to what's coming out of this you know these uh Select Committee this week that held its first hearing is on the on the extremes you hear people saying hard to coupling right and in the middle you have people saying listen we need to define a circumference around National Security and we need to decouple as to all things that are within that circumference now I will tell you that the debate is about how large is that Circle so it starts off as for example sophisticated computer chips out of Nvidia so China you know can't compete with us in the AI arms race but it's quickly emerged into you know batteries energy food supply chains the circumference has now become almost as large as the economy itself I would argue that it's not just the chips act it's also Ira which is another trillion dollars of funding for uh basically onshore and Supply chains vital materials to build batteries Etc you know so I think it's a very reasonable policy by both parties to pursue it's clear that we're going to have some decoupling I think it's a it's a it's going to lead to an interesting question on the part of China you know she was out last week saying you know I'm going to make a speech about peace with Russia you know this is more David's territory but my hunch is that there may be you know if China China thinks it's going to be a hard decoupling from an economic perspective this is bad for global economic growth this is bad for China's growth I don't think it's bad for growth I think it's bad for inflation explain well because I think that we'll have many versions of everything everywhere so we will some more redundancy yeah more redundancy we're going to rely on Central and South America in a meaningfully bigger way and what that'll mean is that there'll be more jobs in economic prosperity for those countries they'll feed the United States China will feed it less and as a result there'll be more inflation because you won't have the cost advantages by the way China is not just going to sit there and take this line down they've already punched back a few times so for example on the middle of the summer China introduced a tariff and slowing the export of certain materials and Technology to make solar Wafers now why is that critical well again talked about this before but we are going to take the marginal cost of energy to zero in this country and the levelized cost of energy particularly via solar is the cheapest it's ever been and so what China sees is oh my gosh if the United States has abundant free energy now all of a sudden a huge component of what drives costs is gone yep so now the United States could partner with El Salvador Mexico Honduras you know Argentina Brazil it's happening here too yeah no but I'm just saying it's close by yes right and if you can deliver zero cost energy to those places now the manufacturing capability could exist there my point is it's such a complicated chess piece so China is not taking any of this line down but I think that what David's framing is totally accurate this is the beginning of a GPC and it's an economic Tit for Tat that we're going to play out we tax chips they tax solar panels we go after tick tock just as a confusion maker right yeah I can tell you the the there's a very easy test for if China sees Tick Tock as a strategic asset and that's it's going to create more shareholder value Brad if they were to spin it out and make it a publicly traded American company with American sharehold it would create more shareholder value for bike dance therefore if they don't spit it out that means they're not acting in the interest of shareholders and shareholder value they're acting the interest of their National Security pretty clear reciprocation and collaboration would be a much better model I think for for working with the Chinese and hopefully we can find some things and we can collaborate on Brad raised the the Chinese peace proposal in Ukraine which I think said an interesting topic can we do you guys want to go there for a minute sure uh yeah all right can I take a shot explain what the Chinese were doing I think it was a clever diplomatic maneuver by the Chinese to try and grab the moral High Ground here they're basically saying listen we're interested in peace we're going to put forward a proposal the Americans fell into the Trap of basically dismissing it right away throwing cold water on it the U.S state department has done this twice before remember back in March of last year enough tolly Bennett from Israel tried to negotiate a peace deal and he himself said that it was the West the Americans who rejected it he thought it had a 50 50 chance of succeeding you then had the peace process in Istanbul Turkey with erdogan presiding over it you had the the Istanbul communique which again they were very close to having a peace deal and blinking in the U.S threw cold water on it so what's happening here is that the U.S is not playing its traditional role as Peacemaker where we try to go in and mediate these conflicts we're doing the opposite of that we're throwing cold water in the peace process now why are we not acting as the mediator I'll tell you why but because we are a co-belligerent this is an American proxy war that we're fighting against Russia so we have no interest in mediating a peace process and moreover we're not trusted to mediate a peace process because we're one of the effectively strategy by Xi Jinping yes to take the global moral High Ground I I agree with that no no I said it on Twitter a couple weeks ago like this this is amazing that he's starting the peace process we want regime change we want to deplete and we want to ankle Putin they want to keep him in the game the more despots there are the the worse the better it is for them they would like to keep the Legion of Doom uh going they don't want to see regime change in democracy in Russia eventually I don't think that's how they view it but listen Jake how is very close to getting it but here's where I would disagree with you a little bit let me explain okay go ahead so from the Chinese point of view the war in Ukraine is like Mana from Heaven okay they love this war number one okay because it's interfering with the US's pivot to Asia we were basically in the process of redeploying all of our force all of our military to containing them in East Asia and now we're bogged down in Europe okay so that's number one number two we are massively depleting our stockpiles of of weapons we've used something like nine years of stingers and five years of javelins and we're running out of ammunition I can't believe we're running out of artillery the Russians actually have a six to one artillery Advantage which is why they're actually doing much better in this war than people are acknowledging we should come back to that the last thing is that the Chinese now are benefiting from the economic sanctions on Russia because Russia is now selling them oil and gas and all their minerals so it's been this has been a wonderful thing from the Chinese standpoint so this is the problem with us thinking in this Marvel movie Way of the World in which we're the Super Friends and we're against the Legion of Doom okay is because there is no natural Alliance in the real world between China Russia and Iran these are three very different regimes with different types of governments who naturally would not get along they would be adversaries naturally they'd be suspicious of each other as China and Russia were during the Cold War but we have pushed them closer together this is the problem with having this overly moralistic view of foreign policy over to you Jason what do you think is there a question is there a question what's the question yeah I mean you frame it as the Legion of Doom so just explain well it's the axis of Evil the the the 50 uh Brainiac would not be working together if it weren't for us declaring a war on both of them actually Pakistan Iran and and China work together on nuclear technology so they do when it's convenient for them work on things like nuclear bombs so uh there is an affiliation but you're correct they're they're the 50 of the planet of humans on this planet who live under authoritarians and so they they're authoritarians they're always going to think in their own interests they're always going to think in their own interests above their own peoples let alone the people of another country they don't care they don't care about human rights if they don't care about the rights of humans and they certainly don't care about the rights of humans in another country and the West is uh on a noble mission to spread democracy in the world and that is a noble Thing Worth Fighting For and is worth defending free countries from despots I know that you are a fan of these folks sacks apparently and you think they should be able to run amok I will take the other side of it I think the West should act in unison the only criticism I have is that we are not acting in unison I would like to see the West instead of sending Biden to Ukraine hold on we've talked enough you just accuse me of somehow being fans of these people where did I ever say that I was a fan of XI and China or Putin or the ayatollahs in Iran hold on you said we provoked Putin Putin invaded another country hold on we caused it hold on a second I am arguing for a geopolitical strategy that benefits the United States I'm on Team America and your policy of driving these people into an axis of Evil is foolish for the reason I said which is we are going to power up the Chinese economy so they are a much more formidable enemy to the United States that is the last thing we need to do now with respected hold on a second let me finished you had a chance with respect to Ukraine and Putin there there's no question that Putin invaded okay he is the aggressor however the question you have to ask is why and the fact of the matter is that first of all we fermented a coup in Ukraine in 2014 this is your democracy spreading that you like is all of a sudden we got these ngos and we got Victoria Newland from the state department in there basically fermenting these coups it doesn't work out quite the way you think Jay Cal that's problem number one okay then we try to run NATO right up to Russia's border okay and you expect them just to accept that because we're a benevolent superpower that's not the way the real world Works Putin was tremendously threatened by that and it wasn't just him it was all Russian Elites read the bill Byrd's member from 2008 yeah it means that he explains that even the liberal elements within Russia were tremendously threatened by NATO expansion that is what basically poisoned diplomatic relations between the United States and Russia and it was a major cause of this war now listen just because you don't think it's provocative doesn't mean that the Russians don't think it's provocative you have to be able to put yourself in the other guy's shoes for just one second and the fact that matter is is there are diplomatic steps that we could have taken to defuse this crisis in this war and we didn't do it and now look what's happened hundreds of thousands of people have been killed and Ukraine's been destroyed it's been absolutely destroyed and let me tell you right now it looks like they're losing this war so I don't see where your superhero policy has gotten us except to make China richer and more powerful and to destroy Ukraine that is where your naive idealism has gotten us yeah and I would say if you if if left to your devices and you are not engaging and not presenting a united front against Putin he will invade country after country the West must fight for democracy we must fight for human rights even if it's uncomfortable and you seem to think we provoked him to invade this country he's a murdering dictator authoritarian who has been murdering his own people I'm saying other people for his entire career and he will continue to do so let me clarify because you're putting words in my mouth okay when you say that I think that we believe believe what I believe is that we took actions that in Russian eyes were provocative I'm saying that from their subjective point of view they saw these actions as provocative they said so listen the Russian which is what I said we provoked it is your position no yes I just explained that's not the words hold on his position is that in their eyes they were pretty much Jason we're talking about and no why oh oh boy you're like what you're doing right now is like dishonest I just explained the language that I would use yes yes we provoke them we took actions that in Russian eyes were provocative there's a difference provocative provoked yes the act of provoking stop lying okay it's getting too much okay let's move on we're gonna we're never gonna agree on the sax okay and I mean in the audience that nobody on this podcast is an expert on foreign policy sax is not Henry Kissinger you know I'm not Obama show you had come around to my point of view you said this war was a mistake on the very last show you said it was a disaster and now no I believe the West should present a united front and we should hold the line with Russia invading other countries that's my belief I do not think we should be doing this solo I think we should not be sending Biden we should be sending 15 liters of countries to Ukraine we should be sending people in and we should be doing a peace process and I think the military industrial complex largely driven by the GOP is what's at fault here they want to use these weapons they want to replenish the supply and they want to regime change I don't think we should be going for regime change I think we should be building bridges so my point is a little more subtle you're doing it right there you're basically engaging in this ridiculous rhetoric that we've seen in the media which is that if you simply want a more realistic American strategy because you believe it benefits America that you're automatically accused of not being a Putin sympathizer no you're doing what the mainstream media has done I just said to you it should be the entire West as a group as a block negotiating with Putin what do you think what do you think to be part of that I I welcome Xi Jinping Germany and the United States and France and the UK all getting together and trying to get these two parties to settle what do you think what do you think we're doing right or wrong with China right now yeah what do you think we're doing right and wrong or right wrong or I think we should be in discussions with them consistently I don't believe we should be isolating them I think we should be looking for areas we can collaborate on the environment technology you agree you agree with the chips act you agree with basically onshoring and you're showing all the critical infrastructure we need is that I think we should not be dependent on any foreign we should have energy security we should have uh methodology security technology of course yes but I think every country should I think China should have that we should have it every country should aspire to be resilient and not be dependent on another country and being dependent on a dictator like Germany was on Putin or we were with China for medicines or for you know medical equipment or chips we do not want to be in that position ever that's one question just on Ukraine just for a second Jay Cal would you be willing in order to achieve a peace deal for Ukraine would you be willing to agree to two things number one that Ukraine would be a neutral country instead of part of NATO and number two that we would recognize for Mia being part of Russia would you be willing to give those two things I think that's up not up to me I think it's up to the people of Ukraine and Russia to sort this out and it's up for the West to set the table for them to do it and part of setting the table for them to do it is to make it more painful for them to stay at this war so if they are told if you keep fighting over these things and you don't come to a resolution between those two parties who have to live with that resolution that is the uncomfortable thing that will force them and that could be China us and India all working together all of us working together to force those two parties into a solution that works for them we have Brad for 10 minutes I want to move on I want to show you guys a tweet about Harvard students and I want you guys to react to draymond's comments because they're just incredible I don't know if you guys saw this but isn't that unbelievable it says there was a study at Harvard that found that 43 percent of white students there are Legacy athletes or related to donors or staff that's unbelievable is that public knowledge or is that like kind of leaked information I wonder this is from Dolores handy I don't know who that is maybe we could click on who the source of that is legacy's gotta go right that that concept should I just go away yeah is there a valid reason to have a legacy is there a valid reason to have Legacy it feels unfair it feels Un-American that these important institutions give preference to people who are stupider and Achieve less if this is an achievement based uh system it just feels unfair yeah I mean well we know we know that the first class had zero percent the trend line looks like so at some point we're approaching 100 I think we're just debated one question right one of the things I would like to see chamath is what's the relative performance 10-years after graduation between the legacies and the kids who had to scratch and fight to get into the place oh my God yeah I mean I think we know the answer well you would think they would be higher performers the latter group but you would also think that if Legacy got you into Harvard then the Legacy your group is going to get you into other things right you'll have the end in other places they're the ones who are miserable and walking around you know rich and haven't achieved anything yeah well some sacks didn't get into Stanford uh based on his stats buying a building right well that's for sure okay so uh here is a video from Draymond Green what I do want to go back to is uh uh Black History Month this is actually the first time you've seen me in a Black History Month uh shirt all black history month and it's very intentional and I really just threw this shirt on because I didn't have another shirt to throw on but black history month at some point can we get rid of it like at some point why why we got to keep getting the shortest month to celebrate our history you got Governors want to take our history out of schools and I'm not going to be the fool to go say yeah we get celebrated for 28 days so at some point I'd like to get rid of it it's you know we're making all these changes in the world can't talk about these people can't talk about those people can't say this can't say that at some point it's time to get rid of Black History Month I get rid of black history like they're trying to do but Black History Month nah teach my history from January 1st to December 31st and then do it again and then again and then again and then again that's what I like to see strong so good he's the best you need to clip the last 10 seconds of that that we all need to tweet that there was a a correction we needed to make about the stripe chart last week go ahead yeah so you have the floor we talked about some stripe stuff last week and my analyst came to me after the show was published and there was a couple of Miss calcs in the spreadsheet that generated the graphic which big up to him for calling it out very quickly anyways I just wanted to show you the updated one just so that we could make sure we get that on the record I guess this would be a purple color is that purple yeah that's actually when you calculate net revenue and I think what did was calculated gross revenue which is in the red so we showed this but it actually should be purple so that's the updated accurate version of the analysis so there you have it what does that mean for stripe versus ad gen in terms of just which is a better business just to summarize it no I mean I mean to be honest with you it doesn't it it's it says what we said before which is that the the previous valuation was very expectation heavy and the new valuation is definitely more in line but still very rich relative to other companies who have large profitability and large growth rates and I think that's the key takeaway which is it's very hard to both have huge margins and grow it mediumly High double digit rates and the few that can Visa Mastercard and adjen tend to trade it a very different valuation set than everything else and so I think that's the challenge for stripe if they can do it they'll be in that class okay for the Sultan of science doing his spack in New York having an incredible dinner in at Carbon right now can I say it can I say Enjoy the vegetarian I pre-tilted him he texts he texts into our group oh don't do it don't do that and he said uh let me know if you want me to dial in and save the episode my insta reply gerstner is on fire we're also he's Irreplaceable except you know this episode is pretty good pretty good pretty good we love you we love you oh my God it wasn't a bad episode until Jay Cal started words in English that you can't strike a single word you struck my single word last week when I called under pressure in a debate he falls back on all the usual virtue signaling and oh yeah yeah okay who did you vote for in 2016-2020 be honest see like you're doing right now look at this oh God did you vote for Hillary and Biden Legion of Doom they're the Legion of Doom [Laughter] you know there's actually a meme there's a meme on Twitter that anyone who disagrees with me is Russian disinformation or Pro Putin I haven't seen that one yet that's pretty funny that's basically you I don't think here I don't think you're probably knife during this entire year of Ukraine UK Ukraine I say every time to be clear you're not saying Putin is right for invading Ukraine and you're like no of course the dogs it just stop no no thank you for saying that no thank you for saying that I appreciate that I always try to say that's making it correct so it's a very nuanced discussion it's a very nuanced discussion like we could nobody's in favor of this war nobody nobody's in favor of it everybody's trying to resolve it I think we just have different views of what resolution looks like did you guys read this crazy article in Bloomberg businessweek about proz Michelle the founder of the co-founder of the Fugees and his entanglement with the one MDB Scandal did you read this article no I have no idea article Stars I like the culture at the end let's put the tinfoil hats on and do culture his phone rings and it's a Chinese woman that says something like you know your cousin wants to meet you he goes to the Four Seasons where he gets a note that says walk around the building twice to make sure you're not followed goes back into the Four Seasons gets a key card goes upstairs into a room where they then escort him to a different room in a penthouse take all of his phones and he meets with the vice chairman of security for China where that guy is asking for an introduction to trump it is that's how the article starts it is incredible reading the incredible incredible reading I encourage all of you to read it it's so uh what is it called juicy it's so juicy spicy if you want to read some crazy story there is a company called wirecard in Germany and there's a New Yorker article about the biggest fraud in German history I highly recommend reading this one we didn't get to it today but oh my God if we had like a long reads post show it'd be incredible I personally don't think we should promote any stories by the mainstream media we have no idea whether it's true or not I mean seriously we'll see you soon thank you so much for filling in love you bro thanks bro yeah pretty pretty good love you guys for the Rain Man David sacks the pacifist of Peace the Sultan of science Brad gershner the dictator chamoth I'm the world's greatest moderator and speaker at your corporate event for 50 75 dimes Jake out talk to my speaker Bureau let's get this grip done people we'll see you next week bye-bye we'll let your winners ride Kim [Music] besties [Music] it's like it's like sexual tension that they just need to release somehow [Music] we need to get Mercies [Music]










hey guys I got a little friend here what I think I'm gonna start a new podcast is that a bulldog and I'm gonna have a bulldog as my mascot do you want a bulldog oh my God you got my mascot yeah I took over your mascot well look at that now you're actually likable sax are you trying to improve your image is so unlikable that he has gotten a bulldog oh my God sax show me his face again is it him or her him what's his name his name is Moose oh my God oh my God you got a bulldog yourself yeah it's really my mascot Jake I'm going solo with my podcast I'm gonna call it this week in technology it already exists please don't start any more trademark lessons all right everybody it's an emergency podcast Silicon Valley Bank has been taken over by the FDIC sorry is this the twist live stream am I on the twist live stream I mean guys if you couldn't just interrupt me well okay never gonna get through this it's a lot to get through the world needs to hear our opinions if you care about us click like And subscribe make sure you search for this week in startups and uh write a review in the comments if you don't get enough jaycal you can get me four more times a week the name of the other podcast is this week in startups thanks for the free promo guys it is a huge day today in Silicon Valley we haven't seen a Black Swan like event happen here in a long time since 2008. I thought the last time was when you published the book Angel oh God we have to get to work chamoth I saved the jokes I'm trying to give you a cold open we did that around here we go three two [Music] okay everybody it's been a while 36 hours here we're gonna get into Silicon Valley Bank imploding the FDIC has shut down Silicon Valley Bank and there's many different things we have to discuss with me today as always the dictator himself the Rain Man David sacks and the prince of panic attacks no more his wires cleared David Friedberg the Sultan of science welcome boys how is everybody just to start this off contextually the last 24 hours can you can you recall a time in our careers where it's felt this acute or insane or intense uh 2008 and covet okay and I think that this is right up there could be two probably three in terms of the level of panic and concern the problem is we're in the middle of it we don't know what's going to happen this weekend so there's a lot of anxiety right now a lot of panic going on and a lot of like unlike covid and 08 really acute effects that many companies and investors are actively dealing with right now like not just a few thousands of companies that are really in a state of like distress right now so it is um potentially from a Silicon Valley perspective worse than 08 or covet oh for sure for sure I mean this this is basically a Lehman sized event for Silicon Valley remember when Lehman Brothers went out of the basically fall for bankruptcy in 2008 started the whole financial crisis the federal authorities thought that the best plan for Lehman was to file for bankruptcy they didn't try to save it and that basically led to a Cascade where the whole financial system almost collapsed I think that svb this is a lehman-sized event for Silicon Valley and there's there's two big things happening one is the impact on the startup ecosystem so you're seeing probably thousands of companies now cannot make payroll in the next few weeks because their money is trapped and tied up at Silicon Valley Bank which is now under receivership so if you wired your money out yesterday you're good and a lot of people managed to do that but there are a lot of people who were had wires in the hopper didn't make it today logged into the website can't log in the monies is frozen and we don't know when they're gonna be able to get their money out or how many cents of the dollar they're going to get so basically the whole startup ecosystem is in Peril I think Gary tan called it an extinction level event yes exactly that was a good term and just to make it really clear this is not big Tech at risk I know there's a lot of people out there who don't like the idea of bailing out big Tech this is not Google it's not absolutely those companies have plenty of cash they're fine this is small companies companies with 10 to 100 employees and you're looking at maybe thousands of them just being wiped out for no reason they didn't do anything wrong because of this this could have a very damaging effect on the startup economy and the whole United States economy this is little Tech these are the future companies that will keep the United States competitive versus China and the rest of the world and then the other big thing that's happening this all happening in real time is a regional banking crisis because when depositors see that their money was not safe at svb which was a top 20 bank that as far as everyone knows was in Regulatory Compliance nobody has said that svb wasn't compliant as far as we know they had a regulator Steel of approval and now you find out your money was not safe and it's not FDIC insured above 250 000 so the conversations we're all seeing in our chat groups with leading investors is why the hell would you keep your money anywhere but JPMorgan or a top four bank and so I think that unless the FED steps in here over the weekend we're going to see potentially a a run on the regional banking system a Cascade like we saw in 2008. well sax let's let's just take a step back before because I think you're right but we should talk about why that happens the contagion drivers and just so people know Silicon Valley Bank is used by 50 percent of venture-backed startups and I would say the majority of venture firms also have their money there so this morning I got a note from uh fund I'm an LPN they had millions of dollars that they can't access to invest in startups so chamoth there are many products and services that Silicon Valley provides one is you know banking services to startups another is to venture capitalists they do the mortgages for Banker for Venture capitalists and for Founders as well they provide those kind of white glove services but you also mentioned in our group chat they also provide loans to GPS General Partners to people who run uh Venture firms so the impact could also hit there maybe you could explain what that is and then we'll get into what happened here yeah well I think it's important maybe actually just for Freeburg to just explain what's happening but okay can maybe maybe let me just do the lead-in and then Friedberg can do the details but for for those that are far away and aren't even sure what's going on the basic problem that we have right now is in the last 36 hours a key part of the financial Plumbing of Silicon Valley has basically been turned off and as a result billions of dollars of deposits have basically um been frozen it means that people can't pay their bills it means that people can't access their deposits it means that credit lines could be in default it means that payroll can't be met and so as a result we have this potential Contagion on our hands but in order to understand it on a packet I think it's important to explain exactly how this came to pass so let me just hand the ball to Freeburg and then we can talk about some of the implications of which there are many yeah before Freeburg starts with the why just the what that's happened as well this all started on Wednesday evening when Silicon Valley Bank's CEO published a letter to shareholders announcing that the bank was rebalancing its balance sheet by selling tens of billions of dollars worth of mostly U.S Securities I'm sorry treasuries and then they announced they would raise some money and sell some shares in Silicon Valley Bank the then the shares in Silicon Valley Bank is a publicly traded entity dropped 60 on Thursday then another 60 on Friday of course then the entire world got focused on this and then every venture capitalist started telling or I would say the overwhelming majority of venture capitalists told their Founders to get their money out of svb then you had a classic run on the bank a small number of venture capitalists gave advice to say hey we should support Silicon Valley Bank I understand that but it turned out to be really bad advice and then trading uh was halted on Friday morning pending news and then finally the FDIC shut down Silicon Valley Bank at noon on Friday and there's a lot of speculation of what will happen on the win over the weekend but maybe you could walk us through technically what happened to Silicon Valley Bank and why they had this cash shortfall and this we spend the run of the bank basically but what led up to this the irony is it really was and is prior to the quote run a financially solvent business so I I have a few slides to Fair on YouTube you can see it that we pulled one slide that was kind of made by us and the other set that come from Silicon Valley Bank's actual presentations but if you look at their balance sheet this is from the end of the year 2022 um you can kind of look at the you know stuff that they owe their their liabilities which is what they owe their customers that sits in deposits because when customers give you cash in a deposit you owe them that money back so that sits us a liability and then they had a some other debt so in total Silicon Valley Bank at the end of the year had about 195 billion dollars in liability it's 173 billion of customer deposits that they owe to customers and 22 billion of other debt and then they take those customer deposits and they invest it in in a number of Securities and the way that a balance sheet business like this bank would operate is you know the customers have access to their cash um anytime they want but in order for the bank to make money they make longer duration Investments and those longer duration Investments give them the ability to earn money on those longer duration Investments more than they're paying the customers for the deposit so if you look at their longer duration Investments they had about 208 billion dollars um of total assets sitting on the balance sheet so compare that to the 195 billion that they owe customers and and other debt holders so you know the difference here between 208 and 195 is about 13 billion dollars that's kind of the net what people would call Book value of Silicon Valley Bank at the end of the year and of the 208 billion of assets that they had not 74 billion were loans and they've got a breakdown of the loan portfolio here in a minute 91 billion where these hold to maturity Securities where they don't actually adjust the value of these on a quarterly basis and 26 billion is what triggered this Panic which is available for sale Securities mostly treasuries and what happened is Silicon Valley Banks deposits came in so quickly over the last couple of years that they went out and they bought a bunch of treasuries you know with the cash that they got and the problem is that very quickly Freeburg is actually MBS they bought a bunch of MBS tenure division MBS an important to note of the 208 billion that they have the book value Friedberg there was a whatever 10 if it's in cash or something so they do have some cash there that's right yeah sorry it's a good point if you go back so like you know let's say that of the 100 of the 173 billion of customer deposits you know they've got 14 billion of cash and then they've got all these treasury Securities they can sell call it 40 billion so if 25 of customers said tomorrow hey we want our cash back theoretically they could just dump those treasury Securities distribute the cash and give it all back to customers the problem is if suddenly more than 25 percent want to get their cash back well now they have a problem and that is effectively what triggers the run on the bank as soon as some folks think that others might be pulling money out then everyone rushes to be the first money out the door and that's what triggers a classic run on the bank there's a statistic I think in the 1920s there were several hundred banks that had runs every year for almost the entire decade and these this was like a regular kind of occurrence that happened in the 1920s that ushered in a lot of our modern Securities laws that are meant to kind of create the necessary liquidity provisions and how these banks are able to operate to make cash available to customers but what happened is so much so by the way Freeburg that they made a movie It's a Wonderful Life about bankrupt so basically one of the bigger problems that Silicon Valley Bank they ran into two big problems number one is the closet decline where uh VCS were not investing new money and when they were not investing you money and startups were burning more money than Silicon Valley had modeled they would be burning because they thought everyone was going to reduce spend and reduce burn and they didn't so deposits were going down while all these startups were burning money no VCS were investing so total deposits were on the decline meanwhile their bond portfolio the assets that they hold on the balance sheet also declined in value and I and I kind of just put a really simple illustration here on why if you have a hundred dollar kind of face value bond that earns two percent uh which is basically you know where these treasuries were a year ago and you and you hold that for 10 years that 10-year bond yields 122 dollars if the interest rate goes up to five percent then though that that that Bond should yield 163 dollars so the value of the first Bond actually goes down by 25 because of the market conditions that's how significant the value changes with just a three percent change in the interest rates and that's effectively what happened with that available for security segment of the Silicon Valley Bank portfolio balance sheet they had this Bond portfolio that suddenly got devalued and they had declining deposits so when deposits start to decline you got to make sure you have enough assets sitting on the balance sheet so they sold a bunch of them said we're going to raise more money and at that point everyone kind of perked their head up and said oh my gosh what's crazy is in Q4 by the way Seeking Alpha this website you guys know they had actually done an analysis instead of svb about to blow up and they put together a bunch of slides that highlighted why this might be the case because they saw that deposits were declining that their um their assets that they hold were basically declining in value because of the massive and very quick rise in interest rates and that svb had bought a bunch of bonds that were long long durated bonds so it led to a you know obviously a real short-term problem if you look at the rest of svb's loan portfolio there's also a question of how distressed that all is so 10 of their 70 billion plus dollars of loans is in Venture debt and Venture debt is very questionable in this market right because historically the way Venture debt makes money is that they assume that VCS are going to keep funding the companies that they're providing debt to and if the VC stopped funding the companies then the Venture debt defaults and so if you go to the last slide in this deck you'll kind of see svb's performance on their Venture debt portfolio yeah so look at this this is the the performance results on just the warrants that they get on their your debt so when you when you issue Venture debt you take a write down or you get paid back and then you also get some warrants you get some a right to buy shares in the in the winners and the startups that work and so the way that svbs made money on their Venture debt portfolio historically is hopefully they get paid back on all their loans some of them they don't but then they'll make a bunch of money on selling their warrants or the pub companies going public or getting bought and in Q4 of 2022 it just fell off a cliff and their Venture debt portfolio really started to show distress and that's 10 are these realized gains or these are Mark to market gains this is the net gains on on their warrant so they don't Mark to Market warrants I think this is what they actually exercised and got out so there was there was obviously a ton of exits in 2021 so they made 560 million dollars in profit on their warrants that they had in their Venture debt portfolio in 2021 that number collapsed to 148 in 2022 and you better believe most of that was in the early part of 2022. um so you know they didn't do a quarterly breakdown on this this was like their full year number but their Venture debt portfolio which is another seven billion dollars a capital also distressed um certainly wasn't going to perform as everyone had modeled so when you kind of start to add this all up and remember if you go back to the beginning they only had 15 billion dollars of true net Book value which is the difference between their assets and their liabilities and so if you really start to adjust what are those assets really worth are they really worth what they're holding them at the book at and if people start to pull money out and you got to sell them at a distressed price in order to give people their cash that they're owed on deposits that's when you have a classic run on the bank problem and then everyone tries to be the first out the door and that's basically like what triggered this this week can I give you guys my little version of all of this I think there are three buckets but before I go into the three buckets I just want to say to all of the employees at these companies I think we the four of us are so truly sorry for what's going on and what you guys are going through and then the founders that are trying to navigate this it must be unbelievably tough there are a few Founders in our portfolio so you know from all of us just know that we're thinking of you guys and hopefully everybody ends up on the other side of this by Monday or Tuesday with not a lot of damage so let's just put that out there as sort of like Goodwill and kind of good Juju in the world for the next it's going to be a really difficult weekend for people who are trying to navigate this yeah I think it's well said yeah I mean in really really tough shape right now trying to figure out how do I make payroll and it's a big question okay so just putting a pin in that because we'll come back to it I think that this whole debacle I guess is the maybe the best word there's a little bit of blame that you can put at the feet of three different groups of actors and I just want to get your guys's reaction to this so group number one and Freeburg just mentioned this is we the four of us have been talking for the last 18 months about the impact of rising rates and you know we talked a lot about for example like in our portfolio my partners and I walked into every company and made them have at least enough money to get through mid 2025 right I've said this a bunch of times and so that was about having very difficult conversations about making sure that you were husbanding cash so that you had enough to weather any storm that came on the horizon but it turns out that there was some group of VCS and companies that just didn't get that memo and just kept spending like nothing had changed but when other VCS have stopped giving you money and you're continuing to spend like it was 2020 that's what caused this mismatch and it was really the spark that Lit the fuse so I think it's a really sad commentary at some level about the lack of governance that we have inside of some of these companies where folks are just not doing the job that they're supposed to at these board levels I think people and we've talked about this have made venture too much of a popularity contest where they are you know glad handing and smiling and not doing the hard work of holding folks accountable and so some handful of VCS and some handful of founders just didn't get this memo and it made what could have been a slower train wreck faster unnecessarily so I think that that's worth talking about then I think if you look at what actually practically happened over the last year and a half at svb was that they were so desirous of profits that they basically had a duration mismatch so what is that imagine you get a job and you know somebody's like hey Freeburg I'll pay you a hundred thousand dollars monthly over some number of months right in in normal pay every two weeks or I'll pay you 200 000 but you only get paid once a year well the problem with that second thing is you still have monthly bills that you have to make up for before you get paid and so most people wouldn't take that job even if they paid you a lot more because you have this durational mismatch you have to pay rent every month you have to pay bills on a monthly basis you have credit card bills all these things and so you need to match the timing of your cash flows and so I think somewhere along the way the risk Folks at svb just made a really large miscalculation they basically went and bought 10-year risk in order to pay back money that could be called on a daily or weekly basis that obviously in hindsight was not a good idea but more importantly and they didn't adjust fast enough well they can't because they have these Mark to Market assets that were just getting clobbered in the head as rates got raised and then the Third the third thing is around Regulators you know after the great financial crisis we went through a period where there was hundreds of bank failures and then for the last decade they've been virtually none right they've been like a few here or there and the last one was just during covet and so the The Regulators I think have done a really good job with Dodd-Frank and all of these other things to clean up the banking laws and the reporting requirements and the capital structures so that runs on banks are more and more infrequent but they kept this crazy loophole around the accounting treatment of assets and they allow these durational mismatches to appear in A bank's balance sheet and so I think there's a piece here for The Regulators which is here's an opportunity that's glaring and obvious now and screaming about how we need to tighten some more of the transparency that's required it shouldn't be a group of armchair salutes on Seeking Alpha that sniff this out three months before it happened it should have actually been a regulator that said hey hold on a second something is happening here that we don't like and so we I think need to figure it out but I think those are the three actors that are in play and they each share a bit of the blame here Freeburg Sachs what do you think who who is to blame here most for this blow up or is this just the extraogenous event of the rate hikes happening in such a short compressed period of time no I mean look I think that svb's risk management was terrible obviously they signed up for these long data Securities when the the market they serve is incredibly volatile like Jamal says duration mismatch really good point I would also say that there's a weird regulatory treatment where apparently if you buy these 10-year bonds these 10-year mortgage-backed Securities or 10-year treasuries you don't have to recognize the loss until you sell them which is just bizarre so in other words they should have been marking the the positions to Market and instead they just were allowing these losses to accrue I don't understand how The Regulators can allow that kind of system I also don't understand how The Regulators can allow a bank to take customer deposits and loan them out to startups with this Venture debt that we've been talking about in the show where 10 percent of their portfolio is basically being loaned out to startups who have no credit that's crazy we talked on the show a few months ago yeah actually it's a good time to play the clip here because what we saw and sax and I you know seeing at the series a level you have a lot of times Founders would get this basically free money in their minds I raised 10 I get five in Venture debt I can extend my Runway but that money comes due and here's the clip for when Saks and I were talking about it just a couple episodes ago what I don't trust is whether the the return models on Venture debt that were created over the last five to ten years will be a good predictor of what the returns will be in the next five ten years when a lot of the mortality that should have happened in the past now happens in the future yeah I mean this is just four or five episodes ago we had kind of nailed it startups have no collateral they have no there's no security for that load how does that make sense no not true loan to a creditor not true guys look I I disagree with you on this point look if you pull up the the slide that breaks down so let's talk about Venture debt for a second because I've actually invested in a venture debt fund and I've seen the economics on it the way that the The Venture debt model typically works is the lender loans Money to the startup and what they underwrite is what the current VCS and the startup say they're going to do to support the company in the future so their ability to get paid back in the future is largely predicated not on underwriting the company and the performance of the business or the assets they have but it's underrated by the fact that the VCS are committed to continuing to put money in and hopefully see that this thing has a bigger there's no commitment there is no commitment hold on let me just finish I get it but but the asset as a as an asset class we can make fun of it all we want it's actually performed pretty well these guys have generated typically 18 as an industry and yeah you're right it's the same as Ventures and the way that they generate those returns is that they're loaning money to the startups a bunch of those startups fail they don't get paid back and then the ones that succeed they actually take warrants in the startups so they have some Equity upside in the startup and that's the way the model works we can make fun of it all we want it actually works as an industry let me tell you why that broke is um it goes back to the point you made earlier in the show which is the the the lender has this expectation that the VCS are going to keep investing what if they don't well we've been in a generally up into the right bull market since the last that's right yeah I believe from the data for all these models is is skewed because it assumes again an environment in which companies keep raising up rounds and as soon as you get into a crisis in which the that breaks then the whole asset class breaks that's right I think this was completely predictable but even if you think that this asset class is legitimate I don't understand why banking deposits could ever be used to fund it if you want to be a venture debt fund go out and raise money from LPS because what happens is when you raise it with customer deposits you're creating systemic risks for the banking systems should never have allowed that even worse under two assets are correlated because you're you're loaning it to people who are depositing it and in every other part of the private credit Market that is exactly what you do what Sac said you can't use custard customer deposits to do some clo deal or to do like you know to back a PE play these are all LP Capital that goes towards that this is the only sliver as far as I know where you take customer deposits to create very risky loans wrapped with warrant coverage and by the way this stuff is never free right so they make you keep your money there they make you have enough money to cover the size of the loan in the first place so it's not even that valuable because if they give you eight million dollar loan you have to have eight million dollars always on deposit otherwise you violate the otherwise you know you breached alone so there is no free lunch in Venture debt there has never been and I still think Venture debt is very much like Venture Capital which is most of these gains are on paper most of these gains haven't really been realized and now we're going to go through this sorting process when all of this stuff gets whacked I do want sexy your reaction to this though which is the thing that started this was the fact that VCS seeing the markets imploding stopped giving companies money but they didn't do enough work to help Founders cut burn what is going on inside of these boys I think that's crazy because listen I mean we started doing portfolio updates with our entire portfolio of Founders in February last year saying this regime change you've got to cut costs we did another one in May you can watch them both on YouTube okay and we were telling Founders cut your burn do it now don't wait we were beating the drum on this so hard and in every board meeting and privately and I like you know and it takes multiple times frankly to get through I think your point chamoth about not wanting to be unpopular with the founder crowd uh LED some young Capital allocators to maybe say okay yeah let's try this ditch effort before we do you know another riff let's try this new product let's change our sales strategy I don't think it's young versus old I think it's experience versus unexperienced no I think it's experience that's better I think that's right yeah the experiences listen if you've never lived through a bear Market you don't know how bad it can get and Tech is a boom bust cycle and the bus are really hard really hard really hard and if you've never lived through a regime change before like there was in 2008 nine or in 2000 and 2000 was the worst yeah 2001 to three yeah you're totally improved you have no idea and you know and and I think experience does matter and there there aren't that many VCS around who live through the.com craft no probably 85 if not by the way if you guys pull up just that slide on the loan portfolio at svb I just want to make the case a sex I hear you it's a risky it seems like a risky investment to make but what don't you guys agree that a balance sheet business like svb or an insurance company or any business that has you know some amount of money coming in that sits on the balance sheet and then they invested for a period of time there's a laddering of risk and there's a laddering of duration that you have and so if you look at Silicon Valley Bank from there from the update they did last week that figured all of this if you look at svb's loan portfolio 70 are really these asset back loans which are 56 of the portfolio is like you know prepayments on on LP commitments and then 14 is is private banking loans which is loans against you know public Securities that people have only 10 of the portfolio is ventured at which is 7 billion and you know look if the asset historically is performed at an 18 kind of rate of return what is the you venture debt portfolio going to look like in a distressed environment is it negative 100 is it negative 50 negative 40 negative 30 I mean you guys can have a point of view on this but you look I mean for any business that's managing a large um balance sheet of assets against you know a short uh kind of liability tree they're gonna have some riskier assets I think you know the question is was 10 too much of the loan portfolio I think one percent's too much yeah you know one of the issues here that we saw qualitatively sax and I both saw qualitatively is the standard for giving these and the size of them got lower and lower in fact the covenants went away and this is what we kept having 100 say to us it has no covenants they offered me no covenants I don't have to have a certain amount of cash I don't have half a certain amount of Revenue those covenants were there for a reason to filter out the people who can't afford the house right and this is exactly what happened in 2008 when people started giving those no recourse or no uh background check mortgages remember those where like you didn't have to do a background check to get a mortgage that's what happened in Venture they just gave these I saw it firsthand willy-nilly I begged Founders to not take them and I only won that discussion sacks one out of five times because Founders are like money we're having this debate but there's no indication and there were no losses in this portfolio to date that showed that Venture that's underperforming we're we're saying past performance is no guarantee of future performance exactly because it's obvious to us on this podcast you guys are arguing about Venture debt when the real loss that happened at svb no we understand that they bought a bunch of treasuries and that was rates went from two percent to five percent let me know there's two things going on here okay Freebird When I See Your Chart and you talk about laddering this and laddering that and X percent and all this kind of stuff I think about the smartest guys in the room okay this is long-term capital low management this is Enron this is the 2008 bank failure they think they can basically do Financial engineering to make this work you know why it doesn't work is because number one they're not in fully liquid assets number two they're not marketing to Market every day if you're a deposit Bank you should be required to keep all of your assets in fully liquid Securities that you mark to Market every day it's that simple and what do they do they put it in 10-year duration mortgage we need to explain hold on where the value got devastated with the rise of interest rates they didn't have to mark that to Market and second they put 10 of their portfolio in basically loans to creditless startups so when there is a run on the bank you have a what like roughly 30 gap between deposits and their actual the value of their portfolio yeah and and listen that shouldn't be allowed and and the reason it's allowed is frankly I think Regulators are completely asleep at the wheel where's Powell where's Yellen two days ago two days ago Powell was testifying in front of the Banking Committee and they asked him do you see any systemic risks in the banking system because of the rapid rise in interest rates he said no no systemic risk tax is right I agree that this is the rise in interest rates is the key driver here it drove down Venture investing it drove down valuations and it's driving down the value of long-terrated bond portfolios which by the way is the Mainstay and the standard of how a lot of these businesses invest and operate and it's called distress and stress on the system my biggest concern is the contagion effect that arises next if you go in and you continue to assume interest rates climb and everyone's holding on to these bonds and they're getting written down meanwhile you owe people all this money in cash and the other thing that's happening if you hold cash today you're likely want a higher interest rate to compete with treasuries because you can invest in treasuries today and make sure for a second here I just want to make sure that the audience understands and Yellen put out a statement today Jackal just to finish the the thought that they're they're monitoring the situation yes she's sitting there like a bump on log I mean it's ridiculous they need to be out front they don't understand like that this is a cascading situation either this weekend either this weekend they place svb in the hands of a JP Morgan they do basically they either do that this weekend or this thing keeps cascading next week and look I could be wrong maybe they're working on it right now behind the scenes if they are kudos to them they'll have an announcement before the Market opens on Monday but if they're not and yellen's just like we're monitoring the situation while three days ago she was in Ukraine this is incompetence at work all right hold on we'll figure out a way for you to dump this into January 6 next he connected Silicon Valley Bank to Ukraine it was yeah exactly it's beautiful the piece here that's important treasury doing in Ukraine I mean seriously take it easy take it easy here's what happened just so people understand U.S treasuries were at 102 you get like a two percent a year they bought a bunch of those that was actually when you think about it you would say that's a safe bet the problem is those are locked up for 10 years and nobody anticipated on the Silicon Valley Bank team that the rate hike would happen so quickly so violently remember we saw the 25 25 50 50 75 75 all those increases now what happens to a two percent U.S treasury when the interest rate goes up is they get devalued they're not worth as much so if you did need to sell them you would have to sell them at a discount if you held them to maturity you would get that complete return and what happened here is they needed to sell these early and they sold them early and they took a massive loss billions of dollars and that's what lit diffused that's the slide I showed like the price I just want to make sure the audience understands that if they had sold these earlier or if they hadn't bought but hold on hold on wait a month now why why in that meeting did they have to decide to emergency sell it's because VCS stopped giving startups money so startups couldn't deposit more money into the bank but they kept spending at the same rate that they were spending which means that the deposits went down yeah in the last 18 months not enough folks read the memo yes and by the way the tragedy of that is let's just say that you did get the memo and you did make the hard Cuts right now then let's say you're working on something and you can fill in the blank on the thing that you care about okay so for the listeners let's say it's climate change let's say it's breast cancer research whatever it is this had nothing to do with you four days ago you had your money in the bank you did everything you needed to do to go and you know figure out product Market fit you know try to get to Market try to sell your product and all of a sudden because of some other set of folks and actors who couldn't get their act together now you're on the precipice of bankruptcy in 36 48 hours that's crazy to me this is the challenge Saks I think you could speak to this as well is we did all this portfolio management over the last year these were the troubled companies and then yet the company is a large person who did the right thing they had a big war chest and they had uh set the burn at the right pace and now they the other portion of our portfolio that had big war chests they're now at risk so if you're a capital allocator right now you're looking at a group of companies that you tried your best to save and their and they're angled and they're wounded and now the strong ones are wounded too this is cataclysmic for Silicon Valley if this does not get stopped this weekend not only and I I don't want to be hysterical you're right this is a meteor hitting the dinosaurs extension level event you're right Jake how listen we have portfolio companies that had tens or you know millions or more in yes Silicon Valley Bank and their account showed that their money was in the safest money market funds money market funds with a publicly traded ticker symbol that were managed by BlackRock or Morgan Stanley okay that's what their accounts showed them they had and then they're told all of a sudden no you're only protected up to 250 000 everything above that that your your money market fund is just an asset of svb which is in receivership you get a certificate yeah and you get a certificate do you see this announcement by the way regulator made things worse the California Regulators stepped in and they froze everything so our companies were in the process we have companies that submitted a wire Yesterday by the way we spent all day yesterday on the phone with our portfolio companies trying to get them out we had wire requests that went in before the deadline and for some reason we're in a queue they didn't get through and they didn't get out they didn't get through and then the California regulator steps in this morning and freezes everything and what did they announce they said oh you're good you're good for your insured amounts how much is that 250 000 for your uninsured amounts which is everything above 250 you're going to get a certificate a certificate what does that mean that means you're a creditor in bankruptcy so the mutual fund that you thought you owned was actually not hypothecated in your name it was in svb's name at BlackRock and so our companies have been calling BlackRock and calling Morgan Stanley saying hey do you have my money market fund and they're like no sorry that's svb so this is the crazy they're sitting in a in a creditor line in bankruptcy we got to explain this these were called sweep accounts so what Silicon Valley Bank did with uh some of these large portfolio holders let's say Saks and a bunch of other VCS gave you 30 million bucks yes and they would they took your money and they said you know what just to be safe we're gonna take your money we'll automatically sweep it and distribute it across two other accounts so we got this BlackRock over here for you great we got this Morgan Stanley over here great whatever it is you could only get to those through the Silicon Valley Bank interface and so it was supposed to protect you but there's no recourse it seems those are frozen too so the only thing you can do that's logical and I had a mentor 30 years ago when I had the magazine and we started hitting millions of dollars in revenue and he said I said how much money we have in the bank he's like which bank account and he had four bank accounts and he would load balance them and he did it every Friday God bless Elliott cook he did it every Friday for me and I've always done that I've always had multiple bank accounts and load balanced them but in this case Silicon Valley Bank did it through one interface I have multiple startups today who did this exact thing sex and they they couldn't even log into Silicon Valley bank today to even see where they're at I mean I think everything got Frozen and the California regulator froze them and they brought in the FDIC so there's a couple problems now with the working out of this this is basically a bankruptcy process receivership process it's that we've got all these companies and you make payroll in the next few weeks right and so these processes don't work at startup time if you could just figure out like over the weekend okay svb lost 30 cents on the dollar and everyone's just gonna be prorated you're gonna get 70 cents in the dollar and then you get your money on Monday it would be a hit to the Starbucks ecosystem but people would recover and move on but the fact the matter is it's not going to be on Monday it could take weeks or months to figure out how many cents on the dollar you have are they limited Silicon Valley Bank are they selling the gas is FDIC is going to liquidate everything well you have two paths here path number one is you if you actually try to sell these assets but the problem is who do you think the buyer is the buyer are the sharpest Sharps on Wall Street who will purposefully under bid these assets and so that then takes you to path two which is then the only other real solution is for the FED to Warehouse them and guarantee them and that's an equivalent version of what they had to do during the great financial crisis which it was this thing called tarp which is the troubled asset relief plan which was just a backstop and a mechanism so that these at the time those toxic assets which were a bunch of mortgage-backed loans could be cleared through the system over time which effectively meant that the FED basically warehoused that risk so I think what we need to see now is is sax it could be 50 cents on the dollar it could be 60 cents if you want immediate liquidity you know a friend in our group chat was mentioning that there was one claim a company that had a hundred million dollars inside of svb was offered 60 cents on the dollar today for that claim now the third party from a third party who said I will take you I will give you 60 million today in return for that certificate plus the 250 000 that says Euro to 100 million because they're willing to take the risk that they'll get you know 80 million right and then they take the difference now the point is that if you're TR if you're seeing today that kind of a discount that's not a good sign I think and it does speak to the fact that Regulators have to step in now here's the other reason why I think it's important I think what regulators and I think the people and there's a lot of them in Washington that listen to this what this does is it torches years of U.S innovation and you should not let that happen there are companies working on really important things for the United States and for the rest of the world and if it's if if the company fails because they can't make the product work so be it we take that risk every day if the company fails because customers don't want to buy it so be it if the product fails because a better product comes out so be it but it shouldn't fail because we can't get money yeah because you forgot your paper that should not be why we torched hundreds of startups in what they're working on this is maybe thousands yeah this is a this would be a lost decade a lost decade for so first of all do you guys want to talk about second and third or third order effects because I think it's important to highlight why it's not just about a couple hundred Tech Bros in Silicon Valley not being able to make payroll but there's important Downstream consequences for example there were payment processing companies in Silicon Valley that use Silicon Valley Bank to store their capital and to to move money around there are payroll companies that do payroll for many businesses not just Tech businesses but many businesses in different parts of the economy that store their cash at Silicon Valley Bank and process money through Silicon Valley Bank today was announced that Rippling one of those companies could not hit their payroll cycle today because they had money tied up at Silicon Valley Bank fortunately they announced that they also have money at JP Morgan and other places so they will be able to kind of get the the payroll processed early next week and get everyone back on track but this is hundreds and potentially thousands of companies that use their payroll software to to process and pay their employees and then there's all the payment processors we don't know how many of them have what level of exposure and a lot of infrastructure companies that move money in and through Silicon Valley Bank and so if they start to go down and then payroll doesn't hit the air conditioning company that's using the the tool and some you know in Arizona and then you know the the stripe service isn't able to process e-commerce payments for a small business owner that runs a website you can start to see how there can be very significant trickling effects and more important like we saw in 08 perhaps to a different degree but still a significant concern is the the the contagion of panic where people say if there isn't reliability in the things that I thought were reliable before I start to have real questions in the soundness of the system overall and that's why it's so important that Sac said to step in Shore up the problem this weekend I don't think it's about bidding 50 cents or 60 cents on the dollar every depositor needs to get paid 100 of their money and that cash needs to be made available to them by early next week and if that money is not available to them if within the first 48 or 72 hours of the end of this weekend then we are going to have a real crisis on our hands because then you will see a lot of people trying to move money away from any institution that stores their money in some sort of security that's not 100 liquid like cash and that's going to cost that's gonna cause a massive run and so some what has to happen the only way this can happen is if someone takes over Silicon Valley Bank this weekend and that the federal government unfortunately as much as I hate to say it because I absolutely hate the federal government having a role in this stuff has to say we will guarantee 100 of those deposits to the company that takes over the bank that takes over this portfolio and says let the port folio of assets run its lifetime see what you get paid whatever the Delta is we'll make it up to you but we need to make sure that there's cash here today for all of these depositors if you had something you wanted to say if not I have something I want to say yeah the other big thing that svb was was an on-ramp for a lot of investors including many U.S investors to get money into China and without commenting on whether that's right wrong or indifferent the point is that China has a very complicated Capital Market structure which requires you to basically use an offshore Bank I.E non-domesticated Chinese bank and to be able to get those dollars and so what would happen is Chinese startups that raise money would raise money from U.S investors and abroad using these bank accounts and so this issue now doesn't just touch the United States Innovation economy it also touches China's Innovation economy which you know creates actually a complicated set of trade-offs for the U.S government and treasury as they think about what they want to do in this heightening great power conflict that sax talked about last week and I want to just make a very important nuanced Point here I know there is no bank that the public specifically you know people who don't want to support you know rich people already like big Tech or billionaires the the reason to backstop this with public money is because we have a road map for this people don't know this uh widely but tarp was just over 400 billion dollars it actually returned a 15 billion dollar profit to the American people this would require maybe 25 or 50 billion dollars ten percent maybe five ten percent of the totality of tarp would be enough to cover What's Happening Here with Silicon Valley Bank and work this out that's 50 billion dollars for the people listening in Washington or for the people who will say hey why are we you know bailing out big Tech you're bailing out small Tech as Tremont said you're bailing out Innovation on breast cancer on you know uh renewable energy but most importantly this can easily be structured so that the American people return twenty percent thirty percent maybe even double their money you could structure this so it is senior to everything else and is exactly what the government is supposed to do when there is a crisis that doesn't mean the people who run Silicon Valley Bank should have their Equity worth a lot they should get wiped out they didn't do their job properly the equity the people who ran the management team there if they don't get anything that's okay they understand that but the people who had their money at deposit to pay the salaries and to pay for this Innovation it is unconscionable that we wouldn't backstop it and the I guarantee you the US government could get some warrants on those companies or warrants and ownership in Silicon Valley bank and make at least 50 cents on the dollar maybe even double and that's the way this bailout should be structured and it has to be done this weekend you bring up a great idea I think I think if the U.S balance sheet does step in over the weekend I'm going to say on behalf of the U.S taxpayer you must get a piece of these companies and the reason why is that that's the way to make it fair for everybody that's not in Tech who's on the outside looking in and if you look inside of Twitter as an example there's a lot of negative sentiment around even the idea of a bailout happening and it's for this exact reason because I think people believe that it will benefit just a small sliver of people right so to step in and to save these companies Jason would still be you know really only helping say several hundred thousand or several you know and and the thing that that gets wrong in my opinion is that these companies if they're if they're allowed to germinate should be building things that actually help everybody including and so if you can view it that way and if you can view a share of it now obviously look we're very we have a very deep incentive for that to happen but I think it's important to present the other side of it and the other side would say this industry has a little bit run amok it's not well regulated you know you guys push the boundaries and get away with a lot and there's a lot of consequences you're saying but no I'm saying the tech industry no no I'm saying the the average person that's on the outside looking into the tech industry can make that claim and now they would be pointing at Big Tech but the problem is we all get swept in together under the same thing and then what they would say is I don't think it's right to to to step in and I think that you have to give the U.S taxpayer an incentive if they are going to do it and I think the the incentive should be that they should just get a share in all this Innovation if they take over the Venture debt portfolio then they would have that right the Venture debt portfolio comes with warrants so they would have that I think there's a big risk here that precisely because Tech is unpopular and people I think are confusing big Tech with small Tech that the government doesn't step in here and the The Dominoes start falling and we start getting all the systemic risks playing out remember the beneficiaries here aren't just these the sort of current generation of tech companies and everyone they do business with it's also wherever the contagion goes next and we're already seeing I think multiple Regional Banks Under Pressure they're stocked down people asking questions we know people in our chat groups who are wiring money out as fast as they can just because why take a chance you know that and by the way you have to understand the game theory around these Bank runs people describe them as a panic but that implies that it's irrational it's not irrational it's actually rational and what this what this is really highlighted is that what you said earlier at the beginning sacks which is that the regulatory oversight is actually extremely pristine at the biggest banks but the smaller and smaller you get there's a level of opacity and well your lack of regulatory follow through that allows this stuff to build so the Wall Street Journal right now is reporting that U.S banks have 620 billion of unrealized losses just on treasuries I don't know what the unrealized losses are on these long-dated mortgage-backed Securities like I said I have no idea why Regulators allow Banks to hold these uh bonds at their Book value instead of marking them to Market every day that's crazy and on the equity side you have to do it Buffett talks about this all the time the equity side you have to mark to market the equity portfolio at the end of every quarter right and he sees these wild swings and he complains about it but it's the right thing to do for exactly this reason right so so think about the game theory here okay the banking system the banking Regulators have created this opacity in the system you've got all these assets that are being held by these banks that are not marked to Market so nobody really knows what the true level of exposure is so what's the response why take a chance just move your money to JP Morgan so I think there's a chance that if the if the federal government doesn't step in here the whole Regional banking system can be decimated and you're just gonna be left with four too big to fail Banks how's that benefit anybody that doesn't benefit the little guy guys there's a there's a pretty good set of regulatory disclosures that happen but I do think that the real question is you know are the ratios right do they should they really be allowed to invest in these types of assets with depositor capital and if so with what percent of the deposit or Capital should they be allowed to do it and maybe you know that seems to be where the biggest you know issue is we've come a long way I mean I just pulled up the statistic it's insane there were 505 banks that failed in 1921 failures continued to rise in the early 20s and averaged 680 Banks per year failed between 1923 and 1929. so obviously you know coming out of 08 uh there was a lot of controversy around hey Banks can't make money anymore it's too restrictive the disclosures and so on the disclosures are actually quite good you know you guys can go to these these sites that regulate the banks you can go to the SEC site you can get a very detailed schedule of every asset held by every one of these Banks it's good transparency I would argue but should they be allowed to invest in Securities that are effectively not fully liquid that are risky that are long dated with short data deposits right it seems It's a fundamental question about what banks are supposed to be doing in a world of computers that can calculate everything the idea that you can't solve duration matching doesn't seem like one of those problems that's intractable in 2023. I mean if people can make an AI version of the podcast they could do that yeah I mean free burger also like take this I think Venture that's the most extreme example how do you mark to Market alone to a series a startup I mean that just 100 depends on what they're going to raise the series believer you can underwrite anything I think you can under for the right interest rate for the right premium you can underwrite Insurance you can underwrite loans I mean there's a lot of ways that you could kind of how do you mark that to Market on a daily basis you're right no that you cannot you're you're right absolutely yeah yeah and so from a reporting perspective how does that solve the problem you've got different they've got different tiers of regulatory Capital guys and so you know there are rules around what the ratios need to be and where you need to fall and so they they bucket the stuff up differently right if you're a bank and you want to buy Securities you want to invest in something that's not liquid and Mark to Market every day you should have to package it up in some period of time and sell it if you want to make a loan to a you know to a venture-backed startup package those up and Syndicate that and sell it as a security and if you can't do that you probably shouldn't be investing in the asset class anyway same thing with like you know mortgage these mortgages already get packaged up and sold right so I just doesn't make sense to me that like customer deposits that's what we're talking about which you assume should always be a hundred percent safe right this is not a source of capital where anyone's ever expecting to lose money if you want to use risk Capital to get some sort of outsized return go raise that from LPS but to like take customer deposits and use it on on risky non-liquid Investments it makes no sense there's one thing I could I could just help people frame this the aggregate amount of dollars in these bank accounts I would estimate equals 10 percent of the value of the startups they represent would we all agree on that it's about 10 of the value of those startups maybe 20. if how do you work what how do you how do you calculate it I don't know well I'm thinking about the startups who recently did a round of funding they diluted 10 percent that represents all of their treasury or half of their treasury so if that cash for the startup portion of this equals 10 of the value of service I can guarantee you those startups with access to that Capital again Monday will be able to outperform the backstop that the government would provide this sounds like Enron math to me no okay if you what are your startups just take any of your startups they have 30 million you don't have time listen we don't have time here for the government to figure out how to be a partner in or an investor in all these startups I'm sorry we don't I'm not saying step in or they don't if they don't step in you'll have systemic failure no no but do the math definitely here of one of the companies pick one of the companies that has 20 you have a company that has 20 million there or 30 million there what does that represent if you were to take their valuation from last year when they raised that money cut in half it doesn't matter it doesn't matter who's the depository it does not matter it matters for people to understand how how much value is going to be lost and how easily recoverable it is if these companies are allowed in aggregate to deploy that Capital that's the point you're not getting or I'm not explaining to you properly if allowed to deploy that it's going to return a multiple an adventure multiple two three four five x but if we destroy that money these companies are going out of business next month that money is their money that's their deposit I agree with you I'm trying to create a framing here for people to understand exactly how much value is going to be I think the better framing is that when you put your money in a FDIC insured bank and you put it in a customer deposit that's supposed to be completely safe that's paying you a couple of percent interest and that is reflected even as a money market fund on your account you do not expect that money to be turned around by the bank and put in risk and raise the FDI no sense raise the FDI Banks should not work that way okay look I think it's crazy that you could set up a bank account okay because you just want to write checks and you could lose that money because the bankers decided to loan it to some startup that's insane or the bankers decided to buy a 10-year mortgage-backed security who doesn't understand interest rate risk that's not the way the system's supposed to work and you got all these people on Twitter pushing back no bailouts or whatever that's the depositor's money I agree no bailout for sgb they should lose everything all those Executives or stock options are worthless all the stockholders of that company their Shares are worthless but the question is should depositors lose money in these Banks they just thought they're selling for a checking account I mean are you kidding me and if you let that happen there will be a Cascade here because the The Logical consequence will be everybody's going to say put my money in JPMorgan or Wells Fargo or Bank of America there'll be four Banks that's it and all the regional banks are going to shut down 10 highly paid workers and not just Tech workers are going to be out of jobs and they don't have jobs waiting for them at Amazon or Google to bail them out and this is the start of a contagion if it doesn't get started what do they do wrong they used uh what is considered one of the most reputable banks in the world they use the top 20 bank that the regular said was in compliance so did they do something wrong or were The Regulators asleep at the at the wheel I don't know some way I think it's this is Biden's fault or wow it's binary zelinsky's fault what do you guys think this means for VC it is a chilling effect I I talked with some LPS in the last two days in the VC World I'll give you a couple anecdotes I have a friend runs a fund he looked at his portfolio they have 270 million dollars or sorry 350 million dollars tied up at Silicon Valley Bank they need 27 million dollars uh for cash for the next 30 days so he's called his LPS and he's trying to get his LPS uh to front him money to wire money so that he can front his company's money so they can actually pay their operating expenses and cover their payroll and then I spoke with a couple of LPS in the last 48 hours um they have gotten dozens of calls from various Venture funds everyone is asking the same question can we do a capital call can we get money delivered early can we use that money to support our companies because their cash is stuck coming out of this the the the uncertainty that this creates in the investment environment um I think it's going to have a real chilling effect not just with the GPS and their you know uh proclivity to sign term sheets right now and wire new money over but also with the LPS as they're making Capital commitments and actually following through with with capital commitments that have already been made um given uh you know where's the capital actually going to land up that was never a question mark before it was never in anything that anyone even considered that Capital could be disappeared or locked up or tied up and the fact that this is adding this unique friction in the market is the layer on top of an already distressed and challenged environment for fundraising for GPS for LPS and it seems to um be exactly the icing on the cake we did not need right now no matter how this gets resolved I I think private markets in BC could seize I think you're going to see people pull term sheets maybe half as many fundings are going to occur as people try to do triage another VC friend of mine just sent me a text he can't make payroll next week he's a fund for his VC fund his VC fund their employees cannot he cannot pay his employees on Monday Lord and so um yes I do think funds could shut down uh coming out of this it I think that companies that were call it you know 75 distressed are done for now no one's going to step in and Bridge them and fund them uh it's going to accelerate a lot of shutdowns because people are now cash is King now cash is king or right it's like a big shift I think that was really well said I think you're you're right about all that Jake how you tweeted that you think this is going to cause a 60-day freeze and and deal making activity I think that's more or less right you're right because you know all the VCS out there have to think about Shoring up their existing portfolios exactly what if you got companies that are now in distress that are perfectly good companies you've got to focus you're picking one or two winners you know and you're going to focus on that you're going to say you know what the rest of them could be good but I can't it's it's going to be a tough decision I have three open deals right now um that we're doing I now have to figure out how to get those deals done and I have four companies that are in this payroll situation in a major way so now I've got capital and I've got to and we're not personally affected by the Silicon Valley Bank thing thank God but now we have to do triage the known winners in your portfolio that did nothing wrong or do you make the next three Investments or four Investments and I'm gonna make good on those three Investments but next month Maybe not maybe next month I'm taking off and I'm focusing on the portfolio and I think that's what's going to happen writ large we're in triage mode now full on triage mode if this doesn't get resolved if they can't get those what do you think it's dark I had a meeting three weeks ago with the US LP and you know you guys know how I run this business here but it's there's there's like a lot of risk management you know we think about this stuff a lot and the message that came back to me was I don't think risk management is worthwhile in Venture I didn't understand where that was coming from um because if you're investing your money across a very risky asset class you have to be always thinking about how you could lose money and I think that venture has always romantically been described as like buying lottery tickets and so it doesn't matter if you lose but when you have that kind of latitude you just become super complacent and you don't think about left tail risk you only think about right tail outcomes and this is an example of like left tail risk that came out of nowhere that could wipe out entire portfolios so you had you know folks invest into funds that spent a few years probably 2019 2020 2021 really misallocating money right writing ginormous checks into companies at valuations that didn't make sense who then went and burned it and now what little cash they had left may also be gone which means those valuations are even more impaired which means that the LPS that gave them the money are even more underwater and that cycle I think is really terrible that'll take a so maybe this is the wake-up call where now risk management is actually in Vogue and cool and it's important to know this stuff I don't know we have breaking news uh while we're taping this the Department of Financial Protection and innovation of the State of California has published findings on svb we'll pull it up on the screen for the besties to respond to on March 8 2023 the bank announced a loss of approximately 1.8 billion from the sale of Investments we've talked about that already on March 8th 2023 the bank's holding company announced it was conducting a capital raise despite the bank being in sound financial condition prior to March 9th 2023 investors and depositors reacted by initiating withdrawals of 42 billion dollars in deposits so that would be over 20 I think of the of the total deposits from the bank on March 9th or even more 2023 causing a run on the bank as of the close of business on March 9th the bank had a negative cash balance of approximately 958 million despite attempts from the bank with the assistance of regulators to transfer collateral from various sources to bank it did not meet its cash letter with the Federal Reserve the precipitous deposit withdrawal has caused the bank to be incapable of paying its obligations as they come due right and the bank is now inside the beginning 42 billion dollars uh is 25 of total deposits but 42 billion is greater than the 14 billion of cash they had on hand and the 26 billion of liquid Securities that they had so you add those two up together you're at 40 billion and then to get more cash they're gonna have to sell a bunch of loan portfolios and selling loan portfolios you got to package them up it takes weeks or months to do that and they're going to be sold to distressed prices so this is where a classic run-on-the-bank problem actually causes a decline in the asset value of the business uh and the assets that they own because if you have to go and turn around and sell those assets in the market super fast you're going to take a huge loss you guys remember that movie Margin Call with Demi Moore and um what's his name and they make this plan to go and Mark and they're like Swayze no not Patrick Swayze uh no the Jeremy Irons Jeremy Irons he plays the best character he's like the chairman of the bank and they're like we have to sell all this but we're gonna take a huge loss and they make this big trade that happens at the beginning of the morning but that's what happens when you have to sell a lot of assets very fast as you guys know you end up selling them at a discount so the rate at which deposits are coming out of the bank can actually impact the asset value held at the bank and that's fundamentally what a run on the bank causes and the irony is as they point out the company was fundamentally financially sound they had enough assets marked at the current market value or whatever to meet all of their obligations but the rate at which assets started to get pulled out is what drove those that drove the company the bank into distress and if you think about it it it's it's an ironic point of view on Silicon Valley because Silicon Valley operates with such we all joke about what a herd mentality uh and and what an incredibly tied and and deep Network Silicon Valley is we all got dozens and hundreds of texts and messages from friends colleagues co-workers yesterday all relaying the news about what they were going to do and as soon as that happened that's how tightly intertwined Silicon Valley is within 24 hours every CEO and every venture capitalist was on a chat group or on a message group with other people in the valley and once there was any indication of panic the entire Market flipped and you guys saw this we all saw this within 24 hours the beginning of a day yesterday it was like they'll get through it it'll be fine they just took a little mark down on their portfolio they got plenty of assets but then it's like well Founders fund said we should probably get out okay well Founders fun is getting out maybe we should get out before everyone else does well we got to get up before everyone else does let's do it now I'm getting out right now I'm telling my best friend I'm getting out right now and then everyone tells their second best friend and then all of a sudden the whole valley knows it and then the whole valley is running for the door and this is a really interesting and unique scenario it's not like the classic consumer run on the bank where you're trying to pull cash out it's the Silicon Valley 24-hour cycle of we all got to do it because everyone else is doing like what we're seeing with investing Cycles in Silicon Valley where everyone chases and these bubbles emerge the reverse I think happened yesterday where the herd mentality drove us all to rush for the door as quickly as possible you know I'm not sure that that that might be why it's not as much of a contagion you know as you might expect elsewhere because places other kind of regional Banks don't have the same sort of intertwinedness as we saw with all the depositors here in Silicon Valley Bank I don't know I don't know this is where um I think that describing what happens as a panic kind of misses the fundamental rationality of the response so both are true by the way yeah so it does seem like a panic but that doesn't mean that each individual decision Maker's motivation is panic I actually think it's a rational upside downside calculation I mean this is all Game Theory so if you think that there's a risk of other people pulling out their assets and in fact you're hearing that they are you don't want to wait and be the last one to leave and so you think about it there's no penalty or downside to taking your money out right so the the downside of taking your funds out immediately is zero and the upside is you might save 100 of your money so it's it's a rational decision when confidence is lost to take out your money and in fact it was rational there were a bunch of VCS not a lot but some of them between yesterday that you know sgb has been a great player in the ecosystem for 30 years we should show our support right now by not taking our money out well guess what what happened to them they got stuck and now their money is frozen and they're not sure whether they get you know Pennies on the dollar or not whereas the people who rushed for the exits yesterday got their money out prisoner's dilemma it is a prisoner's dilemma but here's the thing it's it's not even about anymore whether the institution is solvent it's about whether there's confidence and I think there is a risk now of contagion spreading to these other Regional Banks because people aren't sure and there's already huge cash outflows leaving these other Banks because why take a chance the game theory of it is move your money out until this is over and if you're okay with you know moving it back in a few weeks if it turns out not to be around the bank that's fine so a lot of this can be self-fulfilling you have to remember that runs on the bank freeway you said this a hundred years ago were extremely common every decade there would be a giant Financial panic and there'd be a run on the bank run on many banks and the only way that the federal government stopped it was by introducing FDIC and they said they said to depositors your money is safe and at that time 250 000 was enough the problem we have is that with these business Banks 250 000 is not enough so all of a sudden there's going to be a crisis of confidence if you think a business bank can go under again you're just going to leave all these Regional Banks you're going to go to the top four that's going to be it so I I think that that the situation right now is really Dynamic and If the Fed does nothing and just says up you know these uh depositors should have known better you know the losses on them then I think the rational reaction for depositors at all these other Banks would be just to leave because I don't think depositors are in a good position to assess the uh liquidity and credit worthiness of a bank I just don't think they are I think stockholders are they're the people who should lose all their money if the bank goes under but not depositors any advice or takeaways for Founders and capital allocators going forward obviously have your money in multiple bank accounts I sent you guys a list that was just published of all of the funds that custody at svb and it's unbelievable the list it's every single major VC in Silicon Valley wow where'd you get this I have my ways oh extracted from SEC filings got it okay thank you yeah this is amazing wow holy I mean everybody's in there 500 Sequoia we're going pretty fast here but yeah to find I mean this is that we were we were out a few months ago when we were talking about Venture debt on the Pod I didn't believe that sgb should be in this business so I told oh look there's craft there's craft no well hold on I'll tell you does it say how much money we got in there yeah go to the right I'll tell you what happened is so after the conversation we had on this the show about Venture debt I'm like I don't really like that sgb's in this business so I told my guys set up an account somewhere else so we did that so we moved our firm accounts over and we were just using sgb to make you know Warehouse loans or whatever so I thought they were just a lender to us so yesterday when all this stuff went down I said to our guys like we're out of there right they're like well actually we had about 45 million dollars that we were about to distribute to LPS and I'm like whoa that's crazy so we were able to sweep that to an account we used to make in-kind distributions and then we got on the phone and we called as many portfolio companies as we could to get them out and we got a huge number of them out but unfortunately some of them didn't get out here's the thing that I think people in Washington don't understand we're doing this with the next set of banks the triage is still happening guys I will tell you look sex I appreciate the the siren Call but I think the only way that what you're saying because you're saying that triggers the next siren Call and the contagion spreads I'm not blaming you I'm just saying it's a reality and you're right the game theory optimal way to play this as a depositor is to move your money out and get it somewhere that it's completely safe and you know you have your cash secured or buy a security and a brokerage account where it's totally safe and it's registered with the Securities Exchange or something but um in the meantime for this to get resolved there has to be a bear hug solution offered up this weekend I'll say it again yeah in order to stop the next set of siren calls to drive a call listen this is the thing I hate about um the the run on the bank conversation is that if you warn people that there's a possible run on the bank happening you're actually creating the run on the bank that's why it's so pernicious when these things get started and yesterday we were calling all of our portfolio companies because we were warning them because our obligation was to them but we weren't you know I don't think we were putting out like a siren to the world and by the afternoon it was really clear that if they listened and got their money out they were in much better shape than the ones who didn't listen so this is the pernicious thing is that every individual actor has to do what's in their best interest and we're not trying to start a um another run sorry hold on but we know things we know that people very close to us big players are withdrawing their money from other Banks right now so let me just finish my point my point is what you're saying makes a ton of sense and it's gonna cause this as you described kind of pernicious escalatory problem and the only way to stop it is a bear hug which may not cost the taxpayer anything If the Fed or some federal agency stepped in and said we are going to backstop all of these banks with all of these deposits with cash and we're going to guarantee it today and here's a 500 billion dollar facility and just by saying that everyone stops trying to pull their money out and you don't actually need to backstop it with any money it's it's so it's already started so Nick if you just the link that I sent you in the in the group chat can you just throw that link up there I think this is the best proxy for what Sox is talking about so sort of I think very unemotionally how would we know that there is a contagion that's a foot you would look at the equity layer of all these Regional Banks so what is this this is the ishares Regional Bank CTF and what you start to see is this Decay and go to the one week view Nick please it just starts to fall off of a cliff and so why is this happening well it's happening because the equity tier of these Banks are now increasingly worried that their Equity will get wiped out and so that's why they're selling and so the I think what David said is already afoot unfortunately it starts at svb but forget the name for a second and take Silicon Valley out of it this is a top 20 bank that now is in the receivership of you know the authorities and so there does need to be something that needs to happen in really short order because what's to prevent bank number 35. let me just say it again if a federal agency comes in If the Fed comes in and says you know what we're going to backstop all of these Banks and we're going to put 500 billion dollars behind it and we're going to guarantee that all these deposits are going to be made whole it stops the Panic at that point it you don't even have to put up any money because as soon as it's a first derivative problem it's a feedback loop as soon as you stop people from doing the withdrawals the whole Market subsides you don't actually need to you unplug it and I think that's what needs to happen this weekend that's what should I unplug it today is the number one need to go get um Silicon Valley Bank hand it over to a big balance sheet and guarantee that balance sheet but they're going to make money by taking this thing on on and number two they got to make a statement we got another 500 Billy for you where's the president where's he Allen well they'll make a profit on it too so I mean they don't need to use any money to do it right the thing that's missing in our system is that there's no FDIC for 25 million accounts What like 250 is not an effective amount that's a personal account it's a small businesses needs confidence in our economy in our banking system or the whole thing starts to unspool so what the quid pro quo should be is you can get a 25 million FDIC business banking account and the bank is highly restricted in what it can do with that money you can't put that money in fugazi Venture debt you can't put that money in lattered 10-year bonds that don't get marked to Market it's only highly liquid secure Mark to Market assets and the the downside of that for the bank is they'll make less money and pass on less interest to the the business the the depositor the shareholders yeah so what that's the way it should work how are stable coins looking like a better option right now I in the crypto guys right now are like why didn't you you're not Jacob they're not they're not joking it was a joke nothing can revive the crypto Market as we're seeing today even in a run on the bank which is exactly what everybody was afraid of in a Bitcoin world that thing is down ten percent so of course there's a reason for that is just that what we've seen is that liquidity is all correlated so when people are panicking about the state of their finances and worried about getting access to their cash the first thing they dump is crypto because it is very liquid so everyone is trying to free up cash right now I just want to be clear as the end of the show here we were dancing around is this going to be a Contagion and I think what we know and what we're seeing is the the next dominoes are already falling and so yeah contagion it cannot be a contagion we have to stop it that's the point that's your feeling and I agree with you but I just want to make sure people understand we started this we didn't want to go there you know I think with some reticent reticence to to going there let's let's put it this way if you if anybody if you have initiated a wire in the last 24 hours you are worried about contagion yes if you're in DC and you have any ability management matters and if you have any ability to influence what's going to happen this weekend we strongly advise unplug it someone comes in and Bear Hugs the market this weekend and says we will not let contagion happen with a very big slug of capital to support it that will likely not even be needed to support it because once you say that the contagion will stop yeah Freeburg we're going to know on Monday whether these Regulators have in the administration know what they're doing at all the other Black Swan problem is that this weekend we will find out what some of the unintended second and third order consequences are going to be of svb being in a receivership this weekend we talked a little bit about the pipes problem but there may be several other businesses and companies that we don't know about that may trigger another set of cascading effects that are unrelated to a banking problem but could drive some more significant business and economic problems that we're going to kind of probably end up talking about next week so you know this weekend with success with payroll but there are other things that this money goes towards uh you know mortgages or rents so the cascading effect of this if people stop paying their rents if people stop paying mortgages I mean real estate yeah if I didn't visit a Kiev instead of East Palestine Yellen visited Kiev instead of Silicon Valley do these people know what's going on here come home they promise more financial assistance for Ukraine and they're saying they're monitoring the situation here we're in the process of what what's the bill for you yeah the bill for Ukraine this month versus this bailout is you know probably the same so I think we have to really think this through folks yeah you're gonna get well no on Monday where these people have a clue or not no they have to be on TV tonight or tomorrow this is to be a pressure on Sunday hold on I think I think a lot of these guys do know what they're doing so let me just say it to them in language they understand folks when you look at the equity tier of these Regional Banks people are liquidating the equity tier because they know that that is the first Domino to fall if banks go into receivership please act accordingly you can see it in the ETFs you can see it in the trade flows this is not a Silicon Valley problem anymore it is a Regional Bank problem and it will get worse unless you do something to make it better right and and Jake I'll just use the word bailout I don't like that word because no not about backstop there were big you know too big to fail banks in 2008 in the financial crisis who did get bailed out those people should have lost the value of their stock okay that was wrong that's not what we're talking about here the PCB is wiped out already what we're talking about is protecting depositors these are people who trusted that when they put their money in a top 20 bank that our regulatory system is compliant that they will not lose their money when it says on their computer screen that my money is in a black rock or a Morgan Stanley Mutual Fund or money market fund rather the safest instrument there is that that money is where it's supposed to be and if Regulators allow that bank to put their money in stupid assets that are not marked to Market and that's why they shut down that is not a good reason for depositors to not get their money 100 we're taking care of depositors here and not bear filling out stockholders this is not for the executives at the banks it's for the depositors who did nothing wrong and nor did their employees and their customers and The Innovation that they're working on all right this has been a great all-in podcast sorry we didn't have time to talk about the uh Shaman Q Anon Shaman I know that's a passion project for you sex but you can announce your Kickstarter for him and your GoFundMe for the shopping but uh where's the ball dog man give me that Bulldog one more time the shaman the shaman is an intersection of three of a very interesting Venn diagram he is very athletically fit incredibly hairy and obvious tattooed that's a that's a try that you rarely see you rarely see that and you know also cultural appropriation so yeah we have to keep that in mind and conspiracy theories I mean this guy's got it all are we gonna play poker this week at it just like as the as the major is coming it's kind of sad Silicon Valley is kind of he's kind of an odd that seriously the the shaman what's his name is uh Jake uh he doesn't seem like he's all there sure yeah no he's he's a guy who has diagnosed Mental Illness but he's completely non-violent he's completely non-violent he actually believes in the philosophy of Mahatma Gandhi of no violence towards any creatures he's a vegetarian yeah he you know he's a bit of an odd duck and he didn't assault anyone he just wandered through the capital apparently getting a tour uh from police officers who are just guiding him through he's the January four years hold on a second he got four years in jail for that because he became the face of an Insurrection because he just just looks so weird with the Viking horns and the face paint or whatever we also made some threats to politicians too but yeah I mean it does seem like it might not be the appropriate sentence he wrote a note saying we're coming for you I think on but you have to look into the case but he was sentenced by a republican judge from Texas and he had made threats written threats and put them on the desks of folks and he was one of the first people into the building so I think they got him for that but I agree with you they're listening to the building if he didn't break a door down or didn't smash a window if he damaged property that's one thing if he assaulted someone that's one thing but if he just wandered through the capitol I think four years is kind of excessive and I think the reason why the guy got four years is because of his mental illness he's not able to defend himself the way that he should be this is just a fundamental civil liberties issue if you have any compassion at all you shouldn't let a guy like that get scapegoated there's 400 people who of the thousands of people who broke in who were violent and who got sentences of some degree they were all uh settled like a plea bargained including his they didn't go to trial and if you know I think we could all agree the violence that occurred that day is you know should be punished and the non-violent stuff should be a speeding ticket you know and we don't need three categories Jason I think violence The Assault on cops or and so forth yeah punished full accessibility then damage a property and then people who just trespassed or wandered through who may not even have known they were trespassing probation that that that's not that's not jail time that's not a felony yeah I mean we want to promote peaceful protests if they had come with guitars and sang Kumbaya and we shall overcome we'd be having a different discussion here instead they'd be cops you know and you can't beat cops up sorry those ones go to jail yeah period full stop we're in agreement okay everybody it's been another amazing all-in podcast sorry we couldn't get to all the news but we felt that this required a big unpacking for the Sultan of science the uh uh dictator and the Rain Man imv Undisputed world's greatest moderator we'll see you next time on the all-in podcast not this week not this week we'll let your winners ride Rain Man [Music] besties [Music] it's like this like sexual tension that they just need to release [Music] [Music] I'm going all in








all right everybody Welcome to the all in podcast and with me again this week the Sultan of science the prince of panic attacks the queen of quinoa David Friedberg the dictator tremath polyhapatia wearing a beautiful Mr B sweater and David sacks the Rain Man himself thanks for coming to my Laurel piano dinner on Tuesday Jayco that was wonderful thanks uh at least one bestie showed up for you wonderful wonderful dinner I sat as far away from the Laura piano people as possible in the arranged seating thank you for that I guess maybe you were like I'm gonna contain the damage Bernard Arnold said put put the all caps guy at the end and I said okay yeah he still hurt me I was like what's the amuse bouge at dinner every time he said something he yelled like he was in office he's like I want another butterscotch pudding the butterscotch pudding is delightful Shawn I'm four feet away from me Jay Cal you can take the caps lock Sean was so Ember Chef Sean crush the chef Sean crush it once again were you selling alarms when the restaurant like almost ran out of something alert alert alert restaurant is running low on coffee we're dangerously low on caviar on this one is [Music] [Music] all right everybody Welcome to the Pod where we uh you know try to inform you we try to make some jokes here I just want to make what is a little bit of an opening statement here it's not an apology and it's not a Victory lap in any way but there's been a lot of attention I think on the last episode of the Pod and perhaps some tweeting from two of the four besties this past weekend I saw and I you know I'll let you speak for yourself your sax and we're going to get into the timeline of what's occurred and then what are potential outcomes here in solutions to the banking issues that we've witnessed in what is a week since the bank run on Silicon Valley Bank in the shutdown on Friday but what I saw and again speaking only for myself here was absolutely terrifying up close and personally watching people pulling money out of Banks and watching people have to set up loans to hit their payroll and this was like one of those surreal moments in a in a movie where like a meteor is coming towards Earth and you see it in the telescope and nobody else sees it or only a small number of people in the observatory see it and I think part of the reason people listen to this podcast is because we are insiders and speaking again just for myself I'm always trying to be exceptionally candid and transparent with the audience additionally I make jokes uh so sometimes you might laugh during this podcast or you might laugh when you're reading my tweets and uh that's part of what I do now I also realize that we have an audience now that is larger than I think any of us expected for this podcast I certainly magnitude larger than I expected and frankly I don't know if this Pockets was going to make it past 50 or 100 episodes and my Twitter following count doubled since we started this podcast because you tried to ruin the putt I think it was because of the Caps locks but anyway putting all that aside what I would like to say as well is like we are living in a situation that is unprecedented I think the alarm Bell I sounded you know was because I saw a fire we'll get into the timeline here but I sounded that alarm Bell after Silicon Valley Bank was put into receivership and when I saw additional bank runs occurring I wouldn't change it I think these were the right the right thing to do was to inform folks now I did use all caps perhaps a little too much that was a little bit of a bit if people didn't understand that maybe I need to adjust my communication style now that this thing is so popular but I stand by my mode of operating in the world which is I always want to be candid with people I always want to tell the truth and yeah sometimes I make jokes about life and you know dealing with these stressful situations that's it it's not an apology it's more of an explainer and yeah maybe I need to adjust the caps lock or how I deliver stuff but I stand by the message of what I said and I think it's important for us to maybe look at the series of events and misinformation that has spread because there are people literally blaming Venture capitalists for the bank run that is now systematic and the the balance sheets of multiple banks around the world and I think sax would be great for you to maybe just comment on the week that was and the timeline of events yeah so as usual you're not apologizing no absolutely not apologizing but we'll recognize that this platform is bigger and that may be on the margins I could adjust my communication strategy but Chris there's a lot of people who don't know that I make jokes and maybe people don't understand what I'm joking and when I'm serious right and so right Jason what would you change was there anything you changed come on I think I might not have used a Mad Max image and GIF about the end of the world because people are too stupid to understand that's a joke and a fictional movie I see so you find yelling effective it depends well Jay Cal I agree that I don't think you have anything to apologize for in terms of the substance of what you're trying to get across I personally could have done without the all caps it was a bit oh yeah what you're basically saying is nobody should listen to you because you're not that important and I wholeheartedly agree with that I'm saying understand I might joke because of course category yeah all right let's go back let's go back and look at the Timeline because there are now serious accusations and I would call it really scapegoating uh and it wasn't just you it was me and Bill Ackman in fact the Wall Street Journal editorial board which I respect a lot mischaracterized what me and Ackman were trying to do in terms of drawing attention to a regional banking crisis in progress a run on the banks they called it spreading panic I don't know how you tweet or publicly discuss a run on the bank that's currently happening needs to be addressed with an immediate Federal intervention I don't know how you can discuss it without then having someone else mischaracterize it as trying to spread a panic but Jake how the The Wall Street Journal editorable didn't mention you so you're off there okay they didn't know who you are but thank you but no but seriously so I went back and looked at the timeline of all of this and so first of all we have to understand that this banking crisis now has uh swept in five banks Five bank failures first or a silver gate but everyone dismissed that because it was some weird crypto bank then it was svb but everyone sort of dismissed it because they said it was based on panicky VCS rather than a systemic problem in the banking system then it was Signature Bank which got seized on Sunday which I think utterly refuted the idea that this was just a Silicon Valley problem then you had the feds step in and backstop First Republic which would have been the next dominant of fall if it wasn't backstopped and then five you had Credit Suisse basically again avoid an outright failure because they got backstopped by the Swiss government so we now have five banks in roughly a week and these are not small Banks they're this Credit Suisse is a is a G7 but globally systemically important bank and the other ones are top 20 top 30 type Banks we're talking about hundreds of billions of dollars in deposits so clearly there's a larger phenomenon going on here and frankly it's being caused not by like anything VCS did because VCS are just depositors we're just one class of depositors and deposits are not to blame for what's going on here what's going on is that these banks have huge unrealized losses on their balance sheet and the losses have come from the sun's spike in interest rates that's what's going on the sun spike in interest rates is because we've had the most rapid fed tightening cycle in our lifetimes in the last year the FED funds race gone from roughly zero to almost five percent that has broken a lot of things and the banks which have broken first are the ones that had pre-existing problems and they had horrible risk management but that's who gets broken first in a stress test right is the most poorly run Banks the ones with pre-existing issues but just because they went first doesn't mean that others don't have similar kinds of issues now I'm not saying this in any way to be panicky maybe those banks will be fine but there are larger issues in the banking system that are worth talking about in to the point about whether VCS could have spread this J Cal you're absolutely right about the timeline I mean I went back and checked I personally never tweeted anything about sgb until Friday afternoon when svb was already in receivership and the run on the bank had already started with signature and First Republic and we could see it with our own eyes and then this pod didn't drop the one where we talked about this problem didn't drop until Saturday morning when the banks were already closed and by Sunday night the FED had acted and basically implemented our recommendations which was to basically intervene so I don't know how you can blame this search for scapegoats I think is getting out of control and it's just not factually accurate and you know that it's convenient to make Tech which is hated right now chamoth and Friedberg you know the scapegoat Venture capitals obviously the the part of tech that people might hate the most or the easiest Target but let's talk about the FED raised those rates because of inflation and inflation happened because of out of control spending due to covid and then the the second Administration so you had a republican Administration that spent a lot of money and then a democratic Administration shamata spent a lot of money so maybe we could even go backwards from fed fund rate going you know what looks like parabolic when you look at the chart maybe you could speak to what got us to the FED making those decisions chamoth or Friedberg maybe I can just do a little cleanup on what Sac said I think the issues that Credit Suisse are different than the issues at First Republic and the issues that first Republic are different than those other three Banks the other three Banks David that you mentioned signature Silicon Valley Bank and silvergate all had very traditional liquidity crises right we talked about this last week which is duration mismatching where you have depositors who want their money today but you have assets that mature in 10 years and as a result you have huge unrealized losses if you all of a sudden cash them out today versus waiting 10 years I think what's happening at First Republic is really just about making sure that that loan book and the depositors can get parked into a combination set of banks that can take care of the balance sheet so that there are no more liquidity issues at Credit Suisse they have an enormous amount of liquidity what that was was I think a lot of speculation around whether they would default on their bonds or whether they would theoretically need more liquidity but the balance sheet itself was not only liquid but also very solvent so I think that was just more of a panicky reaction to comments from a 9.9 shareholder who just said that they can't put in any more Equity but even then I went back this is the chairman of the Saudi National Bank he was asked on Bloomberg would you give credit Suites more money and he had a very reasonable answer but it was snapshotted in a very awkward way the first sentence was under no circumstances would he do that okay now if you stop there you could be panicked but the rest of it made a lot of sense which is he said look in Saudi Arabia if we go above 10 percent we have to go through regulatory approvals domestically and there are regulatory approvals abroad that's a big hill to climb and all of a sudden it no longer becomes a financial investment it becomes a somewhat political investment and so we're very happy at 9.9 that was the totality of a statement but if you just cherry pick the first 45 seconds and ran with it which people on the internet did this is sort of what caused that second level wave Panic at a g-sub and then the Swiss National Bank stepped in and I think that that Panic has largely gone okay so what is the real issue the issue again is I think we have had a bit of supervisory failure here right because we all know this in any industry if you let capitalism go totally unchecked shareholders will demand immediate profits today it happens in every industry except in ones where you can basically gamble on future profits and that's what tech does but every other shareholder in every other asset class demands money today and that's the same for banks the problem is the banks are a highly regulated business they are supposed to be supervised by The Regulators and this is a very clear example where why is there not a real-time spreadsheet I mean this is not complicated stuff where assets and liabilities and duration mismatching can be known on a real-time basis where the San Francisco fed Mary Daley should have a report that's escalated to her when svb got over their ski tips which they did in Q4 of 2022 so I think the real question that has to be examined is where were these folks for the last four months when they could have done something not just about this but rules in general for all banks that are not the gcps and I think that's a very important question that politicians need to get to the root of Friedberg we discussed this article from Seeking Alpha which came out on let me get the exact date here December 19th title of this Seeking Alpha story is svb financial colon blow up risk and the summary in three bullet points says bullet point one potential losses in loan portfolios could severely impair book Equity number two unrealized losses in hold to maturity portfolio already equal to book Equity number three funding environment for startups will pressure deposit based adding even more pressure to the balance sheet in other words startups spending money to cover their burn rate Free Bird and obviously we had the Dodd-Frank rules lessened or loosened under the previous administration and that specifically was driven by Silicon Valley Bank they had a big part in that so looking back on this and and people do want to place blame let's talk about the effects that occurred because this was hiding in plain sight literally in December in an article that looks like it was written by somebody who went into a time machine and said how do I warn people in December about this maybe you could talk about the fed's interest rates the spending and what led up to this look issue with the banks you guys remember when we started this podcast three years ago we were like they're gonna shut down the economy there's gonna be crazy second and third order effects of doing that no one knows what they're gonna be here they are and I think that's like the root of what is a Rippling effect you can't shut down the global economy and stop trade and stop people and have the government step in to write a giant check and not expect that you're going to have to cash that check at some point that's effectively what I think we've been kicking down the the road here the way we initially tried to resolve the problem was to drop rates to zero and then spend our way you know back to a growing supported economy and then overshot ended up with you know too much stimulation too much stimulus two lower rates for too long responded too quickly whiplashed back at the end of the day there was a giant gaping hole blown into the global economy when we shut down the world from covet blame it's just what happened and when that happened there was a massive cost that had to be born at some point and it's gonna get born at some point and the Rippling in a pond you don't know where the Ripple is going to hit what part of the pond what leaves it's gonna hit that's what's going on still and it's such a dynamical system it's so hard to say with linear certainty this is what should be done and what could have been done and what they should have done at the time no one had that predictive capacity back then they did what they needed to do people thought that they should have drop rates they said we should have written all these big stimulus checks some people said you shouldn't some people said you did certainly some people are being proven right and some people are being proven wrong but at the end of the day the economic loss that was realized at that period of time we're still trying to get out of it and we're still recovering from it I think that's a big part of what's being eaten up right now and you're going to see it in the Wipeout of certain Equity you're going to see it in the Wipeout of these banks of the assets that they hold and these portfolios and the effects of that are obviously you know still being felt Saks do you agree that mistakes that this uh there isn't somebody to blame because it is clear that the FED said inflation is transitory that was wrong and then they went faster than in history to raise the rates those seem like two glaring mistakes and then the Todd the Dodd-Frank loosening under Trump and with Silicon Valley Bank pushing them that seemed like a really big mistake by the way I wasn't saying the feds not to blame for not raising rates fast enough okay that was because you guys remember I was the first person to talk about sure what Stan drucken Miller had said that they're not raising rates fast enough that we've got massive inflation we should have been raising rates I was the first person on this show to be you know barking that so don't don't forget like I was there okay like pretty early what I was pointing out was like we shut down the economy during covet that is the main yeah so that's the main cause that is the Cannonball that got blown through the ship got it and everything else is plumbing and patching and work to try and keep the ship afloat and we're still dealing with that and at the same time as you guys know we've we've been loading the ship up with debt the global ship the global economy with debt 360 Global debt to Global GDP ratio right now and as that ship has gotten heavier and heavier to have a giant hole blown in the side while you're trying to do all this Patchwork with all this debt Weighing on it it's a critical challenge we're feeling acutely here they're feeling it in Europe now and we're certainly going to see the global ramifications as we try and fix this economic catastrophe that was caused by covid at the same time that we've been spending our way into a happier future that it turns out we have to pay the bills for at some point sex your response the question of who you blame for this banking crisis has really become a political Rorschach test and I've seen that there are six different parties that people want to blame in this situation and there's some Merit to all of them but the degrees are very different number one okay number one the bank management of all these different banks clearly very poor risk management didn't do a good job they are to to blame however and tremath is right about these Banks they differ in the details but the point is that they're all operating under conditions of extreme stress where did that come from number two the fed's rapid rate tightening cycle clearly I think that the the combination of poor risk management with the spike in interest rates that basically has precipitated this larger problem number three is I think the Biden administration's spending which In fairness started with covid before Biden but Biden really intensified it and then I think it really compounded the problem in the summer of 2021 by claiming that inflation was Transit story when it wasn't that allowed them to keep spending and keep printing money and kept QE going for another six months that created the bubble of 2021 everything got super frothy and then that made the rate cycle even more vicious because you started six months later they could have started six months earlier and it could have been more gradual and I think that really was a disaster for the economy okay number four the d-reg in 2018 I think Elizabeth Warren and rokana have made what I would call a compelling case that the d-reg in 2018 have contributed to this problem I think in hindsight creating a two-tier system of banks where one tier are the systemically important Banks who are completely guaranteed and backstop by the federal government and then a sort of lower tier a second tier of regional Banks was a poison chalice for the regional banking system because in the short term it meant they were more lightly regulated which may be appropriate for you know smaller banks that aren't these Mega Banks however it has also now I think created a situation where people are less confident about them and so the money flows are going from the regional Banks to the systemically important Banks the sibs so like I said it might be a double-edged sword and I think we're gonna have to look at those regulations and figure out what's the right regulatory regime to create confidence in the regional banking system we want a thriving Regional banking system and so the question is what's the right regulations that get us there and then the final two that we can talk about later are I'm hearing wokeness getting blamed which listen I think that wokeness was a distraction there was a lot of crazy programs happening at these Banks but listen if wokeness was the key factor the whole Fortune 500 would be out of business because because they all do this stuff they all do this stuff so I think I think we're going back to the well a little too often on that critique and I don't want to I don't want to burn that critique out because I I think that wokeness is bad but it's not the key reason why this stuff happened and then the last group that gets super wokeness we could also maybe frame it as ESG more broadly as the distraction because woke this is charged ESG is real yeah what I would say for sure is that if these banks have spent as much time on risk management as they did on ESG or on woke then this crisis wouldn't happen so definitely a distraction but not not the thing that like specifically caused it and then just the final thing is VCS and I just can't fathom at this point given the multiple bank failures given that we see the larger problem of unrealized losses on bank balance sheets that somehow any class of depositors would be blamed for this that just makes no sense to meth I think the VC the critique is specific to Silicon Valley Bank because I think and this article was in the Wall Street Journal but what it shows is a really complicated intertwined relationship between VCS and Silicon Valley Bank where you know VCS were given very cheap interest rate loans they were given GP call lines of credit they were given LP lines of credit and then those same VCS would be directing their companies to put their deposits inside of SPV who would then take those deposits and buy perhaps and buy risk and while the reality is all of this stuff will come to light because I think it will get exposed as we go through Congressional hearings on all of this but I think the I think pointing the finger at VCS in this specific case is somewhat warranted because there was a little bit of people working in lockstep together and there was a a lack of functional responsibility around how to be a true fiduciary so if you come to a board and your founder is 22 years old and you give that person 15 or 20 million dollars I think it makes a fair amount of sense that you are supposed to be the more sophisticated Financial person in that room and if you have incentives that aren't properly disclosed to that CEO and now a set of decisions are made I think that that there should be some accountability for that or at least some exploration of why that happened I just want to make sure the audience understands this because it is a bit in the weeds and it's a bit inside baseball what you're saying shamoth is if I can summarize it there are people who are the adults in the room Venture capitalists they have deposits at Silicon Valley Bank they also might have loans that are fantastic with Silicon Valley Bank I have a mortgage for this office from Silicon Valley Bank and I talked about how on the last episode how great it is they come they open wine with you it's white glove service that you wouldn't get at another bank and then they might have loans against What's called the GP carry or the GP share or they might have mortgages and so there's a conflict there if you're a venture capitalist and you're directing a 22 year old CEO to Silicon Valley Bank maybe you're doing that is explored no the biggest conflict of interest and in some cases Silicon Valley Bank is a limited partner in all of these funds my point is interesting okay hold on we have to explain that so imagine a situation you go and start a fund Silicon Valley Bank constituent says let me be a limited partner and invest with you let me give you some amount of money I don't know where that money comes from from Silicon yeah well let's be realistic more like 25 50 million 100 million okay that's a lot of okay so a million kind of is whitewashing this problem so you give them a reasonable amount of money they're like wow I'm I have tremendous loyalty for you thank you well do you need anything else do you need personal loans do you need lines of credit for your business sure why not I take those two and invariably on the back end now your loyalty obviously builds up again nothing none of this is wrong but this is what's happening and then you tell your companies to keep your deposits there maybe the cash management program is not as strong as it would have been if you were more circumspect and you didn't have those incentives to direct people to one institution only in any other part of the market so in the public markets as an example there is such a bar for disclosure okay and I cannot stress this to you enough related party transactions all of this stuff we have to tell everything not just for us but even if our like sister or brother or mother may have a transaction with an entity that we're doing a deal with and it just isn't the case in private markets and so it's not to say that anything untoward happened but when people point the finger at VCS I think they are pointing to this whole set of issues and asking the question shouldn't there have been more disclosure and transparency around it and now that this has come to pass shouldn't we explore it and I think that's what the Wall Street Journal did they started pulling on this sweater thread and my guess is that you're going to find a whole ball of yarn at the end of it sax what do you think of this I think tremath makes a fair point that if VCS have svb as an investor and then they're directing startups to use svb that is a conflict that should be disclosed by the way we never did either one of those things we never had sdb as a limited partner and we also never direct our starts to the bank at svb I don't know why we'd ever do that moreover I always try to talk Founders out of taking Venture debt whether from svb or elsewhere so listen can we be clear about that I've never directed anybody to a specific bank I know able to get two or three Banks and have redundancy yeah totally and look Founders have multiple VCS typically on their board so the idea that like anyone VC directs them which bank to use is this not that's not realistically what happens at these startups but look I think chamoth is right that when there is a bank failure or any kind of failure this big then all the practices are going to be under a microscope and there's going to be some scrutiny there we go and maybe there should be but my larger point is we're now operating in an environment in which clearly there's a larger set of stresses on the banking system we've already had now Five bank failures or near failures moreover do any of us believe that this is over or do we believe there are more shoes to drop if we believe that there are more shoes to drop we may not know exactly what they are but but I think all of us probably believe that we're not the end of this but but but just a thought if we believe there will be more shoes to drop then clearly the issues cannot just be limited to Silicon Valley they have to be a larger set of issues I think that it's important to understand the facility that the FED created so what the FED did this weekend is essentially create a buyer of Last Resort again now how do they do this so all of these Banks basically have assets that they bought for a dollar and are now worth 95 cents and that's what's creating this whole issue or 80 cents or 85 cents you you pick the number but they're not worth the dollar that they bought what the FED basically said is okay give me that asset give me that Bond I will value it at a dollar and I will give you a dollar as a loan and you will pay me interest and the interest rate I think is what's called ois and they added 10 basis points on top so I think it's about 4.9 percent so what it allows all of these Banks and if you take all of the banks that are not the top four in America so the top four are JPMorgan B of A City and well so just ignore those for one second the other end Banks if you look at all of the assets that are underwater because of all the rate hikes that sax talked about and you add up all those losses that is about two trillion dollars and the FED didn't denounce that there was a beginning and an end to this program other than saying these would be one-year loans and so I think the exposure for the American banking system at a minimum is going to be this two trillion dollars because now the incentive if you're a banker right now running one of these banks that has not gone under is to immediately go to the Fed put all of those assets to them get a loan and now take that and buy different assets different bonds different U.S treasuries that are yielding much more than what your old treasuries were yielding and I think that's the Arbitrage that we've unfortunately created and the other question now though however is what does that mean for the top four Banks right because if it's two trillion for everybody else but the top four what's the gap for the top four that looks like it's somewhere between a trillion and 2 trillion so that's another amount of money we're going to have to cover the FED will have to backstop and then as Friedberg said these checks always come due what do we do in a year because in a year the problem is the only way to make the banks in a position to repay this much money in one year is to cut interest rates so massively that these assets massively inflate and now all of a sudden you're in a position to cover this so this is Delta is because it's about they're down 15 10 and Book value these longer terms of security again it depends on what they bought we don't really know enough details so I don't want to guess but if you own these 10-year treasuries you could be off 10 or 15 if you own mortgage-backed Securities it could be off a little bit more if you own short-term Securities they're off a little bit less but these are with the government you get a loan collateralized by these assets so you're still holding them right yes and they mature so if the FED takes an emergency posture and says okay guys we want to avert a crisis in a year from now and we're going to cut rates these assets that these Banks own will be worth more which will allow them to repay the loan as far as I can tell all we've done is we've kicked the can down the road for a year but I do think it's important for people to realize this doesn't solve the problem it just means that mark your calendar for a year from now we have a problem on March 15 2024 because all perfect folks that took money what do we do yeah and so a year to work it out Freeburg would seem like a good idea because the FED is fighting inflation they seem to have gotten some portion of it under control it's not out of control right inflation and maybe if they can slowly you know either start Ray Cuts or pause so let's shift the discussion to hey what are the changes we need to make to the system and how do we think this plays out over the next year Freeburg chamoth had one suggestion which was all of these Banks should have a disclosure statement Mark to Market every day week month quarter whatever it is just like circles usdc their stablecoin has a page with their disclosures of all their Holdings so that seems to be a very productive one we should have them Mark to market the Dodd-Frank stuff as Sac said you know Elizabeth Warren probably correct we need to reverse that so those are two very tangible suggestions real-time dashboard we need to have a real-time dashboard at every single fed that allows them for every bank that they supervise to know in real time I'm not sure that should be true but they are their supervisors they should see it they should choose to ignore it but they should not not have it Freeburg what are your suggestions going forward as to how we can learn from this situation forget about the Cannonball as you vividly expressed there I think very well a great analogy but just going forward how do we keep the ship from taking on water if we do have a cannibal hit it again now we got a hard that's a hard equation to solve it that's why I'm asking you that's why I'm asking you suggestions a lot of Demands for money you guys see I I think there's a lot of things that are seem unrelated that are all pretty related right now there's a massive protest underway by labor in France there's a massive protest underway in the Netherlands there's strikes on the Underground in London when we talk about global debt and U.S debt we often I don't think account for all the debt which also includes promissory obligations made to a Workforce Global Workforce that's been working for decades individuals that have spent their whole lives committed to some company or to some government working with the expectation that they're going to retire and have some benefits paid to them and there's this massive underfunding of those benefits and those pools of capital we very quickly talk about unfunded pension liabilities but when you actually kind of account for the number of people and the amount of capital that those people are expecting that the workforce the global Workforce is expecting to be paid to them in retirement both public and private it's a massive amount of money that's not funded today and you start to see the cracks in the system when that population says my pension payments are not keeping up with interest with inflation or when there's a threat that pension payments or retirement benefits are going to kick in at a later age well you're not going to get them fast enough you're not going to get as many as you thought you were going to get we have that problem in the United States in the form of Social Security and these underfunded pension liabilities that is the critical macro tension in this equation that I think drives the real problem that's going to come to a head at some point we blew a hole in the in the in the boat but we're also forgetting that there's like a massive amount of weight that's going to drop on the boat and I think that it's a really hard equation to solve we can talk about keeping Bank solvent and all this sort of stuff at the end of the day the Central Bank it appears in the United States and probably globally it's going to be one big bank right they're basically going to take on the whole balance sheet themselves and and at the same time you've got a lot of folks saying I want to get paid more I have obligations due to me and guess what you know Jason here important statements historically about the importance of democracies ultimately you know the members of that democracy are going to say this this is a benefit that the majority are owed and that's going to pull things out I think the only stop Gap I'll just say one thing the only stop Gap in the next decade is going to be significantly higher tax rates in the United States I I don't see how you're going to fulfill the tension Gap that's underway right now with respect to where productivity is going and where Capital markets are going and where the demands are on the system from people requiring additional Capital to come out to them without taxing assets away from the asset holders so this would be corporations and high net worth people and I think that's why you see this Biden proposal we may not like it but at the end of the day it's going to be the only way to create a stop Gap that's that's that's going to avoid massive inflation in the near term reducing Supply proposal hold up hold on one second let me just say the only other way the only I'll just say one more thing Jacob you can go the only other way besides you know a massive long-term tax regime to fill the hole would be some extraordinary productivity gain and this is where we can all have a hope and a dream and an investment and an effort around technology AI automation people think that their energy job energy but if you can get energy down below uh three cents a kilowatt hour and you can scale its production by tenfold if you can automate a lot of Labor if you can get AI to do a lot of stuff that we do today productivity will go through the roof the economy will grow fast enough to get out of the debt bubble and meet all of these liability obligations so there are three ways yeah I think I think to me to me that's the long term the medium term is going to be this tax stop Gap it's very high tax top Gap and then the short term is going to be all the shenanigans that we're talking about okay I'll go to you in a second sax so just to recap there it's actually a third way too there are three ways productivity as you very astutely point out and we we just highlighted some of the ways productivity could help whether it's energy AI Etc second is of course increasing taxation on the people who are at the top of the pile uh would be the likely solution the third is also austerity cutting spending in some way but let me also propose one thing here as we look forward to what do people want out of a bank and how should startups or just individuals deal with bank runs and their trust in Banks to tremont's point I've been I was thinking about this over the weekend and then this discussion that we would have based on a lot of things you said Saks which was people just deposited their money and they don't have the ability to assess if a bank is solvent because the FDIC can't do it and it's their full-time job it's their mandate to make sure these Banks were solvent so how is a consumer going to be able to do that or even a startup founder or even a sophisticated investor like Ackman or any of us if we're in fact sophisticated so let me pause for a second here and posit something we don't want a bank we want a bank vault consumers do not want their deposits to be used for shenanigans just like many people would rather pay for a social network than have their privacy data sold so I think we should bifurcate Banks into bank vaults and Banks Banks can do what they want with your deposits you get free checking but what I wanted a bank what I want my startups to use what I want my Venture firm to use is I want to pay the bank for services whether it's 10 basis points 25 basis points 500 a month I would rather see my startups pay a thousand dollars a month in banking fees two thousand dollars a month on banking fees for two million dollars whatever it is and pay for each check pay for wires pay for White Glove service whatever they choose but not allow the banks to take that money and Loan it out or do things with it I just want a vault and I think a vault service is what the majority of consumers want and given what we're seeing with two insane Bank Run bailouts in our lifetimes as adults for those of us who are in Gen X 2008 and now we would rather pay for services and I leave it to you sax is this a potential solution because I don't hear anybody saying give me a bank vault and why does that service not exist in the world yeah look what people really want are they want a service provider who gives them the ability to make payments which if you're a small business is payroll and payables things like that they want a money market fund to basically earn interest and um and they want all that to be safe I mean it's it's very simple the idea that when you go open a checking account at a bank that you are making an unsecured loan to that bank that is not something that any consumer or small business understands that whole model I think is completely Obsolete and outdated and what I heard so many people say and I think this is not sincere I think it's just because they hate Tech is that depositors should take it on the chin because somehow they made a stupid decision when they opened a checking account it's like are you kidding me listen what do you want the process to be you want consumers and small businesses when they open a bank account have to review the financial statements of that bank try to figure out all their disclosures where their assets are whether they have toxic assets on the books and if they don't do a good enough job doing that if they're not smart enough to do that then you want them to be disciplined this is the word that I kept her being used is we need to distributive the depositors the depositors are not in a position to evaluate the balance sheet of these Banks that's what the feds are supposed to do that's what the Regulators are supposed to do that's what movies is supposed to do and you're telling me that a bank that had an a rating from Moody's the week before and had an FDIC seal of approval that somehow they got it wrong and the FEDS got it wrong but the interested I mean come on that's ridiculous in related news chamoth I would like an airbag in my cars to protect my family but I don't want to evaluate the airbag technology and unpack it and make sure that it's got the right right let me finish the point it's about consumer protection here and I don't care who the depositor is if the banking system is going down because the feds haven't done their job I mean pal two days before the bank failures was testifying that he didn't see stress in the banking system so either he was lying or asleep the feds had given the seal of approval to sgb and all these other Banks they had all passed the regulatory exams and so to now put it on the deposit when the FED screws up and The Regulators screw up and Washington screws up by printing all this money and creating this inflation that we've had again out of all the six parties that you could blame I just think it's the the least culpable chamoth should there be a service that provides no interest but is just a custodian of money that is absolutely protected where is the bank vault product in the world does it exist because I can't seem to find it some people seem to say I think Freeburg you alluded to this maybe in the group chat that if you have a brokerage account that's kind of similar to what I'm saying but it doesn't have it I don't want any interest I don't need any interest for putting this money in the bank for a startup they're not in the business of making one to five percent and optimizing for that I have Founders who are now sending me five page memos if yeah if the bank can't use your money they're going to charge you so remember I want to be charged that's the service I want but but I think this is an important point a bank as a service provider they spend a lot of money Building Technology having people that work there providing service and infrastructure so for the services that they're offering if you're not going to let them use your money to make investments with your money and they can participate on that gain they have to charge you they charge you and I think that's really worth it provider under the current laws you understand how it works now is that what we're being told is that when you went to the bank thinking you were just getting a service provider and frankly largely a commodity service provider you're getting yeah you're getting a manager yes and you're being told that you actually made a risky investment decision think about that when you opened a checking account you weren't just trying to you know again use a vendor you were actually making a risky investment decision that's what they're trying to say and you deserve to lose your money if you chose poorly even though nobody else could figure it out none of the experts could figure it out you should talk about the the challenges of your system to someone who lives in Argentina it's far worse in other parts of the world and we've come a long way in the last hundred years we talked about 500 600 bank failures on average per year in the 1920s so I'm not saying that hey that's not the case but there's always been to some degree risk when people are giving their Capital over to someone else and we've certainly made huge strides in progress but I think Jake out to your point you know there is a point of privilege now that people are saying I want to have a position where I know that my money's not going to get used not going to get moved gonna be completely safe why would you pay for that what's the price free Burke what would you pay for that because right now we're basically giving every crypto entrepreneur and sell it you know basically The High Ground because they could make this product I would pay 10 basis points literally 10 000 a year per million is that right yeah remember when you thought Jeff Bezos was going to be president I still think it's a distinct possibility anyway what would you pay for this product or like Bloomberg or Bezos I don't want to speculate on new products it's kind of a dumb tangent I think the thing that you're bringing up though is Dom tangent okay why doesn't a product like this exist and I think that it was very well explained it's that every for-profit business is in the business of making money and there are physical costs that you have to bear in the case of a bank there's physical infrastructure literally bricks and mortar that go into making the branches there are lots of people there is lots of software there's lots of complex back office and middle office things that banks have to do in order to accept money that has a cost so I don't see how it will be very easy for somebody to create a bank that just stores your money for you without you being charged quite a lot of money unfortunately I think that there has to be a different way to solve this problem and I think that what we did after the great financial crisis was The Regulators wrote down all kinds of new rules but the crazy thing in 2008 where those rules were written on paper and now we're in 2023 and these rules can be written in software and so I think what it requires is some amount of tactical real-time intelligence that Regulators need to have over those that they regulate and I don't know why we're so afraid of demanding that the next time some of these complicated real-time laws are written in law that they also need to get written in code and I think that that's a practical solution it should be the case that every bank that's supervised by the Fed has a dashboard that has all of the key levers that allows what you said Jason to happen which is a real-time Mark to Market should those or should those be just should or should they not be disclosed to shareholders that's a different discussion but The Regulators should have a hundred percent transparency into how these organizations run because as Sac said they are an enormously critical institution that at best case after this Fiasco what we've realized is very poorly misunderstood by consumers and that at the worst case is being mismarketed to us yeah and I think that that shouldn't be allowed we're also missing the other side of the balance sheet we haven't talked about it at all but Banks play a really critical and important role as lenders thanks act as the channel for Lending Capital to small businesses for Lending Capital to individuals to buy homes it's the primary place where capital is provided to help fuel economic growth and prosperity uh particularly in the United States where we have such a liquid fluid and available mortgage Market to support home buying in America and the absence of you know Jason what you're talking about having the ability to use deposits to make loans and have what banks have fundamentally been in this country for over 100 years which is taking short-term deposits to make long-term loans and making sure that there's some degree of balance and availability of liquidity to support transactions and ultimately mortgage Securities came out of the need to generate more liquidity by Banks to support depositors and obviously there was all these inflationary things that happened in that market and Bubbles that happened but it's an important role that Banks play and the lending aspect of banks if it gets stifled too much because we swing too far the other way it can actually have a really adverse effect on economic growth and prosperity and the ability for people to to afford homes in this country so that's the other side of the coin on where things can go bad so this is where I find like the the current banking model to be sort of like weird and maybe Obsolete and definitely not what consumers expect so for example if you go to a bank and you put your money in a deposit account and then they loan it out to make mortgages do you realize that you're an investor in those mortgages as the as the depositor I don't think you do I mean because what what they what they do is they take those mortgage sacks they package them up they sell them and they get an origination fee and they get the money back Wells Fargo do not exactly so B of A Wells Fargo for example they they do a lot of that but if you look at First Republic they have a 90 billion dollar loan portfolio on their balance sheet that they've not packaged up and sold so the packaging and selling of mortgages generated the liquidity that the banks needed but there's a cost to that so a lot of banks will try and balance out their loan portfolio where they'll package some of it up and sell it but when they do that they take a loss or they pay maybe they should be required to do that because because yeah because I mean look to the point about Mark to Market assets it's very hard to mark an asset to Market unless it's liquid and publicly traded let me give you an economic point I think that there's about seven trillion dollars in deposits in Banks so if what you guys are saying happened you're basically sucking seven trillion dollars out out of the system that's being used to fuel purchasing in the form of loans and you're taking that step or call it a 10 discount to that so about call it six trillion dollars and you're saying we got to go find a market for six trillion dollars of loans and then we're going to have six trillion dollars of cash sitting in a bank account doing nothing and that that challenge is the way that cash will go into money market funds so in other words like you'd package up all those mortgage bonds you create a mortgage Bond security and then if consumers if depositors want that product they'll just buy it on cash that's being used to make investments elsewhere so ultimately if you want to earn interest on your cash it has to be loaned out somewhere to someone I understand but what I'm saying is look I'm just brainstorming here I don't you know I don't have to say it I don't have spitballing yes exactly I'm not saying this is what should be done I'm just kind of asking whether it might make more sense what if on the depositor side all of the things you put your money in are money market funds and then when the bank goes out and does its lending business it does ultimately at some point have to package those up and they get turned into Securities you know sexy but money market funds you know where that cash goes so when you when you invest in a money market fund you're you're giving like money to someone who's using it to make a loan like it is also I understand but then the depository would be marked to Market as sex is never be at risk of bank failure I just want to give you're Shifting the risk equation to the fund manager the money market instead of the advantage of the bank and at the end of the day just the owner of that security that money market fund that would take the hit okay just as we wrap here because I want to talk on some other issues as well there's two things that are super tangible that Founders can do right now or people who want to mitigate against these kind of issues there's something called ICS insured cash sweeps these are accounts that automatically you know will put your money into multiple FDI insured institutions 250k at a time we talked about this previously there's a bunch of folks doing that in fintech I won't give any of them free plugs here but you you can just go look and search for ICS there is a also maybe some thought here that the FDIC 250k limit maybe that's outdated certainly for businesses it is so maybe that should double or triple and obviously that cost would be spread out and then finally you can go to treasury direct.gov right now and buy short-term government debt and I literally have startups doing this who have major treasuries they're going there and buying short duration stuff themselves holding it themselves so they don't have to worry this is part this is provided by the government is my understanding and uh people are buying direct from the government I personally am not a fan of startups buying t-bills because of the duration mismatch problem they always underestimate when they're going to need their cash and so I don't like tying up accounts this is if you had a giant treasury yeah always get it wrong I see this all the time whenever they try to let me just say when starts trying to create laddered Bond portfolios they end up needing the money sooner than they thought what I'd much rather see startup do is buy a hundred percent UST Bill backed money market fund run by the absolute biggest to the big financial institutions because you can get in and out of it at any time you want and without paying a fee and that's so much better than trying to manage your own Bond portfolio let a professional fund manager do it well there are people who do provide these kind of bond ladders I'm just telling you what the best practice advice through like a brokerage account sure or multiple ones right and but now this is I think speaks to chamoth the fact that we have startup Founders and people having to measure manage a treasury this granularly is this a failure or is this what should be happening should we have to have treasuries in the 10 million or 20 million range be this granularly managed or should this just be FDI FDIC rates you know should be just a 10x well in the absence of regular regulatory changes that protect this money you need to have a financially sophisticated actor on the board and again I go back to that should be your venture capitalist and that person should not have conflicts of interest with the banks that they direct you to I mean I don't think that that's a very controversial statement yeah it's just not happening and I I am just flabbergasted that people are not even doing the basic blocking and tackling here of having three or four accounts I've always had three or four banking relationships always had it uh split up should we move on to some of the other pressing issues there was a really interesting Founders fun story about them breaking their latest Fund in half and then there is stripe closing their funding which one would you gentlemen like to go to or a different story on the docket I think there are there are four things that are very interrelated okay in startup land so Founders fund took their just to make the math simple because I'm going to get the numbers not exactly right but like a two billion dollar fund that they're gonna break into two one billion dollar funds so I think that's one 1.8 billion dollar fund they're going to break it into two 900 million dollar funds it's their eighth fund it's being cut in half and it'll become eight and nine I think what that speaks to is valuations and the marks that we think we have for existing companies and the future value that smart investors like this see all roads lead to it says we're in for a slog and so trying to put a two billion dollar fund to work doesn't seem to make a lot of economic sense to some of the smartest people in the room so that's that's that the second thing it's according to axios Peter Thiel LED this charge and he is uh the contrarians contrarian he was the one according to access that led that cut of the fund size with Summit uh Founders fund according to the reports about closing him I'll say the more important thing which in Peter and I are in the same we're the largest LPS in our funds and so you know as the largest LPS in our funds I think this is a no-brainer decision number two stripe basically takes a 50 haircut which is the single best run most highly valued company in Silicon Valley again that's going to eviscerate private company yeah a lot of tbpi and a lot of people's portfolios a lot of theoretical money that LPS were going to get I think the third thing is there's a person that went and filed a foia request that UC Berkeley to get sequoia's returns and it turns out that the best investor in the game quote unquote since 2018 has not really done that well and I think in the University of California invested over 800 million dollars in Sequoia since 2018 and I think has returned what some 40 million bucks on that number and then the fourth which just came out today is that tiger wrote down the value of their private book by 33 percent for 2022 and so you know I think tigers and um basically has gone from 100 billion to 50 billion in a year there's one more note to add to that YC basically let go of their growth team this week y combinator uh for people didn't know what was called the continuity fund they were doing late stage investing and that got cut gosh which is a signal and the 17 employees are gone now and Gary 10 I think is making the right decision you know they have to focus on what they're great at which is the earliest stage of the company and they had conflict with this one look yeah this is the most interesting thing for me in the following way I think the Y combinator unicorn hit rate is six percent right so every 100 companies that come out of YC which costs only about 10 million dollars to seed right six of them become worth a billion dollars or more and obviously some become worth much much more and so if you see how difficult it is even for a growth fund that's attached to that funnel to be successful and make money because obviously if this thing was ton in cash you would not have cut it I don't think anybody would do that so I think it was a very challenging strategy at a challenging moment in time and so I applaud these guys for having the discipline to do it but if you take them all in totality it is a complicated place in venture capital and startup land holy mackerel like it's a reset a it's tough to make money b a lot of folks may not know exactly what they're doing see a bunch of valuations are totally wrong and D we're going to have to start doing the cleanup work now of resetting all of it which just takes years as you guys remember it took us it took us five years to fix this yeah it's a hard reset sax what do you when you look at these in totality what would you say well I agree with what chamoth just said I mean it is gonna be a hard period with a lot of resets a lot of restructuring a lot of cap tables there's a lot of mess to clean up all of that being said I think I'd rather be an investor today than an investor two years ago or one year ago because at least the valuations have corrected to some degree and then also we have this really interesting AI wave happening now and there's a lot of opportunities to invest in that new you know cycle so at least there's like an interesting product cycle it's getting me excited to go to work and see these new demos from all these different companies whereas you know you go back a year or two and just the product Innovation just didn't seem as world changing as it does now so I think that as bad as things are my guess is that the new vintages of VC are going to be better than you know call it 2021 for sure that's not going to be a high bar it's not a high bar but still wow trash crash this is the contradiction is that it felt better to be a VC in 2021 but in hindsight we know that the Vintage is gonna be not good whereas David how many hold on but today it feels not great to be a VC but I think the vintages will be a lot better but anybody would tell you that at some point you're going to have to divorce yourself from emotion to be a reasonably good investor over long periods of time how many data points do we need to realize that too many people were put into this game that may not have known what they were doing and we're going to have to go and work through all of those excesses and I think it's just going to take a lot of time U.S limited partners are in a really difficult spot European investors I think are probably in a pretty difficult spot there are a couple of bright bright points around the world the folks that are still optimistic and doing well I think Middle East is one southeast Asia is another but other than those it's just a whole group of folks that just have to get completely re-underwritten from first principles even when you have an incredible platform like Sequoia five years of no returns on 800 billion dollars for somebody like UC Berkeley what it really means without commenting on sequoia's performance is that UC Berkeley is effectively out of business in being a limited partner for the foreseeable future wow right and I think that that has that has implications so even if you think these vintages are great I don't think they're open for business and and frankly if even if they wanted to be open for business how do you go to an IC when they look at all of the totality of those dollars that have not made anything how do you justify the next 800 million I just think it's very hard while I agree that LPS are out of it I think the story was garbage because it all funds go through a J curve and they're literally talking about the majority of the funds in that vintage 2008 2019 2000 2021 they're all in literally the definition of the J curve the third fourth fifth year one of the most important things you need to be able to do is measure how long does it take the delta T to 90 of calling committed capital and how long does it take the delta T to return 1X DPI I can tell you Jason if you're a reasonably good fund those numbers should be between five and seven years for both which none of those funds have hit the average for a normal Venture fund is around five to seven years to call ninety percent of the capital and around five to seven years to return one xdpi I'm just telling you that's what the average is and if you talk to firms so all I'm saying is there was a period of time where in the absence of getting money back again this is not a sequoia thing it just means that there was an entire cohort and years of capital allocation that is not necessarily in a J curve it's impaired because if after five years if after five years you've returned nothing sometimes you just have to see the writing on the wall sax explain the J curve one more time for folks and then what is your analysis of that Sequoia story well the J curve the theory behind it is that when you start deploying a new fund you're drawing fees down to pay for the firm and the Investments you've made have not been marked up yet so the value of the fund is actually going down because some of it's getting eaten up in fees and you haven't really had a chance for any of those Investments to be successful and then what happens early right I don't even know I just think it's they haven't had a chance to get marked up but then what happens is you start getting markups and now at least on paper the value of the fund goes up and then hopefully those markups eventually turn into distributions or DPI like jamath is talking about yeah we have a vintage 2017-2018 fund that's actually fully returned at this point you exited some secondary or Acquisitions no we just had some we just had some exits but look I think that is a little bit on the early slash lucky side but we haven't really seen much of the J because you know you should be getting markups within two years I think on your Investments if the companies are looking good at least historically that was the case freeberg any any thoughts on this collection of stories with Venture basically having the great Venture reset the end of the super cycle the beginning of the next it's happening yeah okay we're in the thick of it but by the way I would just I always go back to the point though with all the problems tramatha's is talking about the reset and the Wipeout that needs to occur I think this is still that I think that's part of what makes this a better time absolutely to be an investor this is what I'll say about that sex I think I agree with you I disconnect asset values and asset prices from fundamental business value being created so the market bid stuff up prices went up that doesn't really mean that businesses aren't fundamentally good that there aren't amazing technology businesses being built today that are going to affect billions of lives tomorrow if you are tracking a public company stock and you like the business you spend time with management you see what they're building you see their revenues growing their profits are growing they're making great products people are happy with what they're doing but the Stock's really expensive you don't want to buy the stock suddenly the stock drops by 80 percent nothing about the business has changed it's just that the market is paying less to own shares in that company that's a great time to buy that stock I think that's the moment we're in in Silicon Valley everyone's like oh my God it's over there's uh things are terrible just because the asset prices of the shares in companies has gone down does not mean that the quality of the businesses has changed or that there isn't fundamental value being created in Silicon Valley in fact the contrary point to Sax's comment is that it is a great time to be buying these shares and it is a great time to be investing and it is a great time because as we've talked about countless times there are extraordinary Technologies from AI to biotech becoming software to Fusion to novel applications with AI and SAS and on and on and on many of the amazing things we've talked about that I think can and will affect many Industries and billions of lives are being built today and they're not going to stop being built and you can now buy the stock at 80 off so you know if you're investing today and if you're a builder today as long as the capital keeps flowing to support the building work which I think to some degree it will because still enough of it sitting there you're not going to have a lot of these crazy growthy rounds with high prices and all the nonsense that went on the last couple years but there's certainly a lot of opportunity to greet real business value and right now an opportunity to buy shares pretty cheap and participate meaningfully in that value creation I'll tell you the thing I'm seeing on the field and like playing the game on the field is something we've been talking about for the last year we started a program called founder.university and it's basically like a 12-week course on like how to build your MVP we had 350 people to join the discount code people can use to there's no discount code it's it's free for Founders basically if they if it's free for Founders if they come to the 12 weeks but anyway what I did was no it's founder dot University because it's an extension but uh in the words of uh of sex let me finish please let me finish what we did was we just said anybody who gets to an MVP and it's two or three Builder co-founders we'll give them a 25k check and I did 20 or 30 of these 25k checks in the last couple of months of just the founders right now who have been laid off by other companies they're dogged pragmatic absolutely customer-centric product-centric Founders whereas the last five years have been filled with theatrics and white papers and icos and just nonsense and absurd valuations and people wanting credit for work not done and now people are actually building MVPs and they're dogged product driven Founders customer Centric Mission driven Founders and it feels to me that first part is so well said people wanted all this credit for work not done and for Progress not achieved that game is over finished finished which means if you are a product LED CEO and you're a mission-driven CEO who actually built something you stand out so much in this ecosystem and have people begging for money sending me long emails and decks and total addressable Market I'm just like can you just build a product and show me that you can actually deliver a product and then we'll start the process of the rewards based system here you know the the the the reward-based system in Silicon Valley is so magical when it works you get money from founder University or you know Tech Stars or Y combinator then go to a seed fund then go to a serious a fund that milestone-based funding was so broken and now it's back and it's so functional when it's working it's just a magic of Silicon Valley is when people work and get rewards work and get rewards and it just creates this great pace and dynamic that I'm glad to see just as we wrap here everybody's been begging for a science Corner enough about the chaos in the world everybody wants the Sultan of science to tell us and educate us about something and sax needs to use the loo anyway so let's do a science corner here room temperature superconductors you sent me a link I read the abstract of this paper and I I don't know which language I need to put this into Google translate but I couldn't understand any of it so please I literally read the abstract and I was like I couldn't get through the first two sentences without having to start doing searches I'll start with just like the simple explainer on superconductors please um you know materials that conduct electricity are called conductors so conductors electrons move through them like a copper wire that's how electricity flows and all conductors have some amount of resistance meaning not all the electrons kind of flow through at a perfect rate they bump into the atoms in the material in the wire and they generate heat you know you've ever felt a wire while electricity is flowing through it gets hot right so that's because the conductor has some resistance which means the electrons bump into the walls of the atoms in the material they generate heat and you lose electricity you lose energy you lose power and so in 1911 it was discovered when Mercury was reduced to a very very cold temperature that there was a point at which the material conducted electricity with absolutely no resistance so the electrons flowed through the material completely unbounding on you know not bouncing into the material not generating any heat and having no resistance mean you're losing no power in transmission of that electricity but another number of other super interesting effects occur number one is that magnetic fields now reflect off of that metal perfectly so if you put a magnet you ever seen that image of a Nick we could probably pull one up in the YouTube video where you put a magnet on top of a superconductor it actually floats because the magnetic field like the North and the north push against each other and it floats up so superconducting materials kind of became this Fascination in the early 20th century that oh my God if we can actually make materials that superconduct there are all these amazing benefits one of the benefits is you could have no loss in electricity being transmitted today 15 of power is lost in the transmission from the Power Station to your home you could also do interesting things like create maglev or frictionless trains that float you know like magnets floating off the ground on top of a superconducting track and by having no friction you could push the Trap the train once and you wouldn't need to use any energy to move it along so you could have basically powerless transportation you could have really powerful new microprocessors so a superconductor microprocessor instead of a traditional semiconductor microprocessor would use just one percent of the energy of a semiconductor microprocessor think about that all the AI stuff we're talking about all the chips that we're talking about dropping the energy needs by 99 if those chips were made from a superconducting material and one of the more interesting applications of superconducting materials could be infinite battery storage so you could take a superconductor turn it into a coil and the electricity would just flow through it infinitely because it would never turn into heat and then when you're ready for that power you just plug in and you get the power out the actual loss of energy in a superconductor battery less than five percent and that's compared with you know significantly more energy loss used in chemical systems and you wouldn't need to kind of get all the materials that we're struggling to get now to generate batteries so the idea of generating like superconductors in industrial scale has always been super interesting today the way that we generate superconducting materials is we have to make a material super super cold in 1987 a physicist named Chu developed one of the first ceramic superconductors where they discovered a new way of generating superconductivity it wasn't just taking a metal and cooling it down very very cold because when you get it very very cold the atoms stopped moving and the electrons inside pair up and it's called Cooper pairing and they flow through and he said we could actually do this with a hotter temperature and he demonstrated this in a ceramic Atrium barium copper oxide super confusing name but basically he took a bunch of materials and baked them in an oven and they turned into this really interesting material that became superconducting and then the race was on because what he did is he made a superconductor that could superconduct at the temperature of liquid nitrogen and liquid nitrogen is really cheap so we can just use them that's actually how all MRI machines run today if you have superconductors that reflect the magnetic fields in the super in the MRI machine and they're using liquid nitrogen to stay cool and so there's a lot of industrial applications today that use superconducting materials using liquid nitrogen but in order for us to do all the stuff I mentioned like maglev trains and Infinite Battery free storage and superconducting microprocessors we have to get superconductors we have to discover a material that can superconduct at room temperature so that we can sit with it in a computer on our desktop or we can have it run on a railroad track or you know we can put it in our backyard to store energy and there's been this race and there's all these different classes of materials that physicists and material scientists have spent decades trying to figure out what can superconduct at room temperature we started with Metals you know copper and we tried carbon nanotubes and fullerene tubes we had all these different Ceramics like like with like I talked about and there have been literally tens of thousands of ceramics that people bake in ovens and Prime see how superconducting they are basically you take the material and you cool the temperature and you measure the resistance and as soon as it hits superconductivity boom there's this magic moment where it drops to zero and it becomes super conducting and there's this big changeover effect so everyone's trying to find that temperature which it can happen at room temperature and people have found superconductivity on the surface of DNA and organic molecules but you can't scale that people have found you know superconductivity and all these weird kind of material on the surface of things but no one's ever been able to industrialize it in 2015 there was a new kind of material called a hydride which is basically taking a thin metal and putting it in hydrogen gas and kind of baking it for for a couple of days and the hydrogen sticks to the metal and then you would use this hydride as a new kind of um conductor and hydrides that turned out had really good superconducting potential they would superconduct at room temperature but they needed super high pressure so you'd actually have to leave them in like something that's like hundreds of times the pressure of the atmosphere and so that that's not really technically an industrially feasible either so this guy named ranga Diaz published a paper a couple weeks ago that got a ton of press and a ton of controversy and basically he said look I've got this new hydride and uh it's I've got this really you know weird metal that no one ever talks about and I've baked it with this um with hydrogen gas and this hydride can actually superconduct at you know room temperature and at only one gigapascal which is still greater pressure than room temperature but it basically starts to show on the chart of are we getting there can we actually get there that maybe we are and so this paper was published in nature a couple of weeks ago and it got a ton of a ton of coverage because everyone's like oh my gosh the problem is this particular individual you know the the lead uh research of ranga Diaz on the on the paper he's pretty controversial because he made a room temperature superconducting claim back in 2020 in a paper he published in nature and after he made that that claim a lot of scientists tried to replicate what he did and they were not able to and then the journal retracted his paper and he had a method that he took data noise out of the measurement system he was using and the way that he took the data noise out people said actually skewed the results and made it look like it was super conducting when maybe it wasn't and he actually had a a talk that he did that was published on YouTube a year later where he said he raised 20 million dollars from Sam Altman and Daniel Eck and a bunch of other investors and it turns out that also wasn't true and then he came back and said well I didn't actually raise the money I was talking with them about raising the money so this guy's kind of a sketchy character in the space but the temperature at which he was able to generate or claims to have generated and he did get peer review and did get published a superconductors is at room temperature it's at slightly high pressure but if it's real and it does get repeated it's one of the next steps that we're almost going to be getting to this point of true room temperature superconducting materials and then this whole industry will blow up transmission lines battery storage maglev trains superconducting microprocessors you know many new Industries can and will emerge from this material Discovery if it's proven to be real so you know it's a super interesting storyline a lot of people in the Material Science World and scientists chemists physicists are kind of going crazy about this and there was a um a survey done by quanta magazine and half the scientists were like this is and the other half was like this is going to change the world so we don't really know yet where this is all going to settle out but I thought it was worth kind of talking about and bringing it up because if room temperature superconductivity is really realized in the next decade it's another one of these kind of Black Swan technology discoveries that we none of us are thinking about right now but it totally transforms all these markets and very quickly kind of increases like we were talking about earlier productivity makes renewable energy super super cheap makes computing power 99 less power intensive AI chips will explode using this technology so a lot of super interesting applications if room temperature superconductivity comes to light super interesting story I thought we should share it and talk about it yeah I would love to get your insights on it and then sax I would like to understand how many emails and what you order from ubereats during that segment venkat vishwa Nathan who runs a battery group at Carnegie Mellon introduced me to ranga two years ago me and my partner Jay we were like holy this is outrageous and we tried to spin it out into a natural company but the University of Rochester blocked it and so we've been following this guy for two years and all the trials and tribulations but it's a really really exciting thing if it does come to you've got Capital blocked explain why you would get Capital blocked in a situation like that why wouldn't they allow you to spin it up it is interesting because like typically universities have a tech transfer office and you can do these deals pretty cleanly so you know when you go to Stanford the tech transfer office is quite sophisticated at MIT it's quite sophisticated there are these pretty standardized deals and and royalty percentages what's what is the standard deal how explain to the audience how a tech transfer deal would work and how does the University make money from it if you're a Prof and you invent something or even if you're a student it's technically owned by the school and so if you want to commercialize it you go to them and you basically say here's a Capital Partner of mine and we want to go and start a company around it and what they will normally say is okay great give us a piece of equity and give us some royalty in some cases depending on what it is the equity tends to be in the mid single digit percentages the royalties tend to be in the mid-single digit percentages it depends okay yeah call it five five six seven percent but it can be a lot when you think about a you know a school like Stanford who's spinning out hundreds of these things a year but if you're if you're a school that doesn't historically do a lot of tech transfer or has a lot of cutting edge r d you wouldn't have that team and so Rochester didn't necessarily have it now look rank is probably getting bombarded by 30 other people who'll pay 10 times more than what I was trying to pay 18 months ago it's a really interesting thing and I think there'll be some there'll be something does anybody know what the top Tech transfers of all time were like was Google a tech transfer or Freeburg you know like yeah because yeah no yeah Larry and Larry and Sergey gave Stanford I think one think of Stanford yeah they give them a percent yeah because back rub was written while Larry was a PhD there so technically they you know they had some part of it Carnegie Mellon ranked as top Tech transfer University I'm just seeing here in terms of the rankings University of Florida Columbia Stanford Harvard because everybody so much some of them are terrible like and some of them are cronyism so like you go to some of the universities and the tech transfer offices have deep relationships with certain VCS and investors that they'll only work with and they always get first picks and first kids and they're super tight with them they don't run a real Market process and then some tech transfer offices just give away the farm for nothing and then some tech transfer offices think that they own it and they should get paid 60 royalties for the thing it's all over the map and some of them are sophisticated and some of them are not um so it's it's actually quite surprising Jake how different all the universities are in terms of their level of sophistication and the types of deals they'll do but I will say this work in superconducting research it's another good example going up to going back to the point a couple episodes ago about the importance of fundamental research and the importance of um you know the support from academic institutions and governments and other aspects when you're still not sure what the technology is that to do that fundamental Discovery work I think is a good Collective social benefit and then to industrialize it and commercialize it requires I think a market-based approach which is you take that capability you try and build a business find customers make money and that's really how you get it to be funded to be scaled because you're never gonna you shouldn't have to put you know government and academic money behind that sort of effort but private Market participants should and so you know it's interesting I mean I think I'm not holding my breath I've been you know I did a science project in 1993 when I was probably 12 or 13 years old on superconductors and I got a Atrium barium copper oxide disk and I got some liquid nitrogen from UCLA and I poured it on the disk and I floated a magnet above it I had a poster board and a computer presentation back then and I was super enthralled about the future of superconductors and exactly what I said today is what I said back in 1993. so you know 30 years ago it was so busy dating I didn't think you had time for superconductor experiments yeah look I don't think I don't think that this stuff that's really uh it's been a it's been like Fusion it's always been a promise around the corner physicists have always had hope we've taken incremental steps towards it but it's always felt like one of those things where you're always getting 50 closer to the wall it's like you're never actually reaching the wall and so yeah by the way I will say one area that that a lot of people think holds a lot of promise for superconducting research is in Quantum Computing because you can actually model on a molecular level what might be going on right now the BCS theory is this theory on Cooper pairing that happens in Ceramics is the only way that we really understand how superconducting actually works why it works why there's no resistance at certain temperatures for certain types of materials for most materials we have no freaking clue why it happens we don't understand the physics of it there's something going on on a quantum mechanical level that we just don't get and so if we could understand it better through Quantum modeling using quantum computers all of a sudden we may be able to actually start to come up with ideas for molecules and crystal structure that would allow us to make super productive material that we simply don't have enough time in our lifetime to run all the experiments in a lab today and we can simulate it and so that's why Quantum Computing could play a real role in advancing our ability to do Discovery and superconducting materials and like I talked about these are like not just one but like two or three order of magnitude improvements in the efficiency of certain systems of Industry on Earth today so it shows how the compounding benefits of technology and things you cannot see around the corner can suddenly cause these explosive growth moments in technology in an industry I don't know what when Quantum Computing gets here when it gets here it might discover superconducting and then when that gets discovered boom energy costs dropped by 99 Computing goes up by 100 fold so there's these amazing things that are still like in front of us that each one of which could be you know really great exponential triggering events and we're seeing a little Milestone today but yeah I don't know sax reaction sounds good sax uh how many moves did you play in your 12 chess games how many points did you go up all right look I got shitzu come on let's go oh sucks all right listen this has been a great episode thanks to the best comment on the Atlantic article that says Ron DeSantis has peaked already oh oh yeah don't do it don't do it why you got to troll him let's see that but it's in the Atlantic oh you want to know why the Atlantic suddenly has turned on him is because they're the biggest backers of the war they those guys have all these like neocons over there and so he gave a statement saying that you know our support for Ukraine shouldn't be a blank check and some other comments expressing let's say skepticism of what we're doing over there and that was totally inaccessible to them so all these neocons are registering disappointment but I would argue that's a electoral asset not a liability I have a prediction given what's going on with these Banks and what's going on in this kind of a I think we all agree the soft Landing concept is over we're going to be in a recession the war is going to end there because we're not funding this an American the American public is not going to want to see tens of billions of dollars go into Ukraine and to fight to fund this war in year two or three hundreds of billions well I'm just saying every month yeah I know the spending run rate of this war is actually greater than what we did in Afghanistan and Afghanistan ended up being a 20-year multi-trillion dollar operation that just flushed all that money down the drain so yes we're in a greater run rate than Afghanistan yeah do we know what the monthly run rate is for this oh my God how is it do they process back we've appropriated over 130 billion Tremors and Afghanistan we spent 2 trillion over 20 years so it's 100 billion a year run rate yeah this is think about what a Monumental waste of money that was and now look at the financial crisis we're in can you imagine if we could have 2 trillion back I mean all these trillions instantly we would take that it's trillions and trillions we squandered on stuff that didn't matter and now we're paying the price for it that could be education could be Universal Health Care it could be paying down the debt how about paying down the debts we don't have all this inflation exactly let's think logically here the number one issue for this country in the next election I am with Friedberg is great prediction uh from the year-end show is we need a president and we need an Administration that is fiscally responsible and controls the balance sheet in a logical fashion like the last two administrations have not seen capable of doing I am with Freeburg single issue voter balance the budget get spending under control austerity measures hashtag all right for the Sultan of science sorry what's that can you repeat that what I wanted to say Tremont is there are there any plugs for the remaining part of the episode Mr Beast is curing blindness and buying people's shoes has he been canceled yet Jax aren't you excited about superconductors and the benefit for AI and energy storage and energy costs and Humanity yeah what does it do to burn rate of a Sasuke yeah but I'm not I'm not like an expert at assessing like hard science or hard tech I mean I'm a software investor I'm just a simple man I'm just a software investor all right everybody for the Rain Man himself David sacks the dictator trim off polyhapatia and the Sultan of science the prince of panic attacks No More Mr David Friedberg I'm the world's greatest moderator Undisputed congratulations everybody on another successful episode and Freeburg when are we locking in the date for all in Summit 2023 my replies my DMs are filled people want to know do you have so now they've gone back to their committee to get approval for us doing it without parking and just doing something or walking shut up Uber Uber Uber Uber hopefully if they accept it then we are okay how many shuttles do we have to take to Uranus yeah exactly how am I the prince of panic attacks I think you're the king of caps locks at this point they were calling me j-caps J caps was the best one I heard talking about panic attacks Jake hell this weekend man panicking panicking I I was in sheer Terror sure I have literally gotten rid of the caps lock everybody relax you can follow me twitter.com Jason we'll see you all next time we'll let your winners ride [Music] and they've just gone crazy [Music] besties [Music] it's like this like sexual tension that they just need to release them out where did you get Mercies [Music]








what are you eating Freeburg is that Buffalo jerky what is that that's a red pepper it is not the bull tongue I got pistachios oh wait wait look at this [Music] [Applause] look guys that are branded pistachios aren't these the best pistachios they're the best salt and vinegar yeah some of the vinegar yeah yeah they're the best are those unpeeled pistachios guys are so rich people peel their nuts people have been peeling my nuts since the Facebook I feel [Music] [Music] hey everybody Welcome to episode 121 of the world's greatest podcast the all in podcast with me again of course the dictator himself tremath polyhapatia the Sultan of science David Friedberg and the Rain Man himself yeah definitely David sacks gentlemen the world's greatest genuflector ah the world's greatest moderator is here oh this you guys I gotta tell you something the grift is on a lot of corporate gigs for me to moderate I don't even have to prepare I just show up and moderate oh so great what is an example of such a such a gig there's a lot of Corporations and conferences that pay a pretty penny to have the world's greatest moderator come and interview people this is like the used car parts Association of America I did one with like a thousand litigators at an attorney conference for like the SAS software they all use and it was a wonderful Fireside you know it's just great this is like the grift no ads do you have to fly commercial whenever they fly private it's commercial at this point yeah what is your what does your Rider say what kind of book do you want do you ask for spiced salted macadamia nuts but I do not have them peel my nuts no what I do is I blend the travel cost into the speaking fee and then nobody knows when I'm in or out what hotel I'm staying at or whatever but basically I'm back on the road folks I'm back on the trailer do you get you know no no no what he's saying is no what he's saying is he gets a 2500 travel budget and instead he comes the day of and leaves the day of saving and netting himself an extra 2500. well you know uh you can optimize if you're saying optimize I did use I had you know during covid I racked up a million and a half two million of these United points and I have just been grinding those United points down so shout out to United and the pandemic all right there's a lot of news so you're right your mouth it's even worse than that it's even worse than for travel expenses when he's not even paying anything maybe it's part part of the part of the grifter is using the cash app to commit fraud and murder I mean that Hindenburg report is I mean it's a work of art but we got to start with the FED hiking rates by 25 basis points uh and the general feeling in the country that maybe the FED doesn't know what they're doing and maybe it's time for regime change the FED increased rates by 25 basis points yesterday Wednesday so the FED has increased the federal funds rate from nearly zero in March of 2022 to now the range of 4.75 to 5 fastest rate hike since the 70s speculation the FED might pause rate hikes or even cut do the the recent banking failures didn't happen so if you bet that they were going to pause you were wrong if you bet they were going to cut you were also wrong but the market has ripped a bit a day after which people are trying to figure out in the group chats doesn't seem like anybody has a theory here but let's start with sax maybe an explainer a little bit on how the Fed works there's a board there people serve a 14-year term I guess they replace somebody every two years and Jerome Powell was placed in 2018 by Trump and I guess there's a lot of handwringing now that they were late on inflation obviously and then they went too fast and maybe now they're not slowing down enough so what's your take on it objectively sex putting aside partisanship and you know for this Administration versus that Administration just objectively do they know what they're doing and how could they do a better job no I don't think they know what they're doing they clearly reacted way too late to the inflation we've talked about this before we had that surprise inflation print in the summer of 2021 5.1 percent they said it was transitory they didn't react until November they continued QE for another six months and they suddenly got hawkish in November of 2021 and they didn't even start the first rate increase until March of 2022 so they were really asleep at the wheel and late to react to the inflation by about nine months now I think they're potentially making the opposite decision which is they are late to recognize what stress and distress the economy is under right now and Powell had the there was three choices I could have made at this meeting they could have raised race which is what they did they could have cut rates which they didn't or they could have done nothing basically held Pat and the argument for raising rates is just that well we have this inflation problem we need to keep raising interest rates until uh the rates are above inflation and that will bring inflation down then you can start to lower rates that's sort of the conventional view I think the problem with that view is it ignores that we've just seen a run of bank failures and there's tremendous stress building up in the banking system from unrealized losses on long-dated bonds also unrealized losses on commercial real estate loans and we've barely scratched the surface of seeing that problem that's I think the next shoe to drop in this whole thing so I think that the right decision here was to either cut rates or to stand Pat you may have seen that Elon said listen we should be cutting rates here there's way too much latency in this inflation data the economy is seizing up and we don't need to be raising rates right now we actually need to be cutting them I think that probably if it were me looking at the upside downside of these decisions I probably would have just stood Pat because again we've just seen this banking crisis why wouldn't you just wait one month to see maybe there is latency in the installation data maybe that banking crisis is not over why won't you just stand Pat for one month you can always raise rates in a month I think that this move here could in hindsight be seen as the straw that breaks the camel's back chamoth would you have paused and waited to see another card and then watched the hand developed or do you think they're doing the right thing by raising or should they have cut I think they did the worst thing possible which is they took the middle path if you think about what the Fed has the ability to do they obviously have the ability to raise and lower interest rates but what we don't talk about is they have a balance sheet that can absorb assets for the last 10 or 15 years we've had a phenomenon called quantitative easing and for folks that have don't understand what that means that is essentially the Federal Reserve buying assets out of the market and giving people money for it so that that people can then go and buy other things with that money last June they started what's called quantitative tightening which is essentially reversing that policy and restricting the liquidity in the system so if you look at those tools and you sort of play a game Tree on what the FED could have done I think that you have two choices one is you massively let inflation run amok where you have no tools to fix or you have massive illiquidity in the financial system but you actually do have tools to fix that which is through some combination of quantitative easing and tightening depending on how much liquidity you want in the system so I think actually I disagree with Saks I think they should have done the opposite they should have raised 50 bips it would have created a little bit more chaos in the short term but it would have set us up to understand what was fundamentally broken and still give the Federal Reserve the ability to use their balance sheet and use liquidity in the future to solve the problem they took the worst option which is neither did they cut nor did they raise enough and so this problem that sax represents actually is the fundamental problem now which is you won't have enough Clarity and signal to really know whether this 25 basis point enough look I've maintained now for nine months that rates are going to be long higher than we like and longer than we want and so I think it's high time that we acknowledge that we have a sticky inflation problem who's back we have to break we've known since Volker era what we need to do to do that which is you need to get interest rates to be greater than terminal inflation which means that if five percent fed funds rate is insufficient so we're going to need to see a print of five and a half five point seven five percent and that's when you're going to have enough contraction and then the FED can come back with liquidity but if they don't take these steps we're going to be in this very choppy neither here neither their situation and I think that is what causes the real damage because it's the corrosive effects of uncertainty and what that does to lending to risk taking and I think is really bad for the economy Freeburg where do you land we have sack saying they should have stood Pat which I'm not saying either go hard take the medicine I don't know I'm not like an economist on judging the balance that they're trying away right now I think everyone's got a different you can hear a cacophony of opinions on this one what I'm more interested in is you know we talk a lot about the banking crisis underway and I know we're going to talk about this question on Commercial Real Estate in a minute but if you look at the yield on the 10-year treasury I think um coming out of this past two weeks you know the yield on the 10-year treasury dropped from 4.1 percent down to looks like it closed at 3.4 today nearly a point seven percent decline in the past two and a half three weeks and that's also off of 3.8 since the start of the year and remember when we talked about the impact on asset values at Banks I think if you look holistically at the roughly seven trillion dollars of assets held at Banks some you know whatever the the set of banks are that we looked at the average kind of equity ratio is about 15 percent so you know a two percent or sorry a three percent adjustment over 10 years on the treasury impacts the value of a chunk of that portfolio down 25 which starts to put you into dangerous territory and there's obviously a distribution of what that does to certain banks that are overweight you know 10-year bonds whether they're loan obligations on mortgages or treasuries or corporate bonds or real estate bonds a real estate debt and so the more encouraging point that I think we should pay attention to is does the market tell us that these short-term rate actions are driving down the long the medium and longer term rates in a way that will improve the balance sheets of all these institutions that own a lot of this debt particularly the banks and and funds and so on and you know I'll do the math here real quick but just in the last two weeks the impact on the 10-year treasury has probably had a pretty sizable impact you know we talk about unrealized losses it's reduced those unrealized losses it's improved them so I think that that's like the more important metric to be tracking is you know if you look at all the assets that we're all worried about right now are they going up in value or down in value in a way that introduces more stability into these kind of banking systems that we care about and I think right now it looks like maybe things are improving um and that might be part of the optimism around you know Equity markets and folks buying and so on yeah and so this is I guess where people have started to talk about the next shoe to drop we obviously had this time-based liquidity issues with Silicon Valley bank now the Wall Street Journal is talking about commercial real estate and how much debt there is uh since covid obviously people are doing more remote work a lot of the skyscrapers it's not just San Francisco but in many locations remain empty or underutilized people are now having their leases come up uh every year more and more of these leases will become vacant and then we'll see if these buildings are worth what people paid for them smaller Banks hold around 2.3 trillion in commercial and real estate debt including rental apartment mortgages almost 80 percent of commercial mortgages are held by Banks according to this Wall Street Journal story sax you are an owner of some commercial real estate and you play in the space you have a lot of first-hand knowledge what what is your putting aside your personal Holdings or exposure what is your take on what you're seeing what is the game on the field right now in terms of commercial real estate in San Francisco and Beyond well if you talk to the commercial real estate guys they'll tell you that the situation is dire um there's two dire there's two problems first there's a credit crunch going on so there's just no credit available if you're a commercial real estate developer and you have a building and you want to refinance your construction loan or put long-term debt on a building you just can't do it I mean the banks are not open for business they literally don't want the business and I think that comes back to the fact that Banks right now are hunkered down in a defensive posture they're seeing deposits flee from their Banks unless of course you're one of the top four does that does that freeze on the bank's pre-date the Silicon Valley Bank crisis and it was exacerbated were people having a hard time getting loans before that it predates it but definitely what you're see what you saw with svb and these other Banks including Credit Suisse is that you know Banks now are getting much more paranoid and that's why you saw that if you look at the the discount window which is when the banks go to the FED as lender of Last Resorts and basically post collateral to get liquidity we had the biggest spike in discount window borrowing since the 2008 financial crisis yeah that line on the right side that is that is a spike in one week's borrowing this exceeds anything that happened in 2008 the warning sign should be flashing red over something like this now to bring it back to be clear that's Banks who have real estate exposure going to the FED going to the government saying hey can we get some money to cover these it's not specifically about real estate it's more about Bank liquidity the banks are saying we don't have enough liquidity right now to cover our needs which are highly volatile right now because basically depositors are moving out of community and Regional and small Banks into the big four so-called systemically important or sib Banks so what's happening is that again banks are hunkering down they're getting very defensive they do not want to make new loans because they can't tie up assets they are trying to stay liquid themselves so that's what's happening now in sort of with respect to new Lending and then on the other side of it you have existing loan portfolios there's something like 20 trillion dollars of commercial real estate debt and most commercial real estate lending is done by small banks by Community Banks so they are sitting on these huge cre loan portfolios and I think something like 300 billion needs to be refinanced or is coming due in the next year normally that's rolled over and refinanced there was separately there was a study showing that unrealized losses in these loan portfolios in the banking system may be around two trillion dollars it was a study that was reported on by The Wall Street Journal so in the same way that we had huge unrealized losses in these long-dated bonds I think we also have actually Silicon Valley Bank specifically that's where we're the worst offender but it's a systemic problem I think similarly we have huge unrealized losses in commercial real estate loan portfolios and this is I think even a more subtle and pernicious problem because with Securities like t-bills or mortgage bonds it's very easy to know what the unrealized losses are the reason why they hadn't realized the losses was not because they didn't know what they were it was because of a stupid accounting rule that said they didn't have to realize the losses if they were quote unquote holding them to maturity with these loan portfolios we don't know how big the exposure sure is and we won't know until you start seeing some defaults and repricings of assets and really commercial real estate is a much more Dynamic market right you have to have a buyer there you have leases you have leases coming off at different times you have sub leases occurring and you have the owners of them flipping them right and refinancing them constantly to buy new buildings and so right and those loans aren't as liquid right with a mortgage Bond those are basically a bunch of Loans mortgage mortgages typically that have been packaged up and turned into a security and there's a liquid Marketplace to trade them in the case of these loan portfolios there may not be a liquid Marketplace so you don't really know how impaired that loan portfolio is until you actually get to a place where when will we know what because that that's the thing I'm wondering we I saw a lot of headlines you know Pinterest bought themselves out of their new headquarters in the Bay Area San Francisco I believe specifically I heard Facebook got rid of a couple billion dollars and wrote down some expansion Amazon is selling buildings they had gotten a ton of buildings and we saw last week they got rid of another nine thousand or they're planning another nine thousand in a riff and they can't get people to come back to the office so how bad is the overbelt I guess is the question because that will be the driver of the value of these buildings because if there's too much Supply then what are these buildings actually worth are they worth 90 a square foot what if there's no what if Amazon doesn't want more space you can see it in the credit default spreads of these Banks it's in the water table already so you can Nick you can just throw it up if you look at any Bank that's lending and that has a portfolio this is Deutsche bank's you know Euro denominated CDs but it's the same for Barclays it's the same for sock gen it's the same for a bunch of American Banks there is a risk in the system that Saks articulated that is now getting priced in there are all kinds of loans whose payments which the banks need cannot necessarily be insured which means that then there could be illiquidity there there could be a flow of deposits out from those Banks which would then make their ability to pay their debt holders lower you also have this complicated issue already where it's really like the first time in a long long long time where debt holders actually got wiped out in the Credit Suisse debacle before the equity holders did and that's created all kinds of Ripple effects so this credit bubble is here and it's being manifested right now in these very sophisticated parts of the market and eventually they'll Ripple to the broader economy at large but how a person feels this is they're not going to be able to get a car loan or a mortgage or the interest rates they pay will go up and then how bondholders will react to all of this stuff is they'll just start to find different assets probably the front end of the curve money market Cash Gold and they'll just abandon all these assets and then the other problem is that it's just really really bad for risk assets so the things that we invest in startups technology companies either in a world of inflation run amok because the FED isn't hiking fast enough which just destroys future cash flows or in a world where the FED pivots in a moment like this and Nick you can show the second chart both result in the same outcome which is that you just see these massive drawdowns in the value of risk assets so we're in a really complicated moment and this is why I think again the FED needed to take leadership this past week and actually do the hard work of either cutting 50 bips or raising 50 bips and this middle path is the absolute worst path because trying to thread a needle in this complicated economy I think is just going to be impossible and then what happens is then the markets move around them right the markets have completely said we now discredit what you did and they're basically banking that the FED will be forced to cut rates massively in short course because the crisis will be so severe that it'll outweigh the risk of inflation think about that yeah so all of this real estate comes on the market there's no buyers for it the mortgages are due does that mean a commercial real estate owner just basically gets foreclosed on and they hand the keys back to the bank or the banks as this Wall Street Journal story was sort of alluding to that the FED will say you know what we'll just extend we'll backstop this real estate which happened in the last bubble and we hope that over time it works itself out and demand returns now of course that's different than a postcovid world so this time could be different what happens in the case of 2024 2025 all of these office spaces are returned and the keys are handed back yeah so okay so so Jason you asked the question like how does this problem manifest let me describe from the point of view of that real estate owner there's basically two problems one is that you have a tenant who's in a long-term lease five seven ten years that lease rolls so that that least comes to you now they don't need the space anymore you know we know that take San Francisco which has got to be the worst market for theory in the country right now that's something like 30 to 40 percent of the space is vacant so that's either space for rent or space for sublease because no one's using it so they've put it back on the market well all those subleases they're still paying rent because they have a contract so what happens is as those leases roll now all of a sudden you don't have to pay rent anymore so you're going to stop or if you still need the space you're going to negotiate a much much lower rent so now all of a sudden the real estate owner can't make their Debt Service Covenant ratios the income from the building is just substantially less they can't make their debt stories on that and explain that ratio to folks you have a certain amount of debt you own let's say sales of course Tower in salesforce's case they're subleasing 125 000 square feet let's say they were into that for 500 million what is this Debt Service ratio explain that to the audience when the bank underwrites the loan they just figure out the interest that you got to pay on the loan relative to the value of the building or the income that is generating but all those ratios are upside down now because the value of the buildings the rent has gone down so much because there's so much vacancy I mean when these loans were underwritten San Francisco had like a five percent vacancy rate and now it's like 30 to 40 percent they're just no tenants and then you know in parallel with that Jason you've got all these cases where you don't only have tenants or leases rolling you have loans rolling you know again if the owner of the building has either a construction loan or like a long-term debt and that needs to roll they have to refinance it and if they can even get credit which they may not be able to because of this crunch they're going to be paying a lot more for it so now all of a sudden the income statement for that building doesn't make sense think about it your borrowing costs are higher and your revenue is lower so now all of a sudden the building's underwater so where does that end up well they default on the debt and the bank ends up owning the building so then what happens is you end up with you know all of downtown San Francisco owned by a bunch of banks what are they going to do with it they don't want to be in the real estate business so they have to fire sale those buildings in a bunch of auctions at rock bottom prices Because by the way there's no cash or liquidity out there so who are the buyers there are no buyers we have a 30 vacancy rate there's no uh renters so so what happens Detroit like is it just like a dead City and then the tax base collapses the city because so much the tax base is dependent on you know real estate so listen I think they're gonna have to work this out I don't think they can just let the free market take its course here because you're going to end up with a scenario I just painted so I think what hopefully would happen maybe is that the the banks do some sort of deal with the real estate owners that you know they blend and extend or whatever but in order to do that they're going to need to be backstopped by somebody and that's the FED Freeburg what are your thoughts just writ large as it were on the commercial real estate space because it's ninety dollars it was 90 a square foot right for class A Saks in the city is that the price I mean what's that going to be 60 70 80 90 bucks a foot depending on what kind of building you're talking about I mean you have all these empty office Towers so look I I never invest in office Towers I do small boutique kind of brick and Timber spaces in Jackson Square we're doing okay because people still want to be in those spaces but these office Towers on Market Street or in Soma I mean which is where all the investment went during the boom nobody wants to be in those buildings anymore and it doesn't help that the city has allowed this giant you know open-air drug Market to metastise right outside their door um Freeburg yeah I think it's inevitable we'll have probably two to three trillion dollars of federal money you know spent uh backstop and support the asset I mean that's the general theme here in case everyone isn't paying attention at home is that the fed the US government will continue to print money and create programs uh to effectively support asset values such that there isn't a crippling economic ripple effect and this is the dangerous depth spiral of debt and it's why I always talk about how concerned I am about global debt levels and particularly debt levels in the US but really Global debt levels I'll say the statistic again and over and over again 360 Global debt to Global GDP but you know even within some of these asset classes a significant amount of debt has been used to fuel asset prices and to fuel Equity value and then that Equity value gets levered and reinvested and so the Rippling effect in the economy of declining asset value can be magnified through Leverage and it unfortunately debt in general forces growth without growth uh debt fails and so when we've used debt to demand growth on a macro perspective it causes you know significant stress and strain on the system when you're going through periods of like we are right now what should be natural recessionary effects from covid and shutting down the economy or natural asset price declines because of that and we can't let it happen because if it were to happen the Rippling effect would be crippling so this is a good example you'll probably I don't know what the facility will look like maybe the government passes some Congressional bill that says hey guys here's three trillion dollars to support you know all this real estate here's another you know two trillion to support Banks and you know giving them liquidity because the other problem as you guys know is most people's most of the population in the U.S has most of their assets uh their asset value or their Equity value in their home and those home prices are supported by residential loan programs and you know if you actually have a massive write down on the value of that asset class that's when you know everything kind of falls apart so you know we will continue to be buoyed by that that that kind of inflationary Behavior unfortunately biology I think has it right we'll talk about it in a minute that there has to be money printing to get out of this hole I don't know if it's necessarily In This Moment hyperinflation area as he predicts you know he uses the Deutsche Mark and the Weimar Republic as this kind of storyline that this is what's about to happen in the U.S the truth is it looks a little bit more like the pound sterling at the end of the uh British Empire where you know there's certainly a an inflationary and devaluation effect that arises but it's not it is the reserve currency of the world today let's so it's really hard to kind of just say hey it's going to be hyperinflationary and the value is going to go to zero it's just not going to happen so that seems to be the the dollar of the dollar yeah so that seems to be the BET Now trim off at as some folks are predicting catastrophizing hey this is the end of U.S Supremacy the end of the dollar of course modern monetary Theory seems to stay you can just keep printing dollars and make a couple trillion dollar coins a backstop it and by the way tarp was profitable modestly for the United States and the backstop of real estate totally worked so where do you land on this do you think these backstops and modern monetary Theory stating that you can just print money you you own your own fiat currency is going to work or as we pivot to the billion dollar I'm sorry the million dollar biology Bitcoin bet that this is the end of days I I think it's not the end of days but I think you're conflating a bunch of things together so look mmt yes I am yes was in hindsight idiotic in the moment it never quite made sense but in hindsight it's clearly idiotic and I think that we can properly dispense with that but the reason that we print so much money is sort of what free Brook says which is that we just want a well-functioning society and the simplest and shortest way to do that is to make sure that there aren't any winners and losers anymore and the most effective way to do that in the markets is with money print a bunch of money and there are no more winners and losers and so everybody can kind of win some people may may win more but nobody really ever loses so I think that's the that's the mo that we're operating under the thing is I know something unhealthy to that your mouth you're sort of alluded yeah but no losers that's a more philosophical and a commentary on capitalism and a bunch of other things and you're right I don't think it makes sense I do think you need winners and losers to really make Society function well but the other part of it is like does it reinforce or does it decay U.S dollar hegemony and I think it actually reinforces it and the reason is just very practically speaking when you look at how dependent other people other countries are on the US dollar in times of stress they actually become more dependent and that has a lot to do with their boring patterns the amount of dollars central banks need outside the United States and so what did you see in a moment of stress actually the FED opened up swap lines to all the central banks that they work with uh their most important operating partner so Europe Canada Japan Etc Switzerland and they moved the liquidity window from weekly to daily and they pounded the swap lines so I don't know I think that most people that that kind of like it's like a boy crying wolf maybe at some point somebody will be right but you're going to lose so much money trying to take a point of view around this topic that it's more practical to just look at Dollar flows and dollar flows go up in moments of stress not go down and they go up in a distributed manner across the monetary Plumbing of the world all right so let's explain the biology bat since that trended and he is the boy who as you're saying what cried wolf this past week cry Bitcoin yeah the boy cried Bitcoin very well said so a friend of the Pod apology on March 17th predicted that Bitcoin will reach one million dollars in 90 days due to U.S hyper inflation hyperinflation is defined as prices going up 50 percent month over month just so we're clear on exactly how dramatic that is he made the bet on March 17th against a pseudo-anonymous a Twitter user James Medlock who said they would bet one million that the U.S would not experience hyperinflation so biology sort of inserted Bitcoin into that bet it wasn't a Bitcoin bet uh then and I think he's done two of these bets so he's betting two million in total on bitcoin hitting 1 million by June 17th which there's probably no chance of that happening or a very tiny chance unless the panel in a second Bitcoin was trading at uh 25 26 000 at the time it's now trading at over 28 000. and Balaji has been on every podcast known to man in the last 72 hours talking about this I've watched one or two of them and it's uh pretty out there argument I think and you can just type in biology on YouTube and watch any of the 20s done uh he believes Regional banks are insolvent he thinks the feds need to is going to need to print a massive amount of money like we've said here do more QE and then cut rates all seems reasonable but that that will lead to hyper inflation it's not reasonable wow we just printed that they're gonna cut rates we just discussed they're going to eventually cut rates and there'll be more QE so that part is reasonable um just that one little piece but then he believes is the part that is kind of out there that hyperinflation is going to devalue the dollar and this is the time um he does not and I made a bunch of I I asked him this a bunch of times and he would not be honest about it uh or didn't want to answer my question I said hey what percentage are you in Bitcoin somebody says he's 99 in Bitcoin he will not confirm and so I was like well if you own a thousand Bitcoins if this goes up you know a very small amount four or five percent you're gonna pay for the bets and uh are you talking your own book here or not sex what do you think of this overall bet is it a stunt yeah he's saying like this is the lifeboats moment and just to add to it he says you have to leave the United States and get to Singapore uh or a place or if you're gonna stay in the United States you need to get to Wyoming or Texas or somewhere that explicitly allows Bitcoin because the closer you are to the United States banking system what happened to Silicon Valley Bank on that fateful weekend where people couldn't get their cash and we're gonna have to you know Miss payroll he says that's the dry run for the entire U.S banking system sex so first of all I don't think you can disparage bulgy because someone who cries wolf says this repeatedly and makes a dire prediction repeatedly and is wrong and we can't say yet that biology is wrong do I think that we're gonna have a million dollar Bitcoin in 90 days I personally find that very unlikely but you can't say yet he stuck his neck out making a prediction that will be easily falsified if he's wrong second the last time that biology made a dire prediction was coveted he was right about that one so you can't say that this is just like a Doomer who throws out crazy predictions and is always wrong he's actually pretty selective about his now that one predictions yeah there is a tweet from January 30th of 2020 in which he basically predicted a pandemic based on a coronavirus and laid out a whole bunch of sequences that mostly came true which is why we're talking about this this is not just some like random person like he actually has yes a pedigree and a track record but here's my view on it yes the two of our opening speakers All In Summer 2023. those would be our bookhead speakers book them down anyway so so look now what do I think about it I um I I posted my own Theory today which I would call sort of bulgy light um which is um okay look if you if you think about this spiking interest rates that we've had and that Jama thinks Washington continued quite a bit longer there are three main effects that it indisputably has number one undercuts the value of long-dated bonds number two it's made lending much more expensive particularly for big purchases like real estate number three it's increased government lending costs okay now play that through the financial system what does that mean well if the value of long-dated bonds has sharply decreased well that's led to this banking crisis with the unrealized losses that's already happened number two it's made lending more expensive the credit Crunch and cre where we aim to see that and I believe that's going to play out as the second crisis of this larger financial crisis and then number three is the increase in government borrowing costs that will eventually play out in terms of being a government debt crisis of some kind and I think it'll involve you know a spike in borrowing costs at the federal level and involve sovereign debt issues internationally I think it will involve budget deficits at states and cities so I think there's three phases to this financial crisis we're in phase one and I think cre and government debt are the next two phases and I think I think a lot of that lines up with what biology thinks where I disagree with him is I don't think we can know what's going to happen in 90 days I think that the cre crisis is highly deflationary it's going to create distress everywhere in the economy that is going to lead to a massive reduction in liquidity I think that the government debt crisis assuming the government wants to inflate and monetize the debt as a way to solve that problem that will be highly inflationary but when these things play out we can't know I think that's what makes this really hard is I think jumping all the way to the sort of finish line and saying we're gonna have a million dollar Bitcoin in 90 days because the US dollar is worthless I think that's premature I think this could play out over the next couple years we have a real problem if Bitcoin is the exit ramp for an inflationary crisis because it it's not accessible enough it's not easily transactable for for I'm sorry to be negative to the Bitcoin maximalists I'm generally in favor of this kind of independent storage system that's outside of government State control I think there's just this unfortunate reality I mean we saw what the wells noticed at coinbase today they just arrested that that crypto guy gokuan was arrested great country Kraken won't let you wire money in or out as of I think Monday or Tuesday and so you know it's clearly becoming kind of a less accessible system of storage no what's more accessible well I do think that one of the reasons we're seeing the market move the way it does is because folks are shifting their risk assets around quite a bit right now to figure out where is a good place to put money I was talking with a asset manager you know this morning and you know they had a very strong point of view folks are are moving Capital away from what they think are going to be most impacted by the risk of this kind of massive inflationary event that may arise or this massive banking crisis that may arise or this massive real estate crisis that may rise and there are other places to then put your Capital that's not just Bitcoin and sure maybe some of these things are dollar denominated but for example there are many businesses that sell products in non-dollar denominated currencies globally and while they report and trade on U.S stock exchanges you're buying a security interest in a business that generates most of its income you're referring I'm referring to many different companies yeah and so there are many companies that get the bulk of their revenue the bulk of their sales internationally there are also many companies that will benefit in an inflationary environment businesses that are tied to other types of real estate businesses that are tied to certain Capital Equipment where consumption will not go down unless there's you know significant massive you know Global socioeconomic shock and so I think that that's kind of a lot of what's going on right now it's less about hey bitcoin's the only place to go and be safe and it's more about let me reallocate my risk assets a little bit you know to places that maybe benefit that may benefit from or may be better guarded from a massive kind of inflationary shock um let me just say let me say one more thing I I think one of the biggest risks that is not being talked about is the debt ceiling vote that's due in June in June Congress needs to pass an increase in the debt ceiling because the amount of debt that the U.S that the federal government is going to have to take on in order to meet our budget deficit and refinance our debt and pay our obligations historically means that we're going to have to have more than what we're uh you know we've approved to date in terms of the total amount of debt now this has historically been a last-minute vote you know crazy dramatic thing that drives markets nuts the hill had a public opinion piece from Peter O'Rourke and Mary Spade but I think they make a good point you know I've talked to a lot of folks who are call it in the fixed income Market but also folks who are in the equities markets publicly who are pretty nervous about this debt ceiling vote and if it does look like the Republican uh party takes a very hard line and says because this is the current party line if you don't agree to massive deficit Cuts or spending cuts uh and and really commit to that um in a bill that we can pass that Ben also approves the increase in the debt limit we are not going to approve increasing the debt limit and you know what this opinion piece argues I think is a very good middle of the line solution which is you know come up with points of view uh and actually document those points of view on um making sure that government spending is effectively accountable that there's no more wasteful spending and that there are certain programs that both parties can very quickly agree to as being you know very wasteful and if you start there you maybe get enough across the line that both parties kind of say this makes sense let's do this and then we can kind of increase the debt limit because in the absence of that the US will have to default on debt this is always the big threats never happened and if that happens or there is the looming threat of that happening combined with the banking crisis combined with you know the the liquidity crisis combined with the real estate crisis that may be emerging here let me ask you a question you can have things really meltdown so look because yeah I think this is the biggest like Black Swan it's not a Black Swan but this is the biggest kind of elephant in the room right now is and I think that and sorry I think if people in DC could get together today and if you could instead of doing the typical last minute 24 hour vote a day before the debt ceiling needs to be increased if this could be addressed today it could start to put in some of the layers of backstop and coverage and protection and safety that the markets I think really need to manage some of the trepidation in the in the weeks and months ahead I want to jump to the crypto Crackdown and get your opinion on that stack Source but I want to do a clarifying Point here with Freeburg you have been in the ray dalio end of Empires Empire's collapse and that hey maybe the US is winding uh down its Supremacy and apology was pretty much saying Yep this is the moment where is there any light between your position of like pay dalio's correct this is the end of the Empire ambology is like it's the end of the Empire right now where do you stand on that free burn so I mean I've always I've been concerned I've told you guys this for like three years and I've obviously promoted this book for two and a half years and dalio's points of view with lots of kind of empirical wisdom behind it I think indicate that the US is on a path and the way we spend and the way behave we behave and the way markets are reacting I think indicates that a lot of what has happened historically is happening now in the U.S now it doesn't I don't know if it's gonna happen overnight that's where I would have light with Biology okay the notion of kind of hyperinflation again I think means that so think about all the US dollar holders around the world it would be a shock for the collective system it would require the collective system to collectively agree to get off the dollar very quickly for that to really happen yeah in the meantime I do think there will be inflationary effects I do think there will be massive kind of asset value shocks but I'm not sure there's going to be this kind of like Weimar Republic Deutsche Mark I got your hyperinflation thing because it is the reserve currency and it's so widely held by everyone it would require Collective giving up it also seems like there may be you know we talked a lot about the Petro Yuan trade which I think is critical to see that actually happen I think that's going to be the linchpin got it maybe that catalyzes this and that seems to be a little bit tightrope right now too it doesn't seem super definitive that Saudis are embracing China there's obviously this Behavior you know it's not as definitive right now I think that that needs to happen to kind of really catalyze that let's get our tinfoil hats on here for a second in relation to the biology bet there has been a lot of action against crypto obviously authoritarian countries took control of crypto long ago China Banning it Etc North Korea other uh authoritarian places kind of tighten their grip on it now here in the United States coinbase got a Wells notice uh that is a warning basically and giving you a last chance to kind of respond to the SEC and this was based on their loaning programs and on top of that a number of other crypto crackdowns have occurred we saw celebrities getting smacked down and getting fines and doing settlements this has led sax to a theory that the United States government wants to break the back of crypto crypto has done a great job of breaking their own back with plenty of cryptographs insider trading and all kinds of shenanigans with FTX and front running and painting the tape any grift or criminal activity possible seems to have been exploited do you think that these two things are in some way coordinated or there's a coordinated effort by the US government to destroy and kill crypto as an off-ramp for the US dollar while the US dollar is dealing with these prices thanks well there's a really interesting article that was just published on sub stack by Nick Carter who I guess a guest writer on Mike Solana's sub stack called pyro wires just a follow-up piece to an article he wrote six weeks ago where he laid out the an operation by the Biden Administration called operation choke point which made the case that the bind Administration was quietly attempting to ban crypto and now you know a month later there's all these things that are all these steps that the administration is is taking to go after crypto and he you know he lays out a bunch in a bullet point list so the SEC announced a lawsuit against crypto infrastructure company paxos crypto exchange Kraken settle with the SEC SEC chair Gensler openly labeled every crypto asset other than Bitcoin to security senate committee on environment and Public Works held a hearing land-basing Bitcoin binding Administration proposed a bill that singles out crypto miners for owner's tax treatment New York attorney general declared ethereum which is the second largest crypto asset to security that's a huge change by the way yep SEC continues its anti-consumer protection efforts by doubling down their attempt to block a spot Bitcoin ETF OCC let crypto Bank protegos application for a National Trust Charter expire and then the SEC just sent coinbase a Wells notice so I think it's hard to argue that there isn't a concerted effort now to crack down on crypto buy a wide variety of government agencies and authorities starting with Gensler at the SEC who seems incredibly hostile to crypto so now the only question is is this correlated with the stress that the banking system is under or is it just a coincidence and that I don't know but I think the argument biology would make is that at the same time they're going to deflate the dollar they're going to make it harder for you to find an off-ramp and he actually brought up a historical example that I wasn't aware of I think it's called executive order 6201 which is FDR way back in the 1930s actually had an executive order that confiscated all the gold private gold bullion in the country and They seized the gold bullion making the accusation that private citizens were hoarding too much gold so in any event this is the theory I don't know whether it's true or not it could be a coincidence you think that this is correlated in any way with uh the crisis or is just the fact that FTX blew up and all these other things blew up and the public is really upset that they lost a lot of money on this and the SEC has got to cover and be a little bit more active instead of reactive when it comes to dealing with the crypto losses that consumers had that's the latter I mean I think that there was a rumor going around I don't know how true it is that FTX was days away from getting a critical approval by the SEC to actually even further legitimize their U.S exchange before they went out of business so I think Gensler had to Pivot very hard from at a minimum being very Pro FTX and there's all kinds of stories about his interrelatedness with Sam and his family to very anti-bit or anti-crypto in general that's clearly happened but look I think that this is like a lot of tin hatting which I don't think is very productive if you look at the total number of non-zero Bitcoin wallet addresses in the world and let's be extremely generous and say it's a hundred million there's still 7 billion people in the world and so I just think everybody that tries to speak about the fragility of the U.S and worldwide banking system is right but and that part I think is quite lucid and unemotional but every time they try to connect it to bitcoin they sound like a crazy person because they're just talking their book and that is exactly the case by the way with this kid Nick Carter yeah and the best example to demonstrate this is in all of this chaos if Bitcoin or crypto Assets in general were truly a legitimate off-ramp and salvation from US dollar hegemony and all of this stuff why isn't Bitcoin at least at 35 000 a coin right now it's barely above 28 000 it really hasn't moved that much and I think the real answer is that most people in Bitcoin are not trying to hedge their existing fiat currency exposure they're just picking off people in retail and they're just day trading this thing I mean I think that explains how else do you explain an asset that is not absolutely ripped in the face of all of this terrible news about the financial system and I think the answer is because it's still a cul-de-sac of users it's not broadly available not broadly adoptable not broadly used I I still believe that it's valuable I was the earliest proponent of Bitcoin 2011. yeah 2012. so I believe that there's a place for it in one's portfolio but I just think connecting these dots misses the point and I think the point is much much bigger than a crypto off-ramp the point is that we have a lot of systemic shocks that are building up in the system we have broken a ton of the systems that caused the financial infrastructure and the world to work properly and we are just starting to uncover how they're broken so I think we need to focus our energy on that and dial down a little bit of the Bitcoin Maxi stuff because it distracts from a really important set of topics that are more inclusive and actually touch seven billion people we have to do the cleanup work and just to be perfectly clear here Nick Carter is a career crypto he's on his third fund his 250 million dollar third fund according to a quick Google search he's a partner at Castle Island Ventures and I believe biology believes what he's saying and at the same time is massively in Bitcoin and the two million dollars he'll obviously lose in this bet or the 99.9 chance and he said that already I think he believes he's doing a service just like he did believe he was doing a service with covid so I do not doubt his intent but I believe it's his book is based on this and the two million dollars will be yeah he's a very smart and good guy my point is put this in the who cares bucket and get back to the facts Friedberg mentioned it we have a debt ceiling problem that's in the offing sax mentioned it we have a commercial real estate crisis we just talked about the fact that he didn't raise rates enough nor did he cut enough so we're in this weird middle path that Jay Powell we're talking about so those are the facts on the ground that I think we should focus on because those will have implications to how people can borrow start businesses capitalize risk assets that's a big problem I guess the moral hazard comes up sax and the critique I think that people have had of you you know focusing on bank bailouts Etc has been you have been anti-bailout and now hey maybe backstopping the deposits not backstopping the bank the shareholders loss you were very clear about that but let's talk about moral hazard here for a minute are we started getting not for bail when did I say I was either I just couldn't understand you or not I just clear stage you're not I'm saying this is the critique that people have had of you so I'm giving you a chance to address why why are you giving him people's critiques of him would nobody because I want him to talk about the future moral hazard people these are 76542 on Twitter okay Wall Street Journal the New York Times and everything let me jump in and just clarify I was really clear that sgb's shareholders should be wiped out there are bondholders to be wiped out they're Management stock options should be wiped out in fact if it turns out that they should have known the thing was about to go under I think their stock sales should be clawed back so I'm not in favor of bailing out svb I don't care about SCB yes of course now let's do that for commercial real estate no the question is what you do with deposits and depositors correct I think there is a real debate about how you treat depositors in a banking crisis and I think there are two views on that there's kind of an old-fashioned View and then there's kind of a more modern regulatory view the old-fashioned view is that if your money isn't a bank and that bank goes under and you know you're over the FDIC amount you lose your money and we need people in the system to lose their money because that creates discipline on the banks it'll make those depositors do a better job shopping for the right bank that's kind of what I would call the old-fashioned Hardline view there's a more modern regulatory view which is that listen the typical depositor even a fairly sophisticated depositor like a small business or even a high net worth individual they're not in a position to evaluate the balance sheet of these Banks how are they going to figure out if there's like toxic assets that are hidden on the balance sheet of these Regulators didn't see it oh it's talking about a lot of these Banks so you don't really get that much more moral hazard by putting the depositor on the hook for for that remember the management of the bank already is penalized severely by losing all of their stuff so I'm trying to get to before Tremont interrupted me I'm trying to get to the bigger moral hazard picture here which is Jason [ __ ] you before you're interrupting but the point each or not for a second the point I'm trying to get to is should commercial real estate should that be bailed out how should Society look at that next card that you are saying is going to tip over how would you handle that piece should they okay well let me just stretch the thing on on depositor so the modern regulatory view is that when you open a bank account you shouldn't have to think about the bank's balance sheet you just want it to be safe you don't want all the brain damage and and look I think there's a lot of Merit to that argument as it turns out I've been trying to look into this how much would it cost the system to just fully insure depositors it turns out that we have about 17 and a half trillion in deposits in the U.S almost 8 18 trillion and one of the misnomers you'll hear as well it would cost us 18 trillion to basically insure all the deposits that's not true because that's not first of all 10 trillion people don't even it's already insured under FDIC it's only about seven and a half to eight trillion that's less than half is left okay that's right exactly it's about it's around 8 trillion so isn't it shocking the enumeracy of people that make these claims this is 20 or top 10 in the world because we're actually breaking down the numbers right so continue the leading proponent of this theory that we should just basically not bail out but backstop the deposits as Bill Ackman and he's been making I think a pretty compelling case that if you don't protect deposits at small Banks all the money is going to flow to the top four Banks that's right it's happening yeah we're watching it happen right so I've been trying to figure out how much it would actually cost us to do that and what I've realized is that it's not 18 trillion it's it's 8 trillion but by the way that's the amount of deposits that's not the risk premium so if you look at FDIC at the end of last year there was about 130 billion that have been paid in to the FDIC fund buy premiums paid by these Banks so in other words the insurance premium paid by Banks was about 1.3 percent so if you were to now additionally cover the whole thing all the deposits it would be another roughly 100 billion of premiums paid by these banks that seems very manageable to me actually the question is is the FDIC fund adequate and I think we're about to find out it may be the case that a 1.3 percent insurance premium grossly you know understated the true risk of putting your deposit in a bank and we're about to find out that the FDIC is inadequate I don't know the answer to that question well I think this boils down to the profitability that an equity shareholder of a bank expects of them and to your point is it viable for large g-sibs to guarantee a hundred percent of their deposits absolutely the implication of that will be an enormous hit to their short-term profitability and their return on invested Capital it would just take a massive hit and so as a result the stocks of those Banks would fall pretty precipitously which would have a real negative impact on the executives and the CEOs of those Banks and the shareholders that own those Bank equities so I think ultimately it'll come down to that decision which is that if you do want to protect the depositor in the American banking system a hundred percent for every dollar and do it in a simple way it will come at the sake of the equity holders of the banks and if you're willing to make that trade-off then you can guarantee 100 of the deposits if you do not want to make that trade-off then the equity holders will still retain more value than they would otherwise and Freeburg we've seen a couple of examples of the market the free market looking at the situation and making new products and services wealthfront Mercury Bank both talked about load balancing across 12 accounts three million dollars so that would make some people who had over 250k just instantly be backstopped and insured and then where you know there's discussion of um we I talked about last week hey why don't you just have a vault where you pay a bank to hold your money safely I got a ton of responses from all in fans pointing out multiple Banks and services that have been trying to do this and also crypto solution so is it going to be a free market solution you think or when we're starting to see them emerge that maybe covers this Gap a little bit Freeburg and then what are your thoughts just generally on should we backstop the banks and the deposit I'm sorry the banks the depositors to be clear so if we just quickly analyze the function of a bank they loan money to either residential real estate buyers like homeowners or commercial real estate buyers or businesses that need it I think the majority of the capital goes to residential real estate and if they can't loan enough money they typically buy bonds right they buy other people's loans in the form of bond Securities like treasuries or asset-backed Securities or other things like that our mortgage-backed securities so they use the cash to make those Investments to to make those loans and then they obviously earn a return on that you know I think we've talked about this in the past the thing that that biology I think has misstated and it would be good to have a conversation with him about this publicly because I I have listened to some of his interviews in the last couple days he says the banks are they don't have the money that you the depositor thinks that you have and so what he's saying kind of implies that there is no money that there is no asset value there at all he uses Sam bankman freed and FTX as an example that the money that was given to Sam bankman Freed's you know exchange fund was used to buy assets that then very quickly declined in value by 99 but he held them on the book at 100 and then he reinvested the money in all sorts of other different stuff and in the case of the loans made by Banks and the assets that they as a result hold the value may have dropped by 25 in kind of the worst case which is you know the Silicon Valley Bank 10-year treasury bond scenario where they bought you know all 20 billion dollars worth of Treasury bonds and and you know they took a big hit on that but it doesn't mean that there's no asset value it means that the value has declined and typically there's a buffer between the asset value that the banks are meant to hold and the deposits that they owe back to their customers and if that buffer gets exceeded then the bank is technically has negative equity and if all the you know depositors said I want my money back and they went and sold those bonds into the market they wouldn't be able to make the depositors whole but it doesn't mean the depositors end up with zero it means instead of getting a hundred cents on the dollar they get 93 cents on the dollar 88 cents on the dollar and it would require an orderly dissolution of the bank's assets selling those bonds into the market to generate the cash to pay back the depositors so the reason we've seen this kind of this fed vertical Spike number is because assets are moving so quickly depositors are moving their value so quickly from One bank to another that in order for the banks to make the cash available to those depositors they've had to borrow from the fed and then they're going into the market and doing this kind of they should be doing this orderly asset sale of the bonds to generate the cash to pay back the FED which is exchange musical chairs money causing these problems as musical chairs and if the musical chairs stop then we don't have this problem correct so if people stopped moving uh deposits around then you're right the banks wouldn't need to borrow money to give depositors their money and then go do the work of selling the bonds in the market people free without moving their money around because I'm insured because it's not insurance so here we go so you just ensure it and this whole thing stops so it costs them nothing to just say that right yeah exactly here's the thing Jake how you mentioned this case that you hear a lot of people saying well why don't you just take your two and a half million dollars and break it up into 10 accounts which is what people are doing yeah yeah well look it's not feasible when you need to run a big payroll at the end of the month and you've got payables it's administratively too complicated and by the way what have you accomplished doing that if you haven't solved anything so that's an accomplished for the startups I'm just given that prediction the system yeah why won't you just raise FDIC to two and a half million or have FDIC be based on the number of employees in your company or allow a higher class A business class of FDIC that goes up yes exactly 10 million and in exchange the quid pro quo has to be that the bank can't put that money in Risky assets not this is so obviously the reason I walk through that whole explanation because I want to answer your question I'm sorry it took so long but like I want to highlight that because that is what an insurance underwriter put aside the FDIC and put aside Banks and put aside the government's role yes that's what an insurance underwriter's job would be they would look at the volatility and the pricing on the bonds that the bank holds and they would determine ultimately two things probability of loss and severity of loss and the probability is How likely is it that you end up in negative equity and that you have people requesting money and you have to sell those bonds and lots very quickly and then the severity is how much would you actually lose so if if you know the FED raises rates by three percent and your entire book is tied up in 10-year bonds you see a 25 decline in the value of your bond portfolio that's as bad as it gets if you start with a 10 buffer now you only we have 85 percent of the money you owe the depositors so your loss is 15 cents on the dollar so the insurance company would say what's the probability of that event happening how much should we underwrite it for what should we charge as a premium to do that and that's ultimately how the rates would get set now the problem with most insurance models around this sort of a problem set is that these are the extreme tail events that have never happened and so the insurance to Sax's point is super cheap leading up to the extreme tail event and then everyone's like oh my gosh we underpaid for so many years we didn't realize how severe the losses could have been we didn't realize how significant this was going to be and as a result you now see this kind of multiplying effect because people are like oh my gosh if it happened to them it could happen to me let's all sell and it gets worse and worse and worse and so you know the real rate for the insurance going forward will now have to take into account this massive risk but the game theory problem is as saxes point out if you just ensure everyone the cost of the insurance actually goes way way way down because now you don't have this money movement problem and so you know the the point is the more you insure at this point the cheaper the insurance will actually be if you're an Actuarial or free market underwriter you know free market kind of you know underwriting process on this thing because now the probability of having this Bank Run goes way way down and therefore the cost of the insurance should go way down and so the the irony is if you actually did and this is getting super technical but if you actually looked at the statistical model and said how much is this going to cost to insure every deposit it gets much much cheaper the higher the the the deposits that you're willing to ensure would be that's my sense of what the free market would do here and it's certainly what I think the federal government should probably think about doing if they're going to continue to play a role in backstopping Banks the net net is people startups right now are doing five to ten Banks I'm watching it happen they're doing all these sweep accounts they're doing multiple accounts so the government if it doesn't raise the FDIC limit is basically just creating extra work for everybody and it's going to be the same outcome so this people are gonna the street will find its own use for technology and how to hack this and that's what's happening with these Services yeah in real time just a steel man the the old-fashioned view or the traditional view of this they would say that well you want those startups being paranoid do you want those Sharps doing the work of disciplining these banks by moving their money elsewhere if they detect a problem however the problem with that is you get these Bank runs that is what a bank run is in Parts is people moving their money because they're fearing that the bank is not doing a good job with their loan portfolio so this is why in the let's call it the olden days before FDIC we had Bank runs and panics all the time and that's why FDIC was invented so there's a hugely destruct a problem that comes along with placing the depositor in charge of disciplining the banks and I would argue that the deposit is not the best person to do it it's the regulator just to kind of layer on what what Friedberg was saying I think there's like a fundamental market failure with banking in the sense that the depositor or the consumer and the bank think they're getting two completely different things when you open a bank account or a checking account you think you're getting a checkbook an ATM card a place to do payroll run you know and it's a service that's a service and maybe you make a little bit of interest but it's not even your main motivation okay that's what you think you're getting your money most of all is safe because you're not signing up with a service provider to have any chance of losing your money you're not gambling right but now what does the bank think it's getting you know what the bank thinks it's getting an unsecured loan that they can then turn around and invest in whatever they want or whatever the law so there's a disconnect between the parties and the transaction exactly it's a total disconnect and moreover the way the management of the bank is compensated is that they only have to pay back your loan your deposit basically isn't their loan at par and anything they make on a bet that they make with that money they get to keep they get to keep all the upside their stockholders and management get to keep that and those incentives are driving this and that's what drove the risk in all likelihood at Silicon Valley Bank they were getting 200 billion dollars whatever percentage point they got chemov their incentive it's not just them but the whole banking system creates the incentive they're highly leveraged the deposits from their standpoint are leveraged they're leveraged ten to one so their incentive is to go to the casino and gamble it because they get to keep all the upside and if they lose it it's basically someone else on the hook final work your mouth in early May the FED will release their investigation into Signature Bank and svb okay Powell said that this week I think it'll be really interesting to see how much honesty they both put into the report and then whether the entirety of that report is made available to the rest of us to read but I think sax has very eloquently summarized what's happening and it doesn't take a genius to figure out that this doesn't make sense and so the question is what is the tolerance that we have for changing something that clearly is mischaracterized what consumers think they're getting and what banks are then doing are two totally different things and If the Fed actually is really really honest and really lays bare everything that happened it'll be very hard to not legislate changes based on it and this your best uh swing at a legislative change would be what chamoth what is the what is the low-hanging fruit what's the layup here well I think we've seen this happening in other markets for a while which is that banks have become In fairness to them much much better at risk management post Dodd-Frank post great financial crisis and the result of that is that there's been a lot of emerging private credit markets because most the bank is about lending right they're not really buying equities they're lending money they're a debtor in possession of something right and there's been a just a massive explosion of private credit and it started in the most obvious areas it started in things like Clos it started in asset-backed Securities solar car loans credit cards mortgages private Equity backed deals so I think the rational answer is that Banks need to protect a hundred percent of deposits and that if they want to have extracurricular activities if you will they need to be able to raise money from investors put that to work in a really fair and transparent way and then share in the profits between all of the related parties that are involved in that transaction no different than any other risk-taking organization and I think that this is now what we've probably shined a light on is in really odd loophole that just needs to get closed in 2023. there's such easy uh hygienic changes here like let's put it a different way if you raised money for a liquid hedge fund that had quarterly redemptions and then violated the LPA and stuffed it into private companies that had 10-year illiquidity there would be hell to pay yeah and vice versa if you raise money on tenure a liquid locked up capital on the presumption you were going to invest in startups and then instead put it in the stock market thinking that you could flip it and make some money you would have violated the LPA and there'd be held to pay similarly I think what Sox is stating is that there is a mismatch of what the depositor in this case the investor expects and what the risk manager is doing and I think that you have to correct that one way or the other make it abundantly clear that we're never going to ensure 100 and deal with that risk or make it 100 and deal with the Fallout which is largely about uh wiping out a lot of equity value in Banks LPA equals limited partnership agreement right just just to clarify one thing I'm not saying that these bank managers are all going to the casino and gambling the money I think that they are generally more responsible than that what I'm saying is that the incentives created by this crazy system we call banking create a weird incentive for them to gamble because they're so highly levered from their standpoint your deposits are their leverage everybody but the gsibs because I think the g-sibs there's so much scrutiny if you look at how well-run City B of A Wells and JPM are relative and contrast them to the sub-g-subs it's like night and day and so the other thing that I think we've realized is who thought it was a good idea to raise the bar on eligibility from 50 billion of assets to 200. clearly now that made no sense it makes more sense to actually categorize every Bank as systemically important maybe not globally but at a minimum to the US economy because these people play a vital function in society and they were allowed to take a much more aggressive wrist posture because they were able to Lobby the government to change the rules the CEO of tick tock which claims to be an American company now or an international company was in front of Congress today his name is show Chu this is the first time he's really I think spoken publicly in an extended period four and a half hours he was grilled and it was absolutely brutal it's the first time I've seen a congressional hearing that was bipartisan in a long time and he said that quote the bottom line is this is an American date this is American data on American soil by an American company overseen by American personnel and then was immediately squirrely when asked if Chinese employees including Engineers have access to this U.S data and he said this is a complex subject over and over again he was evasive and this did not look good for tick tock well the question now becomes does it become divested and go public or does it get shut down sex I think his Goose was cooked as soon as they asked him the question in preparation for this hearing did you consult with any member of the CCP and he could not just outright say no no so that's his Goose was cooked as soon as he couldn't just say no what do you think about the bipartisan nature of this and what do you think the outcome is sex well this is one of the rare things where it is bipartisan I mean there's there's so much outrage and anger at this I think that they should let the company divest it I think it is divestiture or shutdown for tick tock since we're not Communists here I think they should be given the chance to fully divest to an American-owned company but look I just wish that there was as much bipartisan consensus and outrage directed not just at Chinese spying of Americans but on the American deep State spying on Americans because we just had hearings showing that the American government conducts elaborate spying operation surveillance of Americans on social media this was all revealed in the Twitter files and we got certainly no bipartisan consensus on that Republicans were outraged but Democrats tried to portray it as some sort of spat between Trump and Chrissy Teigen I mean that's all they wanted to talk about so I would like to see this problem comprehensively addressed and that means I think Tick Tock going into the hands of an American company but I also would like more assurances that American companies will not be working with the Deep state to spy on us and infringe Chrissy Teigen and Donald Trump who are two people you'd never invite to a dinner party free park what are your thoughts is it going to divest should it be forced to divest being intellectually honest about it what are your thoughts on tick tock in America uh yeah I think I've shared this in the past I think they're probably going to have to spin this thing out and if they hold any Equity if the Chinese parent company holds any Equity interest it'll probably be non-voting shares and there'll be a mandate that the majority of the shares and some degree of oversight I believe that's the right thing to do from a national security issue for America to force them to do that I don't know from a national security point of view I really don't I don't have an opinion from National Security and Tick Tock I don't know I I've always thought that Tick Tock was a really what's the right word like it's like a firefly for you know Chinese Invasion and it feels like you know it's a very easy kind of Target for I think what is generally a big kind of social Consciousness right now so you know whether or not there's actually like uh some National Security points if if there were I'm pretty sure that a national security person would have stood up and said we need to stop this thing I'm not sure I've heard that publicly uh but but I will say like my point of view from like just seeing the political behavior is that they're probably going to mandate that these guys spin this thing out to U.S investors and and that they have you know don't own any that the Chinese don't have any Equity or management oversight or interest in it in China itself the Chinese government does not allow kids to play video games during the week and only three hours on the weekend they're using apps like WeChat to dictate social score and social behavior whether it's smoking on a train or not paying your bills and they are saying they will not divest but anybody who is an investor in a company that had a chance to go public for tens of billions of dollars and eventually take on and people believe that this is a viable competitor to Facebook and Instagram this could be a company worth ultimately hundreds of billions of dollars if you were an investor in China you would want to IPO you would want to get liquidity so if they are refusing to sell what does that tell you as a market participated in a participant and somebody who's been a capital allocator for over a decade there's bigger problems in China than even Tick-Tock U.S represents for them I think it's probably what it means so it's a pretty bad tell I don't think divestiture is a real option because when you think about the details of that how will the government be satisfied that the code base was separated elegantly that there was no malware surreptitiously planted how will you actually prove all of this to a degree that satisfies a legislator so I think the pound of Flesh that they want is more easily and more salaciously satisfied by shutting the thing down so if I had to bet on what happens I bet more on that I didn't think Tick Tock did a very good job and I think that there are some they were terrible today and I think that there are some real issues around how much control does actually flow back I don't think that it was definitive he needed to be much clearer and adamant that this was an independent business that didn't have back doors to China and the CCP to appease Congress he didn't do that no he was like I have to check in on that I'm not sure yeah I think it was a little bit of the exact opposite actually sax is right like that first question was just the death blow right from the beginning it's like oh this is not going to go in a good place because they should have been able to see that that question was going to get asked and you need to have that asked and answered philosophy where the only answer is no the only answer you could have given is no and the fact that he wasn't able to say that it was a bit of a feta complete as soon as that was in my mind I was like this thing is getting shut down because I don't think there's a shutdown yeah there's no divestiture plan that can be technically audited in a short amount of time to appease these folks they want a pound of Flesh and then separately the bigger issue that I think you have to deal with is what does that mean for how other governments may be pressured to act who want to be on the pro-us camp and I think that that's a question because bike dance and Tick Tock have presence Beyond just China and the U.S a third question is how does the golden vote get used on the bike dance board and what do they do and do they even want this thing public explain golden vote essentially they'll decide what happens to that company and they have that in Alibaba they have that I think a 10 cent I think they have that at bike dance so the Chinese government has a very strong hand in the direction of these business and then the final point is that there's a secondary app that Tick Tock has called cap cut which also is enormously popular in the United States which is yet another potential back door for privacy or spying violations whatever the U.S Congress wants to pin on them so I think it's a very complicated moment for that business and their U.S asset sex it's pretty clear the CCP is making this decision if they decide let it burn let it get kicked out of the United States what does that do in terms of Game Theory between the two countries and going forward because obviously they don't reciprocate we're not allowed to have Google Twitter Instagram whatever in China so is this just you know reciprocity what's what decision are you saying the CCP is making well the CCP has the golden vote it's their decision to divest or not divest chimately they will not divest I believe they're saying that is they're not going to have the choice I don't I don't see what decision the CCP has in this that's right it's not a divestor or don't divest I think it'll be shut down I think they're getting kicked out of the United States okay do you but you believe they're going to divest sex I'm saying that that's what I would support so what do you think is going to happen maybe you're right I'm not sure but I think they should be given the chance and if you truly can't move the servers to the United States and vet the code base I feel like you could I think you could have an acquirer figure it out you know vet the code base move the data centers make sure there's no back doors I think it's not impossible hard but not impossible okay so let's go with the scenario that it gets kicked out of the United States is shut down are there any second or third order impacts yeah is this rashes up the tension between the U.S and China but we're already we're already there yeah we're right there no change all right listen this has been an amazing episode oh chamoth did uh your 3D rocket company make it to space I saw they had a nice uh little lift off there thank you I just wanted to give a shout out this is like while all this chaos is happening in the world it's amazing to see pretty incredible engineering so last night we did have a successful launch so relativity has a 85 percent 3D printed rocket which over time we want to try to get to 95 but it's the fuselage it's the engines it brings the cost of space flight down by an order of magnitude it is a hugely disruptive idea and so what they tried to prove was that they could get this thing into space and they accomplished a lot of goals they got past Max Q which is sort of the point at which the atmospheric pressure is the strongest on the fuselage so we proved structural Integrity we got to main engine cutoff we had stage two separation so a lot of really important technical Milestones were achieved it allows them now to unlock a bunch of contracts that allow us frankly just to keep going and building there's still a lot of work to do from here we're building now the Next Generation rocket which is called Taran R and Rocket engines which can take instead of 1500 kilograms about 20 000 kilos so enormously proud to have been around this journey my partner Jay has been really the key person on it but I just wanted to give a huge shout out to Tim Ellis and the team at relativity it's super super cool but they pulled out just amazing how uh access to space is being democratized and the prices are being lowered so dramatically what's the impact that's going to have ultimately for your Berg you think on Humanity I mean obviously going to Mars is this incredible feat technologically and just mind-blowing but what do you think the the net result of all this space activity is going to be for The Human Condition and the species I mean I think there's a Vibrant Community of startups and money coming into this space right now I do think all these guys are going to have to in order to gain wider spread Capital markets attention like Elon has had to do with SpaceX they're going to have to find business models that have kind of near-term viability that don't depend on government contracts like Sonic like starlink yeah and so I think that's the key question it obviously these are very Capital intensive businesses they have very long Horizons to hit their milestones so there's certainly Capital available in the early stages to make bets on whether or not they can get these Milestones but but you know the broader kind of attention in capital markets is going to come from these things building real kind of businesses that generate value for consumers and markets you know one of the things that I think can unlock opportunity for this Market overall is low-cost energy you know if we can get below call it one cent to three cents kilowatt hour of power call it one cent a kilowatt hour power I forgot the exact relationship you can get very cheap um you know hydrogen and oxygen fuel sources and so you know the it's funny if you actually play out the the scale factor for space for the space industry much of it at scale will get driven by the cost of electricity so it's another reason why there's going to be I think a pretty tight coupling between the cost of power and ultimately the vibrancy of this Market you mentioned something important the other key thing that we proved was that this is a pure methyl Ox engine so CH4 and liquid oxygen and it was not just stage one but also stage two which is unique the only other folks that have tried to prove that you could have multi-stage methylocks is China and their most recent launch failed but it highly simplifies the engineering problem at hand especially the ground operations and whatnot and sort of like filling these rockets and making them viable so that was another really big milestone the producing of that fuel Friedberg requires energy if that energy was cheap it would be cheaper to make and process that fuel that's right yeah this is a pretty pretty direct tie-in particularly with scale manufacturing on fuel that would be used in these rocket systems and and power prices here on Earth so if and as we get power prices down either through scaled Renewables or ideal infusion or some other kind of new technology yeah yeah or nuclear fission or something then the cost of you know Fuel and the cost of these space programs goes down and that ultimately I think the real question everyone asks is how do you get away from it just being government services businesses which you know have a low multiple uh in markets and obviously you know High dependency on one or two key customers and how do you actually get private markets uh private market products moving so tourism obviously makes a lot of sense travel you know around the Earth in 20 minutes or something or you know some people have talked about mining or colonies and you know who would fund that real estate it's unclear right now what the ultimate traveling is a wild one yeah I've talked to Elon about that but the idea that you could have a rocket ship take off from Texas and then be in Tokyo you know like half an hour of minutes later I can only speak for myself but uh I would really like to visit Uranus Reaper all right everybody came back look at the player here he's got layers are for players sexy people look at this he is he has two layers in can you get an ascot that's subtle isn't it he's pulling a Steve Bannon yeah you gotta get more disheveled he needs the six pens in the pens No Shave can you tell us do you have a stylist an actual person you pay for the rest of you Nick can you please put the picture of Steve Bannon where he wears the multiples polo shirts again you uh need to stop for next week attacking me it's really weird oh yeah Bannon he thinks you're a venture a vulture capitalist or something who's been attacking you banana was one of many people attacking me on Twitter I think on his podcast I think yeah you seem to have made a lot of a lot of new friends on Twitter lately when you pass around half a million followers basically what happens is you become a politician you will net there will always be a fringe element of people who need to manage their anxiety by venting and that's what you're feeling you'll live that now at million use uh you know followers 2 million 10 million whatever there's always going to be a small percentage J Cal doesn't know this because he has mostly Bots that are his followers that's true real when you have real people this is what it is you'll get this one percent or less than one percent and just the number goes up so I would ignore it don't care don't worry about what user 747 don't feed the brigadunes don't care what seven users 74786 has to say don't worry about it yeah absolutely I love you all right and I'm looking forward to seeing you on Thursday for the Rain Man himself David sacks the Sultan of Science and Prince of panic attacks are PAL David Friedberg and the host with the most gonna make it what about me what about me I'm going I'm calling you the host with the most I'm adding something the host with the most who's making me the shiso leaf Tempura with Hokkaido and you are the world's best genuflector I am the world's greatest guest greatest house guest if you need a house guest to look at your house Italy Tokyo and Seco wherever you need a house guest I'm ready to come and make it a good time you're the modern Kato kale and you're horrible absolutely the best you keep inviting me every week you are enjoyable though love you boys [Music] somehow [Music] is [Music] [Music]








oh Jake house here hello Jacob hey how are you thanks for showing up I've been here the whole time I was just uh well I was just having some of these beautiful salted roasted pistachios the only problem is when I went to the store I kid you not there was a shelf of these all flavors available except one flavor salt and vinegar sea salted Tire we move the market we moved the market I am not kidding I go to the fancy you know bespoke the rallies and Truckee I went to the railways and Truckee the artisanal and they have you know all these over first of all it's called artisanal that's what I said the art stuff the artistic food the artesanal bro where they had this I kid you not spicy salty no salt every shelf packed then there's one shelf I can see straight through to the ice cream but not see southern and I look at the tiny little sign salt and vinegar shelled nuts sea salt sea salt and vinegar tomato shelled nuts sold out across the country you know I cannot recommend these more highly they're incredible you can't recommend yourself they are delicious my salty nuts are delicious to let your winners ride Rain Man David's side we open source it to the fans and they've just gone crazy [Music] did you see Joe manchin's High heater op-ed in the Wall Street Journal oh oh my God yep Joe manchin went for it but Joe manchin's running for president he is I think okay so let me ask sax right there sex Joe manchin Nikki Halley and who's the guy from Florida what's your question by the way there's a big defection that was leaked this week Ron louder flipped from Trump to to santis that's a big one because louder is good for a lot of money five to ten million at least Joe manchin what impact would he have coming to the race I'm not trolling him looking for your honest opinion well it depends how he comes in what did he say in the op-ed he was talking about the insincerity of the Biden Administration to control costs and how everybody was incompetent and it certainly there's some waste and we can control some spending and everybody needs to grow up and get in a room and just manage the budget for the American people and stop playing politics yeah I think the headline of the article actually to your point Jacob was much worse than the substance of the article sax but if you see the headline I don't know Nick if you can just throw it up there it was brutal the headline in the byline of the article I think was more damaging than the substance of the article Biden's inflation reduction act betrayal instead of implementing the law as intended his administration subverts it for ideological ideological and I have to think that Joe was responsible for that for the titling of that article you know he would get permission to approve it right and by the way I think if you guys remember we talked about this when that act was first published and if you guys remember I think I pulled up the CBO data the CBO model and it showed for the first five years this thing Burns a couple hundred billion dollars and then there's some expectation that there'll be some sudden boom in Revenue in the out years and then you make the money back in the out years so it's total like accounting Shenanigans for him to have made the claim in the first place that the IRA was actually going to be like a net deficit reduction or debt reduction in fact it's all just accounting Shenanigans and it's just a massive spend package particularly in the near term when it matters most I think I told you guys this but I think this was like when was the last time I was in Washington probably what is it March now so maybe it was January I was there and I saw Schumer and Mark Warner and I spent about two hours with mansion he is really impressive he's cool he's interesting he's thoughtful he's moderate mansion's like a formidable guy so this will be really interesting if he steps in there and tries between Nikki Haley and Mansion where do you uh write your check I'd probably write a check to both to be honest feels like a good ticket to me I've always wanted to see the the cross could you imagine a Democrat and Republican merging somehow and like running it would be the greatest my god I've been pitching that for years I think that's like a my God clear path David Friedberg may have just come up with one of the most disruptive ideas in American politics that's ever been floated Mansion Hallie Hallie Manchester imagine Helen yeah just uh my comment on this so first of all I remember when you know Mansion did a good job stopping Biden's three and a half trillion dollar build back bet I remember it was him and Cinema that were the holdouts yep but then Mansion compromised and gave Biden a 750 billion dollar version of it and I guess now he's complaining that Biden didn't live up to his end of the bargain and doing the deficit reduction but quite frankly many commentators said at the time that the bills claims deficit reduction were Preposterous and that would never happen so quite frankly you know Mansion shouldn't have been euchreed or Hoodwinked by Biden everyone was basically saying there'll never be any deficit reduction out of this bill it's just more spending so I don't really feel bad for Mansion here saying that somehow he was betrayed by Biden he should have known better now in terms of him running yeah I think as a Democrat who's figured out how to get himself elected in West Virginia which is a plus 20 Red State he obviously knows how to appeal to the center the problem for him is just how do you get the Democratic party nomination because he's far to the right of your average Democratic Party voter if he wants to run as an independent that's a different story and that would really throw a curveball into the race but I don't see him doing that I think it's kind of a stretch and this is the problem with a lot of these fantasy candidates is that you know centrists or moderate voters might like them but they can't get the nomination of their party unless you mean like Trump and Obama those who are fantasy candidates I don't think so I mean Trump was not a fantasy candidate he's the ultimate well he was an outsider but he appealed to the base of the party he appealed to the base of the party what I'm saying is in order to get the nomination of a major party who have to appeal to its base and I don't think Mansion appear the base Democratic party he's out of step with it he's out of step with it in ways that I like don't get me wrong but I just I don't see how he's going to get a nomination Chris Christie what do you think of him he seems like he's about to come in the race too David he's just clutter okay pointless all right listen everybody Welcome to the all-in podcast it's like episode 100 something with me again today the Rain Man himself yeah David sacks is here Friedberg is in his garden at his home in Paris spring has sprung the queen of quinoa and of course the dictator himself chamoth palihapatia The Silver Fox look at that little tough of silver hair so distinguished I got a haircut from somebody recently who said that people go to her and ask her to put the silver thing in their hair really I don't have to worry about that yeah it looks like he's in Smurf Village there what is what is that backdrop background that is a a scene from oh okay I like uh most of my backgrounds oh my God what's the mood in the moment of the week you guys just totally totally denied half the beta males in the YouTube comments from being able to guess what the background yeah thanks a lot I really did for them reverse image search and then I use the chat to automatically figure out the background each week oh okay all right well let's get started come on let's get started okay listen I gotta get out of here again yeah it feels like he's in a good mood I like this welcome to the world's greatest podcast opening I launched a bunch of chat GPT plugins and I don't know if you saw it but David sacks wrote a blog post with chat GPT it's an amazing back and forth I read this back and forth explain what you did sax this was really like one of the best conversations I've seen with chat GPT they'll pop it up here on the screen but you did well I had an idea for a blog post about the use of a I guess tactic you could call gift to get I thought it would be a interesting tactic for AI startups to use if they're trying to get a hold of proprietary training data so for example if you wanted to create an architect AI you need a lot of plans or if you're going to create like a doctor AI you need a lot of lab results or medical reports to train the AI on and those are hard to get open AI doesn't necessarily have them yet so there is an opportunity I think for startups to create these AIS and different you call them professional verticals so the gift to get technique would be you give points to your users for uploading that data and then they can spend those points by using the AI and anyway the the company that came up with this gift to get tactic was a company called jigsaw almost 20 years ago no one remembers this company I'm kind of dating myself because I remembered it but I just had this idea gee I wonder if the jigsaw approach could be used for AI startups so I started by going into chat GPT and I said hey have you heard of Jigsaw and then it had and then I said tell me about its gift to get you know approach and then I said would this approach work for hey I sort of set one proprietary training data sets and I said yes this is a good idea and then I gave the architect example and I said can you give me more examples like this and it gave me like 20 more examples and then I asked it just to flesh out various kinds of details I went down some cul-de-sacs I didn't use and then at the end I said can you summarize everything we've just talked about in a blog post and it gave me the first draft of a blog post I then did a substantial amount of editing on most of the blog posts although some of it I just use verbatim and then I had a couple of people in my firm look at it they made some good suggestions so it's not like the human's completely out of the loop and then I copy and pasted my edited version back into chat GPT said here's my edit and then I asked for some suggestions it made a few small edits and I said okay great just incorporate the edits yourself gave me that final output and then I posted on sub stack a Blog that probably would have taken me a week to research and write if I had done it at all I was able to do in a day and I can't see myself going back now I think this is just how I'm going to write all my blog posts is is use chat GPT as my researcher as a writing partner some cases an editor but I'm definitely going to run it through the thing that I was struck by was just how kind and generous and thoughtful this conversation was and I just thought I've never seen sax have a conversation where he was so kind to the other person and thoughtful right about now all your friends and family are like how do we get sex to have this conversation with us you were super kind to the AI because it's not a person it was a robot oh yeah well just in case it takes over the world Jay cow you can't be too too careful but no I think listen it's important to give the AI he's so cool I've never once gotten a thanks from Savage exclamation part scroll up and show that example the AI actually gave me some information about jigsaw's point system again the the rewards that they used yeah and it was just in text so I said down below hey can you spit that out as a table and it did instantly that's like a day's work right like you would have to have an analyst or research and do a days where it's incredible and and then I just screenshot of that and I made it an exhibit thank you well it was like delightful back to you this is a literal road to you being a kind human being like all the money that you've spent on therapy and just trying coaching to be nice to people you're just nice naturally Max is in a good mood today I don't know why you're instigating him he's laughing come on it's fine thank you to the AI perfect this is confirmatory of what we know David wants to live in a set of Highly transactional relationships ideally with the machine hahaha can that eventually help him making money can I ask you a question of sincerely sex did you what did you enjoy more working with your team of humans on this or working with chat GPS more enjoyable for you just personally well I think they both were I would say that the human contributions were essential so okay it's not about enjoyment it's just you know it's about this is just a job to get done but but it definitely sped things up enormously I I personally find the hardest part of writing a Blog is when you're staring at that blank sheet of paper and just having to like spit out the first thousand words yes yeah it's just so time consuming to do that but again if you start with the first draft even if it's not very good then you can just edit it and it's specification yeah it's great for ideation were important yeah I actually trusted it I know that you probably should fact check it in a way because it can hallucinate but the things that we're saying made so much sense to me that I didn't think it was hallucinating well this is a great moment to Pivot into what open AI did with plugins these came fast and furious this week and a bunch of folks who had you know started verticalized chat GPT based projects MVPs were like oh maybe my project MVP is now dead because instacart Open Table shop if I slag zapier and zappier obviously like if then this then that is a very wide-ranging tool that allows you to connect apis from a multitude of sources and what this all lets you do at the end of the day is have chat GPT ping one of these sources just like an app might do or some custom software might do ping the API and return data so hey what tables are open on OpenTable maybe Shopify find me things to buy in this category Etc and so people have started building little scripts we used to call these uh when magic leap was out internet agents and the concept of a software agent that's existed for a long time actually in computer science I'm sure free birkett will give us some examples of that but also chat GPT can now use a browser so that means you can get around the dated nature of the content in the corpus somebody did things like hey build me a meal plan book me a reservation for Friday night in OpenTable Source other ingredients and buy it for Saturday night on Insta cart and then use something like wolf from Alpha to you know calculate the calories Etc so when you saw all this drop sax what did you think in terms of the opportunity for startups and to build these intelligent agents things that will do if then if this then that or just background tasks over time and you could actually leave them running yeah I mean I think this is the most important developer platform since the iPhone and the launch of iOS in the App Store and I would argue maybe ever in our industry certainly since the beginning of the internet I think there was a question when chat GPT launched on November 30th and people start playing with in December what exactly open ai's product strategy was going to be was this just like a proof of concept or a demo and they even kind of called it like a demo and initially it looked like what their business model was going to be was providing an intelligence API that other websites other applications could incorporate and we saw some really cool demos like that notion demo of other applications incorporating AI capabilities and so initially it looked like what openai was going to be was more like stripe where in the same way that stripe made payments functionality available very easily through a developer platform they were going to make AI capabilities available through their developer platform and then I think a Funny Thing Happened on the Way to this announcement which is they became the fastest growing application of all time talking about chat GPT over 100 million users in two months nobody else has ever done that before I think it took the iPhone you know two years plus Gmail Google those products all took I think well over a year so this became the fastest growing site of all time and I think with plugins what they're indicating is that they will become a destination site this is not just a developer platform this is a destination site and through plugins they are now incorporating the ability to basically you know anything you could do through an application you will now be able to do through a plug-in you'll just tell chat GPT what you want done if you say hey book me a plane ticket on this date it will go into kayaks plugin and do that you say book me a plane ticket and then an Airbnb for the promise of Siri and Alexa realize because those were very rigid they had no intelligence right Friedberg who if you if you wanted Siri to do something specific like use Waze or to go get you an Open Table it needed to be pretty specific and it didn't have any kind of natural language model behind it so this is taking existing apis and putting a natural language layer in front of it which makes it uh you know perform a little more naturally is that what we're seeing here free bird I think it provides access to a corpus of data and a suite of services that are not well integrated into a search or chat interface anywhere today so you know knowing what restaurants have what seats available is in a closed service it's in a data warehouse operated by OpenTable and now what opendable can do is provide an API into that data via an interface and they can allow chat GPT to make a request to figure that data out to give a response to a user where they can ultimately benefit from transacting and allowing a service this closes the loop between search and Commerce in a way that Google cannot and does not do today and I think that's what makes it very powerful we've seen this attempted in a number of important ways in the last couple of years with Alexa and apple home and Google home kind of integration via the chat services that they offer you know where you speak to the device but the Deep integration that's possible now and the natural language way that you can go from the request all the way through to the transaction is what makes this so extremely powerful and I think you know the points I made a few weeks ago when we first talked about you know search having so many searches that are done where the human computer interface presents a table or presents a chart or presents a shopping list in a matrix that's what makes search such a defensible product I think could theoretically be completely obviated or destroyed with an interface like this where you can write the ability for chat GPT or whatever the the core centralized services to actually present results in a table in a matrix in an interface in a shopping list and actually close the transaction Loop it's really disruptive to things like Commerce providers it's really disruptive you know some of these Commerce platforms it's really disruptive to a lot of different Industries but also introduces a lot of real opportunity to build on top of that capability and that functionality to rewrite and ultimately make things easier and better for consumers on the internet what do you think about you're looking at this and it seems to be moving at a very fast pace over 100 million users they put a business model on it already 20 bucks a month they have a secondary business model of hey use the API and we'll charge you for usage and then you layer on what zapier and if this then that had already sort of established in the world which is apis but nobody ever really wanted to write scripts so that seemed to be the blocker you go into zapier if this and that it's worth five percent of the audience people want to customize stuff people who want to Tinker but this seems to now with the chat GPT chat interface open it up to a lot of people so is this super significant or is this a commodity product that you know 10 people will have we're sitting here next year on all in episode 220. I think you are asking the exact right question and you use the a great term like in poker if there are three hearts on the board and you have the ace of hearts you have What's called the nut blocker right which means that nobody else even if anybody else has a flush they never have the best flush and it flushes the best hand there's a lot of ways that you can manipulate the pot and eventually win the pot because you have that ace of hearts and nobody else has it the concept of blocker I think is very important to understand here which is what are the real blockers for this capability to not be broadly available so I think you have to segregate you have the end user destination you have the language model and then you have the third party services and so if you ask the question what is the incentive of the third party service well the shareholders of a travel site right they're not interested in doing an exclusive deal with any distribution endpoint they want their services integrated as broadly as possible right so I think the the answer for the service providers is just like they build an app for iOS and for Google and you know if they could have Justified it they would have built an app for a gaming console they can't yeah they do right so that's going to get commoditized and broadly available I think on the llm side I think we've talked about this everybody's converging on each other in fact there was an interesting article that was released that said that there was a handful of Google Engineers that quit because apparently bard was actually learning on top of chat GPT which they felt was either legal or unethical or something right so so the point is I think we've talked about this for a while but all of these models will converge in the absence of Highly unique data right what I've been calling these white truffles so if you can hoard white truffles your model will be better otherwise your model will be the same as everybody else's model and then you have the distribution endpoints of which there are many whose economic incentives are very high right so Facebook doesn't want to just sit around and have all this traffic go to chat GPT they want to be able to enable Instagram users and WhatsApp users and Facebook users to interact through Messenger what have you obviously Google has a you know many hundreds of billions of reasons to defend their territory so I think all of this to me just means that these are really important use cases as an investor I think it's important to just stay a little patient because it's not clear to me that there are any natural blockers but I do think that David's right that it's demonstrating a use case that's important but it's still so early we are six weeks in yeah I tell you I think there's a couple of great blockers here where there's going to be an m a bonanza for Silicon Valley if you look at certain data sets Reddit stack Overflow for programming and quora these things are going to be worth a fortune and to be able to buy those or get exclusive licenses to those if you're maybe Google barred or if you're a chat EBT that could be a major Difference Maker Twitter's data set obviously and then you look at certain tools like zapier and if this and that they've spent a decade building the sort of you know meta API that would be an incredible blocker I I think this is going to be like a box Organization for free they did a plug-in for free exactly yeah I was just gonna say I don't think these are not blockers I don't think this is the ace of hearts on the flushboard I don't think so I think that these things are really interesting assets they are definitely trufffully in nature but they may not be the you know 10 pound white travel from elbow that we're looking for you know but on the m a side don't you think this would be like incredible no but the only reason I say that again is it is just so early like I in the text I I mentioned this to you guys I remember and sax and I were in the middle of this we were both right at the beginning of social networking sack started Genie I was in the middle of aim and all of a sudden we saw Reed start social net then we saw Friendster get started then we saw Myspace get started and you have to remember when you look back now 20 years later the winner was the seventh company which was Facebook not the first not the second it was the seventh which started two and a half years properly after the entire web.20 phenomenon started yeah same with search by the way where Google was probably 20 to the scene yeah excite like us if you want to be a real student of business history I'll just say something that's more meta which is if there's something that I've learned on the heels of this svb Fiasco is that there is an enormous amount of negative perception of Silicon Valley and frankly a lot of disdain for VCS and prognosticating technologists right and I think that so yeah this podcast I think we have to be very careful yeah and and I I do think that we are an example of that because we are the bright shiny object of the people that were successful and the broad makeup of America thinks that we're not nearly as smart as we all think we are and after all of this money that's been burned in crypto land and nfts and all this web 3 nonsense to yet again whip up the next hype cycle I think doesn't serve us well so I do think there's something very important here but I think if we want to maintain reputational Capital through this cycle because government will get involved much faster in this cycle I think it's important to just be methodical and thoughtful iterate experiment but it's too early to call it I guess is what I would say yeah it's definitely too early to call it but sax you're saying explicitly you think this is bigger than the internet itself bigger than mobile as a platform shift it's definitely top three and I think it might be the biggest ever I think look I think things could certainly play out the way that jamath is saying however I actually think that open AI has demonstrated now with these platform features that it has a lead a substantial lead and I actually think that lead is likely to grow in the next year and let me tell you why I think it's got a couple of assets here that are hard to replicate so number one user attention I think they've now got I would guess hundreds of millions of users and this thing is caught on like wildfire it must have been beyond their Wildest Dream I think it even surprised them how much this has taken off it's really captured the Public's imagination and people are discovering new use cases for it every day if you are sort of the the number two or number three you're the seventh large language model to basically get deployed behind a chatbot I just don't think you're going to get that kind of distribution because the novelty Factor will have worn off and people will have already kind of learned to use chat GPT so number one is the hundreds of millions of eyeballs number two is with this developer platform I think we should describe a couple of other features of it one of the problems with chat GPT if you've used it is that the training data ends in 2021 and so you very rapidly for many questions get to a stopping point where it says like I don't I don't know the answer to that because I don't have any information about the last two years well one of the plugins that openai is introduces itself is called the browsing plugin and it allows chat GPT to go search the internet and not just run internet searches but to run an internet search as if it were a human so you ask you asked chat GPT a question and it goes to find it runs a search and then it scours through the list of 20 links and it doesn't stop until it finds a good answer and then it comes back to you with just the answer so it actually saves you the time of clicking through all those loops and it'll give you the browsing history to show you what it did that's mind-blowing they also have a thing called a retrieval API which allows developers to share proprietary knowledge bases with chat GPT so if you have a company knowledge base or some other kind of content you can share with chat gbt so that chat GPT can be aware of that and there are some privacy concerns but the company has said they're gonna sandbox that data and protect it as an example I'm planning on writing a book on SAS using chat GPT and I'm going to put together all the previous articles and talks I've done as a database so I can then work with that in chat GPT so you're going to have more and more Developers sharing information with chat GPT you're going to have chat GPT able to update its training based on sort of the last two years being able to search the internet and I think that as those hundreds of millions of users use the product and as developers keep sharing more and more of these data sets the AI is going to get smarter and smarter and then what's going to happen is both consumers and developers are going to want to use or build on the smartest API yeah see this is where it feeds on itself I mean yeah I think there might be a I agree with much of what you're saying but I do think somebody like Facebook when they release their language model which they're about to is not going to allow chat gbt to have any access to the Facebook Corpus of data and then LinkedIn will do the same they'll block any access to chat GPT to their data and so then you might say you know what I'm doing something related to business and business contacts I need to use the LinkedIn one and they're just going to block other people's usage up and tell you hey you have to come to our interface and have a pro account on LinkedIn and this all becomes little islands of data and so I'm not sure that you may be right Jake Cal it's too early to have a definitive opinion but I would say you have to believe plugins are going to be promiscuous yeah no it's actually plug-ins are the refutation of your iPhone Facebook does not have an API Twitter turned off their API people who are smart quora doesn't let people use its data so I just picked three those are three incredible data sets that don't allow people and Craigslist doesn't so people who are smart do not allow apis into their data they keep it for themselves I think there were a lot of people when the App Store rolled out that swore up and down they've never built a mobile app because they didn't want to give Apple that kind of power that the internet was open whereas the app store is closed and curated by Apple and sure enough they all at the end of the day had to roll out apps even though in the case of Facebook it definitely has made them vulnerable because they're Downstream of Apple I mean Apple now has enormous influence over Facebook's advertising Revenue because users have to go through Apple they never have to do that before with the internet nonetheless Facebook felt compelled to release a mobile app because they knew it was existential for them if they didn't and I believe that what's happening is I don't think it's red analogy the right analogy would be Google search does Facebook does Craigslist allow their data to be indexed inside of Google search answers no right they block that for a reason they and they will write a cease and deceased letter fine so so you know what those guys will stay out of it but look how much content Google search already has and I think that chatgpt will start by eating a substantial portion of search because again you don't have to go through the 20 links it just gives you the answer it's going to eat a substantial portion of browser usage and app usage because you're just going to tell chai GPT what you want to do it will go book your plane ticket it will go book your hotel room yeah see this is another person I want to play in this hold on the apps that want to play in this will benefit so there'll be a powerful incentive for applications to get an advantage by participating let me finish my point yeah and then eventually they will be forced to do it not because they get an advantage but because they're so competitively disadvantaged if they don't participate in that ecosystem I agree that they'll participate in it but here's the thing what's going to happen is Google's going to turn on Bard and I've been playing with Bard it is 80 of chatgpt already and then when they make Bard a default you know a little snippet on your Google search return page or Bard is built into YouTube or Chrome or Android or the Play Store They're Gonna Roll right over chat GPT because they have billions of users already so this advantage that you see today I see that getting rolled real quick because you'll be on YouTube and on the top right hand side will be barred and when you do a search it's going to say here are other sentences you could do oh you want to search Mr Beast when he's helped people or Mr Beast when he's giving away more money or people who've copied and been inspired by Mr Beast all that's going to occur inside of YouTube and chat CPT is not going to have access to the YouTube Corpus of data and then when you do a search it's going to be the same thing it's going to be on the right hand side and it's going to be playing just like it is in bing if you turn on your Android phone they're going to make Google Assistant go right into Bard and Google assistant is already used by hundreds of millions of people so I think that Google will roll I think they're going to roll chat GPT I don't know who's gonna win but I'm looking at this Saxy poo more reductively as a capitalist which is what are people's incentives because that's what they'll do Google's incentive is to usurp chat gpt's usage by inserting something inside of their existing distribution channels to suppress the ability for you to want to go to the app known as bundling I think Facebook has that same incentive oddly even though Microsoft is such a deep partner I think certain assets of Microsoft have that incentive you're talking collectively about five or six trillion dollars of market cap than when you add in Alexa and Amazon and Siri and Apple what is their incentive I don't think their incentive is to let this happen and I think if you look at the slack Microsoft teams example of even a better engineered product who's excellent and widely deployed even at hundreds of millions of users doesn't much matter when it's more cleverly distributed and priced and so those things again you may still be right all I'm saying is it's just so early to know and as slow and lumbering as some of these big companies are they are not so stupid as to kill their own Golden Goose and or defend it when threatened so I think you just have to let let it see what happens I want to finish the point on Google and then we can move on to the bundling thing let me just make the counter argument which is that I think Google was caught completely flat-footed here even though they shouldn't have been because they published the original paper on Transformers in 2017. they should have seen where all this was going but they didn't open AI use that paper and commercialized it and the proof of that is there was just a lawsuit a couple of days ago or at least a claim by a former employee of Google who quit because he said that they were using chat GPT to train their AI so their AI is so far behind they were violating the terms of use hold on they were violating the terms of use of open AI to train their own AI on chat GPT that's not a good sign that's not a good sign I also think nonsense hold on let me I'm just reading the counter argument here I mean don't dismiss it out of hand give me a chance to explain it moreover chat gpt4 which was just released a few weeks ago we know that openai had that they were using it internally for seven months so the state of the art is not what we're using it's what openai has internally they're obviously working now on chat gbt5 and so if you're saying that Bard is 80 of chat gpt4 well I got news for you it's probably 50 or 20 percent of chat GPT 5. and who knows what the product roadmap is inside of open AI I am sure that they've got 200 ideas for things they could do to make it better and lowing fruit but look regardless I think the pace of innovation here and development is going to speed up massively I mean there is going to be a flurry of activity I agree it's hard to know exactly how it's going to play out but I think this idea that oh it's a foregone conclusion these big companies are just going to catch up with open AI I I think that there's a strong counter argument I'm making a very specific argument it's not a foregone conclusion where all the value will get captured just like in any of these major tidal waves if you make the bets too early you typically don't make all the money and it tends to be the case and it has been in the past at least with these transformative moves it's sort of in the early third of the cycle is where the real opportunities to make the tons of money emerge and there's a lot of folks that show you a path and then just don't necessarily capture the value I'm not saying that that's going to be the case here all I'm saying is if history is a guide all of these other big waves have shown that fact pattern and so I'm very excited and I'm paying attention but I'm just being circumspect with this idea that you know having been in the middle of these couple of waves before it I made all the money by waiting a couple years I don't know if that's going to be true this time around but right that's sort of my posture right now look you obviously have a point because we're only four months in so how can we know where this is going to be in five years so you could be right to your point Zacks yeah I think it's clear and this is you know Big Ups to the open AI team that they will be one of the top two or three players absolutely we all agree on that which is extraordinary in of itself and the top four players Freeburg are obviously gonna be Microsoft open AI we'll call that like whatever that little uh you know pairing and then Google Facebook and then we haven't talked about Apple but obviously apple is not going to take this sitting down and hopefully they'll get in gear and have Siri you know make it to the next level or they'll just put her out to pasture if you were to look at those four and we're sitting here a year from now who has the best product offering who has the biggest user base just take a minute to think about that because you were at Google and we all know the word on the street is It's the Return of the Kings Larry and Sergey are super engaged by all reports every back Channel everybody I talked to is saying that their everyday they're obsessed with Google's Legacy now and making this happen so what can you tell us in terms of who you think a year or two from now will have the biggest user base and be the most Innovative amongst that quartet or maybe you think there's other players who will emerge the advantage that open AI has which is the advantage that any call it emerging you know Advantage competitor has outside yeah Outsider is that the incumbents are handicapped by their current scale much of the consideration set that Google has had in deciding what features and tools to launch with respect to AI over the last couple of years has been driven fundamentally by a concern about public policy and public reaction and I know this from speaking to folks there that are close enough to kind of indicate like Google has been so targeted has been such the point of attack by governments around the world with respect to their scale and Monopoly and monopolistic kind of behavior of some people have framed it privacy concerns you know etc etc the fines in the EU are extraordinary that so much of what goes on at Google today is can I get approval to do this and so many people have felt so frustrated that they can't actually unleash the toolkit that Google has built and so they've been harnessed and focused on these internal capabilities I think I mentioned this in the past but things like what's the right video to show on YouTube to keep people engaged what's the right ad to show to increase click-through rates etc etc versus building great consumer products for fear of the backlash that would arise and governments coming down and ultimately attacking the the revenue and the core Revenue stream and this is no different than any other kind of innovative dilemma you know any other business of scale and any other industry historically ultimately gets disrupted because their job at that point is to protect their cash flow and their revenue stream and their balance and their assets not to disrupt themselves especially as a public company especially under the scrutiny and the watchful live governments and Regulators so I think Google has in aggregate probably good competitive Talent if not better Talent than open Ai and others Google has arguably the best Corpus of data upon which to train the best capabilities the best toolkit the best hardware issues are the lowest cost for running these sorts of models the lowest cost for serving them etc etc so frankly they're way behind the battle is Theirs to lose if they are willing to disrupt themselves and this is the moment that Larry and Sergey should wield those founder shares that they have and they should wield the comments that they wrote in that Founders letter that they will always make the right decision for the long term for this company even if it means taking a cost in the short term and disrupting themselves this is the moment to prove that those founder shares were worth you know the negotiation to get there and and I think that it is going to require a real degree of scrutiny a real degree of regulatory uncertainty a real degree of challenge by governments and public policy people and perhaps even a revenue hit in the near term to realize the opportunity but I do think that they're better equipped to win if they chose to well said well really well said I think the founder share Insight is particularly interesting sax the fact that it did nothing with them yeah no no I was just going to say the exact same thing it's like if they don't use it now what would it take and when yet another case of the emperor has no clothes just a power grab by Silicon Valley execs which was meaningless because if in this moment you don't wield that power and break that company into bits as you need to what was the point of having it they need to come in and say we're going to give Bard results to 10 of users and ask them to get feedback on it because who has worse queries than just one point I want to make their favorite who has more reinforcement learning then Google that search box is everywhere and people write and question after question and Gmail and Google Docs Etc et cetera I mean they have so many people asking questions and YouTube might be the the transcripts of YouTube every video and the image of every video and the comments under it you know the comments under the video you have the transcript of what happened in this video and then what was the question and answer underneath it let me make the Counterpoint please to my own Point like look at how gerstner came after Zuck so Zuck had his point of view his strongly held belief that AR VR was the future of the platform that's what he wanted to bet into that's what he wanted to lean into it's what he wanted to build the company against he did it and then the financial analysts and the investors came at him and said this is a waste of money focus on making money you have a responsibility to shareholders F those Founders shares you don't deserve that 10x voting right or whatever the framing might have been to get him to say you know what I acquiesce I'm giving it up and I think that we should also think about what's going to happen on the other side Google Google is a trillion plus dollar market cap company their their Shares are owned by every public endowment public pension fund Institutional Investor owns Google in their portfolio so the backlash against Google making a hard bet like this and potentially destroying billions of dollars of cash flow in the process every year will not be easy to do that the same sorts of letters that gerstner at all and obviously we love grossner you know we can all defend him all day long at zoc is what might may end up happening with with alphabet if they did choose to go this path sax what do you think here about the founder share specifically in Google's chances of disrupting themselves and you know just putting this into every product and shoving it down users throats uh and catching up well I mean with all due respect uh Larry and Sergey I mean they've been on the beach a long time this reminds me of Apollo Creed coming out of retirement in rocket before in a lot of shape a lot of a lot of things it could be a little out of shape Sam Walton may not look like Ivan Drago but but this this is one shrewd character this is one shrewd character I mean Altman is fit he's fed he's been in the arena yeah he's you know he's a multi-time Founder who sat at the top of YC and got to see everything that worked yep and got uh and he's been plugging away at this for what like eight years so there's a there's a big I just think there's a big gap to catch up on now Google has all the resources in the world and they've got a lot of proprietary assets too and they've got all the incentive in the world so do I think that Google will be one of the top four players in AI absolutely but this idea they're just going to come and steamroll open AI I got a prediction but then next year Larry and Sergey take the title of co-ceos and then they'll do a demo day where the two of them get on stage and they actually do the demos of these projects because that happens that fictional pontification stuff that's it that's listen and Bezos is going to run for president those are my two predictions I'm taking a lot of predictions can you imagine if Larry Freeburg where are the chances of Larry and Sergey taking co-ceo slots that's prediction one and then prediction two what are the chances of them running the next Google i o where they get on stage and they walk people through all the products that they shepherded and that they have a vested interested in that they're they want to demo there is an Institutional problem at Google at the top level which does need to be solved which is this position of constantly being in defense against the scrutiny again of regulators and public policy folks and and you know all these different groups that are against Google and so as a result the kind of cultural seasoning particularly the executive and the board level has been one of like you know protect the nest don't overreach don't overstep and it's a real you know I think one for the for the business school books or whatever uh ultimately is what they end up doing about it because now as uh you know the time when that defensive posture is really kind of putting the entire business at risk the same thing happened to Microsoft remember in the late 90s that's right when they got crushed by that antitrust lawsuit very defensive well that can no but that consent agree they put they had a wartime CEO come in Balmer came in and you know followed by kind of an Innovative guy who could kind of continue to build and I think that there may be a moment here I look I love Sundar he's a he's a great guy great CEO consider and I don't know if you guys if I ever told you this and I started at Google on the same day we're both in the same nuclear class we wore the freaking hat on the TGIF day and on stage he was a product manager and now he runs the company but I think the question is like how whether it's the CEO or the broader whole kind of executive org or the board a degree of disruption necessary to shift that cultural seasoning is so necessary right now for them to have a shot at this and similar to what you just said sax like you're gonna need a bomber type moment to kind of you know reinvigorate that business and by the way moment I think then uh well yeah because it's an important point when bomber took over during that period after Gates when they were on their heels he basically just focused on revenue and paying dividends and stock BuyBacks and the stock went sideways and he missed mobile and now yeah you know wait you're forgetting one big thing which is that that was also because he had to operate under a consent decree to the doj exactly so the product managers of Microsoft were replaced with lawyers from the Department of Justice and you had to get their sign off before you could ship anything so we have to remember that those things probably slowed Microsoft down as well and the great thing that Satya had was a blank slate and the removal of that consent decree so he was able to do everything that just made a lot of sense and he's executed flawlessly I think the problem at Google is not Sundar or Larry or Sergey I think it's more in the Deep bowels of middle management of that company which is that there's just far too many people that probably have an opinion and their opinion is not shrouded in survival their opinion is shrouded in Elite language around what is the moral and ethical implications of this and where has this been properly tested on the diaspora of 19 different ethnic tribes of the Amazon that's the kind of decision making that is a nice to have when you are the second or third most valuable technology company in the world but you have to be able to pause that kind of thinking and instead get into wartime survival mode and it's very hard so it doesn't almost matter at this point what Sundar wants the real question is what is the capability of middle management to either do it or get out of the way and I think that in all of these big companies that struggle what you really see is an inability for middle management to get out of the way or frankly just you need somebody to then fire them and if you look at folks who get their groove back let's see what Facebook does what are they targeting they're targeting middle management if you look at what Elon does in the companies that he owns there is virtually no middle management but it's like get out of the way build product build product and ship it yeah and what is the core truth and so if failure is there in front of you and if David is right that you have 200 million users come out of nowhere who are voting every day with their time and attention to use an app and that doesn't create a fire alarm fire where you get middle management out of the way and you are the senior most people talking to the people doing the work and shipping things every day you're you are toast you are toast a lot of people are starting to think we're moving a little bit too fast when it comes to open ai's incredible performance without gpt4 the plugins and all this and so the future of Life Institute which was formed in 2015 it's a non-profit that's focused on de-risking major technology like AI they did a petition titled pause giant AI experiments an open letter a bunch of computer scientists assign this letter and uh the letter quote says we must ask ourselves should we let machines flood our information Channels with propaganda and untruth should we automate away all the jobs including the fulfilling ones should we develop non-human Minds that might eventually outnumber outsmart Obsolete and replace us should we risk loss of control of our civilization a number of notable Tech leaders like Elon Steve Wozniak and a handful of deepmind researchers have signed it what do you guys think of the latter are we going to slow down or not and then we could ask the question generally how close are we getting to AGI which is what everybody's scared of is that these agents start working with each other in the background to do things that are against human interest I know it sounds like science fiction but there is a theory that when these AIS start operating on their own like we explained in the previous sort of segment here with plugins and they make agents that are operating based on feedback from each other could they get out of control and be mischievous and then work against human interest so what do you think sex I think there's a difference between what could happen in the short term and then what could happen in the long term I think in the short term everything we're seeing right now is very positive and let me just give you an example there was a really interesting tweet storm about a guy who wrote about how Chad GPT saved his dog did you guys see this this is one of the really mind-blowing ones to make use cases so his dog was sick took him to a vet vet prescribed some medication three days later a dog's still sick in fact even worse so the the owner of the the pet just literally copied and pasted the lab result for the blood test for the dog with all the the lab values into chat EPT and said what could this be like what's your likely diagnosis shot GPT gave three possible answers three illnesses the first one was what the vet basically diagnosed with so that wasn't it the second one was excluded by another test so he then went to a second vet and said listen I think my dog has the third one and vet prescribed something and sure enough dog is cured saved so that's really mind-blowing that even though chat GPT hasn't been specifically optimized as far as we know for lab results it could figure this out the reason I'm mentioning this is it gives you a sense of the potential here to cure disease to you know like I could see major medical breakthroughs based on the AI in the next five or ten years now the question is like what happens in the long term you know as the AI gets smarter and smarter and we are kind of getting into the role of Science Fiction but here would be the scenario is you're on chat GPT 10 or 20 or whatever it is or maybe some other companies AI and the developers asked the AI hey how could you make yourself better now do it which is a question we asked chat GPT all the time in different contexts and so chat GPT will already have the ability to write perfect code by that point I think you know code writing is one of the I think of its superpowers already so it gives itself the ability to rewrite its code to auto update it to recursively make itself better I mean at that point isn't that like a speciation event doesn't that very quickly lead to the singularity if the AI has the capability to rewrite its own code to make itself better and you know won't it very quickly write billions of versions of itself and you know it's very hard to predict what that future looks like now I also don't know how far away we are from that that could be 10 years 20 years 30 years whatever but I I think it's a question worth asking for sure is it worth slowing down though sex should we be pausing because based on what you've said you know I think you've framed it properly when these things hit a certain point and they start reinforcing their own learning with each other they can go at infinite speed right this is not comparable to human speed they could be firing off millions billions of different I think you're right scenarios we're definitely now on this [ __ ] around find out curve yeah and so there's only one way to really find out which is somebody's gonna push the boundaries the competitive Dynamics will get the better of some startup they'll do something that people will look back on and say whoa that was a little that was a bridge too far so yeah where it's just a matter of time yeah I think we're not going to slow down I actually think it's going the other way I think things are going to speed up and and the reason they're going to speed up is because the one thing Silicon Valley is really good at is taking advantage of a platform shift and so when you think about like all the VCS and all the founders you know everyone accuses us of being lemmings and so when there's like kind of like a fake platform shift or people kind of glom onto something that ends up not being real everyone's kind of got egg on their faces but the flip side of that is that when the platform shift is real Silicon Valley is really good at throwing money at it the talent knows how to go after it and they keep making it better and better and so that's the dynamic we're in right now you look at 70 of the last YC class was ready all AI startups I'm sure the next one will probably be 95 so I think that we're on a path here where the pace of innovation is actually going to speed up companies are going to compete with each other they're going to seek to invent new capabilities and I think the results are going to all be incredibly positive for some period of time like you know the vet example we're going to cure illnesses we're going to solve major problems positive then we invest more we trust more but the Paradox of that estimate is pointing out Freeburg is if we trust it more we invest more than some person in a free market is going to say you know what I need to be chat GPT therefore I'm going to take the rails off this thing I'm going to let it go faster and take off some constraints because I need to win and I'm so far behind how do you feel about that scenario that sort of tremontan sax teed up Friedberg I think there's like gpt3 I think ran on 700 gigs is that right does anyone know what gpt4 runs on it's got to be on some number that's you know not too not not a many multiples of that but look someone could make a copy of this thing and Fork it and develop an entirely new model I think that's what's incredible about software and digital technology and also kind of you know means that it's very hard to contain similar to like what we've seen in in biology ever since biology got digitized through DNA sequencing and the ability to kind of Express molecules through Gene editing you know you can't control or contain the ability to do Gene editing work at all because everyone knows the code everyone can make crispr cast molecules everyone can make Gene editing systems in any lab anywhere once it was out it was out and now there's hundreds of variants for for doing Gene editing many of which are much improved over crispr cast 9. I use that as an analogy because it was this breakthrough technology that allowed us to precisely specifically edit genomes and that allowed us to engineer biology and do these incredible things where biology effectively became software and remember crispr cast 9 gave us effectively a a word processing type tool find and replace and the tooling that's evolved from that is is much better so whatever is underlying whatever the parameters are for gpt4 whatever that model is if a close enough replicant of that model exists or a copy of that model is made and then new training data and new Evolutions can be done separately you could see many many variants it kind of emerge from here and I think this is a good echoing of chimoff's point we don't know what's ultimately going to win is there enough of a network effect in the plug-in model as sax pointed out to really give open AI the sustaining competitive Advantage I'm not sure the model runs on 700 gigs that's less data than you know fits on my iPhone so you know I could take that model I could take the parameters of that model and I could create an entirely new version I could Fork it and I could do something entirely new with it so I don't think you can contain it I don't think that this idea that we can put in place some regulatory constraints and say it's illegal to do this or you know try and you know create IP around it or protections around it it's realistic at this stage the power of the tool is so extraordinary the extendability of the tools are so extraordinary so the economic and you know the various incentives are there for you know other models to emerge and whether they're directly copied from someone hacking into openai servers and making a copy of that model or whether they're you know open sourced or whether someone generates something that's 95 is good and then it Forks in a whole new class of models emerge I think this is like as sax pointed out highlighting the kind of economic Market uprooting social uprooting potential and many models will will start to kind of come to Market what do we think the impact of white-collar jobs getting annihilated by this technology if that in fact one thing on this yeah look let me just share can I just give one example here so here's a Reddit post that I was made aware of earlier this week I lost everything that made me love my job through mid-journey overnight I am employed as a 3D artist at a small games company of 10 people our team is two people he basically explains he says since mid-journey version 5 came out he's not an artist anymore nor a 3D artist all they do is prompting photoshopping and implementing good looking pictures and he basically says this happened overnight and he had no choice his boss also had no choice he says I am now able to create rig an animated character that's spit out from MJ uh mid-journey in two to three days before it took us several weeks in 3D the difference is that he cares about his you know job and for his boss it's just a huge time money saver he's no longer making art and the person who was number two in the organization who didn't make as good content as him is now embracing this technology because it Curry's favor with his boss and Ian's basically saying getting a job in the game industry is already hard but leaving a company and a nice team because AI took my job feels very dystopian I doubt it would be better in a different company also I am between grief and anger and I am sorry for using my gosh your art fellow artists this is yet another reason that figma really needs to close this acquisition from Adobe I mean it's like the value of these apps are just getting gutted if you take a workflow management tool for things like design and imagery and you reduce it by an order of 90 it's like what is that app experience worth and how could you replicate it if you were a big company that already has distribution that's one comment but what I would tell you Jason to answer the white collar question is I think there are a handful of companies you need to look at exclusively because they will be the first ones to really figure out how to displace human labor and that is TCS so Tata consulting services Accenture cognizant these are all the folks that do coding for higher work at scale I think Accenture has something like 750 000 employees so the incentive to sort of squeeze Opex to create better utilization rates to increase profitability is quite obvious it always has been they will be the first people to figure out how to use these tools at scale before the law firms or the accounting firms or any of those folks even sort of try to figure out how to displace what color labor I think is going to be the coding jobs and it's going to be the coding for higher jobs that companies like Accenture and TCS so those business processing do for other people developer kind of folks they're going to need half as many people 25 as many people we're going to find out the efficient Frontier yeah I see it a different way I mean this argument that productivity leads to job loss has been made for hundreds of years and it's always been refuted when you make human beings more productive it leads to more Prosperity more wealth growth more growth and so yeah it's easy to think about in a narrow way the jobs are going to be displaced but but why would that be it's because you're giving leverage to other human beings to get more done and some of those human beings really anybody with a good idea is now going to be able to create a startup much more easily so you're going to see a huge explosion in creativity in startup creation new companies new jobs imagine think about the case of you know Zuckerberg founding Facebook at Harvard he wrote the first version himself maybe with a couple of friends that project happened and turned into a giant company because he was able to self-execute his idea without needing to raise venture capital or even recruit employees even really before forming a company anyone with a good idea to be able to do that soon you're going to be able to use these AI tools they truly will be no code you'll be able to create an app or a website just by speaking to some AI program in a natural language way so more flowers will bloom more startups more projects create it will create I think a lot of dislocation but for every testimonial that is like the one that you showed which I think is I'd say a little bit overly dramatic I have seen 10 or 100 testimonials from coders on Twitter or other blogs talking about the power that these new tools give them they are like this makes me a 10x engineer right and especially these like Junior Engineers who are right out of school who don't have 20 years of coding history they get superpowers right away like it makes them so much better the proper responses let me give you a response to that guy so so and using Sax's point that guy's saying what used to take me weeks I can now do in two to three days and I feel like my work is gone and that's because he's thinking in terms of his output being static and if he thinks about his output being dynamic he can now in the matter of three weeks instead of making one character he cannot make a character every two days so he can make 30 characters in three weeks that's an alternative way for him to think about what this tooling does for him and his business the number of video games will go up by 10x or 100x or a thousand X the number of movies and videos that can be rendered in computers can go up by 10x or 100x or 1000x this is why I really believe strongly that in some period of time we will all have our own movie or our own video game ultimately generated for us on the Fly based on our particular interests there will certainly be shared culture shared themes you know shared morality share things that that that tie all these things together and that will become the shared experience but in terms of like us all consuming the same content it will really like with YouTube and Tick Tock we're all consuming different stuff all the time and this will enable an acceleration of that Evolution and personalization I'll also highlight you know back in the day one human had to farm a Farm by hand and we eventually got the tool of a hoe and we could put in the ground and make you know make stuff faster the way we gotta plow and then we got a tractor and today agricultural farm equipment allows one farmer to farm over ten thousand acres you go to Western Australia it's incredible these guys have 24 row Planters and Harvesters and it's completely changed the game so the unit of output per farmer is now literally millions of times what it was just 150 and in that case Freeburg nobody wants to do back-breaking labor in the fields and everybody but in this case let me just read you one quote that I didn't read in the original reading of this he says I want to make art that isn't the result of scraped internet content from artists that were not asked and so I I think that's part of this is that it's bespoke art but well yeah the one question I had for sacks was sex you we started this conversation with saying hey this is different than anything in terms of efficiency that came before it this is I'm going to put some words here right there but this is like a step function more efficient so to the argument of hey efficiency has always resulted in you know more ideas and and we've found something to do with people's time is this time different potentially because this is so much more powerful this isn't just like a spell checker I would say differently I think and I agree with what Jay Cal is saying because I think that the thing that technology has never done is try to displace human judgment it's allowed us to replace physical exertion of energy but it is always preserved humans injecting our judgment and I think this is the first time where we're being challenged with autonomous systems that has some level of judgment now we can say and it's true again we're four months in that that judgment isn't so great but eventually and because of the pace of innovation eventually is probably not that far away to judgment will become perfect I'll give you a totally different example you know how many Pilots are there in the world will we at some point in the next 10 years want folks to actually manually take off and land or will we want Precision guided instrumentation and computers and sensors that can guarantee a Pitch Perfect Landing every single time in all kinds of weather conditions so that now planes can even have 50x the number of sensors with a computer that can then process it and act accordingly just a random example that isn't even thought of when we talk about sort of where AI is going to rear its head I think that this judgment idea is an important one to figure out because this is the first time I've seen something that is bumping up against our ability to have judgment and what this person was talking about in this mid-journey example is his judgment has been usurped yes yeah I would disagree yeah let me just let me just make one point on this so you know an image is a matrix of you know data that's rendered on a screen and as pixels and those pixels are different colors and you know that's what an image is is it or is it is it the Judgment of the Creator well no I'm just saying an image in general so like when Adobe Photoshop and digital photography arose photographers were like this is you know BS why are you digitizing photography with analog and beautiful before and then with digital photography allowed is the photographer to do editing and to do work that was creative beyond what was possible with just a natural photograph taken through a camera and they're arguably different art forms but it was a new kind of art form that emerged through digital photography and then in the early 90s there was a plug-in Suite called Kai's power tools that came out in Adobe Photoshop and it was a third-party plug-in set you would you would buy it and then it would work on Photoshop and it did things like motion blur sharpening pixelation all these interesting kind of like features and prior to those tools coming out the Judgment of the digital artist the digital photographer was to go in and do pixel by pixel changes on the image to make that pixel to make that image look blurry or to make it look sharper or to make it look like it had some really interesting motion feature and the Kai's power tools created this instant toolkit where in a few seconds you created a blur on the image and that was an incredible toolkit but a lot of digital artists said this is automating my work what is my point now why am I here and the same happened in animation when three um when you know CGI came around and animators were no longer animating cells by hand and in every point in this Evolution there was a feeling of loss initially but then the evolution of a whole new art form emerged and an evolution of a whole new area of human creative expression emerged and I think we don't yet know what that's going to look like do you think with respect to what you're seeing here do you think the the level of judgment that AI offers you is the same as the level of judgment that high power tools offered you yeah look I mean I think that the person making the Judgment or the decision about which pixel to change into what color felt like you know I have control and I think it's ultimately like I just totally I disagree with you I mean I think that that's a magnitude difference it's more other than a magnitude difference yeah it's still love it's on you you know you and I have sat in spreadsheets and we've I'm generally happy with this idea so I'll give you a different example today we use Radiologists and Pathologists to identify cancers yep there are closed loop systems we have one right now that's in front of the FDA that is a total closed-loop system that will not need any human input so I don't know what those folks do except what I can tell you is that we can get cancer detection basically down to a zero percent error rate that is not possible with human intervention that is judgment right so I just think it's important to really acknowledge that this is happening at a level that it's never happened before you may be right that there's some amazing job for that radiologist or pathologist to do in the future I don't know offhand what that is but these are closed loop systems now that think for themselves and self-improved I get it but I think that there there's an unfathomable set of things that emerge we did not have the concept of Instagram influencers we did not have the concept of personal trainers we did not have the concept of like all these new jobs that have emerged in the past couple of decades that people enjoy doing that they can make money doing that is a greater kind of experience and level of fulfillment for those that choose and have the freedom to do it than what they were having to do before when they had to work just to make money and they think that Radiologists or pathologist wants to do be a trainer or a Pilates instructor no I think we don't know what that's going to look like yeah yeah you have any thoughts on this as we wrap this topic it's obviously a lot of passion coming out yeah the elimination of White Collar jobs in a massive way I think that this is a short-term versus long-term thing in the short term I see the benefits of AI being very positive because I don't think it's in most cases wiping out human jobs this is making them way more productive you still need the developer it's just that there are five times or 10x more productive but I don't think we're at the point in the short term we're gonna be able to eliminate that role entirely and what I've seen in basically every startup I've ever been a part of is that the limiting factor on progress is always engineering bandwidth that is always the the thing that you wish you had more of totally it's the product roadmap is always the most competed on thing inside the organization everyone's trying to you know get their project prioritized because there's just never enough engineering bandwidth it's really the lifeblood of the company so if you make the developers more productive and maybe it just accelerates the product roadmap I just I don't think in the short term that what's going to happen is these companies are going to look to cut all their developers because one or two of them can do 10 times the work I think that they're going to try and accelerate their product roadmaps now again you have this long-term concern that maybe you don't need developers at all at some point but I think that the benefits of developing this technology are so great in the short to midterm that we're going down that path no matter what and we're just going to find out what that long term really looks like and maybe the long term will look very different I mean once again once you get past the short term we may have a different long-term View I think in this narrow vertical I 100 agree with you look I I think that AI is going to eliminate unit testing it has already done so it's going to eliminate most forms of coding the engineers that you have all of them will now become 10x Engineers so with fewer of them or with the same number you'll be able to do as much or more than you could have before that's a wonderful thing and all I'm saying on that specific narrow vertical is you'll see it first rear its head in companies like Accenture and TCS because and cognizant because they have an immediate incentive to use this tooling to drive efficiency and profitability that's rewarded by shareholders it'll be less visible in other companies so but what I am saying though is that you have to think about the impact on the end markets for a second and I think that AI does something that other technology layers have never done before which is supplant human judgment in a closed-loop manner and I just think it's worth appreciating that there are many systems and many jobs that apply it that rely on human judgment where we deal with error bars and an error rate that a computer will just destroy and blow out of the water and we will have to ask ourselves should this class of job exist with its inherent error rate or should it get replaced fully by a computer which has no error rate and I think that's an important question that's worth putting on the table okay so let's wrap here I just have my final thought on it is like you're going to see entire jobs categories of jobs go away we've seen this before phone operators travel agents copy editors illustrators logo designers accountants sales development reps I'm seeing a lot of these job functions in the modern world like phone operators previously I think these could wholesale just go away and they would just be done by Ai and I think it's going to happen in a very short period of time and so it's going to be about who can transition and some people might not be able to make the transition and that's going to be pain and suffering and it's going to be in the white collar ranks and those people have more influence so I think this is could lead to some societal disturbance I'm going to learn Pilates and be an influencer that's it but I do agree with sax that the the software development backlog if this is what you're saying is so great that I don't think we'll see it in software development for a decade or two there's just so much software that still needs to be made all right last week we talked about Tick Tock and this first bipartisan hearing we've seen in a long time and people actually I think framing correctly exactly how dangerous it is in my opinion to have Tick Tock in the United States and of course then we get the great disappointment of the actual bill the restrict Act was proposed by Senator Mark Warner Democrat Virginia on March 7th the problem with it is is it seems like it's poorly worded that there will be civil penalties and criminal penalties to Americans for breaking the law and using software that's been banned and many people said you know this probably is just bad language I have a question yeah does it does this apply to incognito mode foreign they're saying that you can get you know you can get fined or 20 years in jail or whatever it is for using a VPN to VPN to tick tock freyberg what are your thoughts on it look I think this is a real threat to the open internet I'm really concerned about the language that's been used that basically speaks to protecting the Safety and Security of the American people by actively monitoring Network traffic and making decisions about what network traffic is and isn't allowed to be transmitted across the open Internet it's the first time that I think in the United States we're seeing like a real threat and a real set of behaviors from our government that looks and feels a lot like what goes on in China and elsewhere where they operate with a closed internet and internet that's a controlled monitored observed cracked and and gates are decided by some set of Administrators and what is and isn't appropriate and the language is always the same it's for Safety and Security of the people the entire purpose of the inner that is that it did not have bounds that it did not have governments that it did not have controls that it did not have systems that are politically and economically influenced that the architecture of the internet was and always would be open the protocols are open the transmission of data on that Network would be open and as a result all people around the world would have access to information of their choosing and it allowed ultimate freedom of choice you know this this kind of is the first of what I'm concerned creates a precedent that ultimately leads to a very slippery slope saying that Tick Tock cannot make money in the US by charging advertisers or managing Commerce flows is one thing that's where the government can and should and could if they chose to have a role but I think going in and observing tracking internet traffic and making decisions about what is and isn't appropriate for people I think is one of the things that we all should be most concerned about what's going on right now there is no end in sight to this if you allow this to happen uh in the first time you know vpns uh virtual private networks allow you to anonymously access internet traffic and and access internet traffic via remote destinations so so that the ultimate consumption of content that you're using can't be tracked and monitored by local agencies or isps and I think that saying that that can now be restricted takes away all ability to have true privacy and All rights to privacy on the open internet so I'd love to talk about this more unfortunately I gotta run um this is a super threat to me and I I think this is something we should be super super concerned about and that the entire community of Technology internet and anyone that wants to have you know Freedom of Choice steps up and says this is totally inappropriate and overreached yeah there are other ways to manage stuff like it feels like complete overreach sex yeah intentional overreach are poorly written or somewhere in between what do you think both I think both I think this is the biggest bait and switch that Washington the central governments ever tried to pull on us everybody thinks that they're just trying to ban Tick Tock from operating the U.S and if that's all they did then I think the bill would be supported by most Americans but that's not what they're doing they're not restricting Tick Tock they're restricting us that's not the goal here yeah but a bait switch it's a huge bait and switch and so just so you know what the ACT provides is that a U.S citizen using a VPN to access Tick Tock could theoretically be subjected to a maximum penalty of one million in fines or 20 years in prison or both now you know they'll say you know Mark Warner the sponsored legislation will swear up and down down that's not the intent but the problem is the language of the bill is so vague that some clever prosecutor may want to pursue this Theory one day and that needs to be stopped also there's another problem with the bill which is you think this is just about tick tock it's not what they do is it says here I guess they don't want to mention Tick Tock by name so they're trying to create a category of threatening application but because it is a category it's very very broad so the bill states that it covers any transaction transaction not just an app in which an entity described instead of paragraph B has any interest and then entities described in some paragraph B are quote a foreign adversary and entity subject to the jurisdiction of organizing the laws of a foreign adversary and entity owned director control by either of these and then it gives the Executive Branch the power to name a foreign adversary any foreign government regime that one of the cabinet secretaries defines without any vote of Congress so this is giving sweeping powers to the executive branch to declare you know foreign companies to be and it feels like the plot of the uh prequels and Star Wars emergency Powers here we go you know we criticize uh China for having a great firewall what do you think this is yeah I mean this this should obviously have nothing to do with the American Consumer and everything to do with a foreign adversary collecting data of Americans at scale this is this could be written in a much simpler way it should be one sentence which is that app stores are prohibited from allowing Tick Tock be an app in their store that's what they do in India that's it Case Closed game over I think India's doing okay right they block like a hundred Chinese apps and I think their society is still functioning so you know all due respect to AOC you know like the idea that 150 Americans million Americans are going to suffer because they can't be tracked by the CCP is kind of nuts this is going to give sweeping powers to the security state to surveil us to prosecute us to limit our internet usage this is basically the biggest power grab and bait and switch they've ever tried to pull on us and again if they really were concerned about Tick Tock it's one sentence yeah we're done all right everybody it's been an amazing episode for the Sultan of science David freiberg the rain man of soft David sax and the dictator I am the world's greatest moderator and we will see you next time bye bye [Music] and they've just gone crazy [Music] it's like this like sexual tension that they just need to release [Music] we need to get Mercies [Music]








I can't see what's on your hat what does it say super gut one of my most exciting companies called oh Hollow oh Mahalo I still have mahalo.com no not Mahalo unrelated completely unrelated nothing whatsoever to do with Mahalo I remember Mahalo great product sorry didn't work up against you know we were making 10 million dollars in Revenue uh at the peak yeah about 100 people writing like human curated search result Pages look at chat she's doing so well you're a great guy to reference the chat GPT thing coming out of that well then what happened was they did the panda update and we went from 10 million down to 500 000 in Revenue overnight what was the panda update they looked at who the top sites were e Hao Mahalo yeah Etc and they just said nobody can get any more than this amount of traffic and they literally throttled the number of unique users they would send to you and that was it game over and um then everybody I knew at Google wouldn't return my emails and they were like we don't have Partnerships with anybody that's what Matt cutts told me are you saying that mahalo's lack of success had nothing to do with the poor product engine execution it was Google's malfeasance it got really rave reviews it was backed by Sequoia so did the movie but it sucked you know when you build a company that gets to 10 million in Revenue in 18 months you can talk for a month but basically looking at your resume here I see that you've created nothing in your entire career when you get in the arena the arena and you actually build a product then you can talk to me I had the number one blog in the world one of the top five tech magazines in the world and this is the number one Tech and business podcast oh good I touched the soft spot I got to the warm underbelly there Jacob so rarely goes after chavoth when he does it's just gold it's like it's incredible you're talking to three founders here chamoth you're the odd person now so when you want to talk about product then make one okay so gross and yet I'm the richest it's so tilting it must tilt you totally fine so is Kim Jong-un so's Putin okay there's a lot of rich people in the world but these are three products okay dictator there's your cold open let's go [Music] quinoa [Music] all right let's get started everybody it's been a big week there's a lot to talk about it might be a little bit of a controversial spicy agenda today here on the all-in podcast with me again the Sultan of science who is tearing up the YouTube comments everybody asking the Sultan of Silence to contribute more and to speak more but when he does speak my Lord he drops those knowledge bombs how you doing Sultan of science I'm hanging in there you're hanging in there okay wow I'm hanging in there man a few words I guess hanging in there okay great with us again of course another Android David sacks sax how are you doing I am doing fine how are you thank you wait let me ask GPT what's the question how are you doing uh let me ask it hold on let me see what it says I mean basically Chachi T4 is the ultimate Asperger's equalizer you guys are gonna benefit most from this I asked it how are you it says as an AI language model I don't have feelings or Consciousness so I don't experience emotions or states of being like human does however I'm here and ready to help you with any questions or topics you'd like to discuss how can I assist you today that's pretty similar to how you feel except you don't offer to help anybody okay also with us is the dictator himself here to talk about topics looking forward to today's episode and with us the dictator with a shockingly shockingly low cut there's only one button on this shirt only one button okay made from a tiny albino baby right here they were like should we put buttons and they're like no why put buttons conservation movement exactly no no no the one button is what counts that is a baby albino rhinoceros that was killed fed to chamoth on his vacation and then attached to his linen shirt I guess let's just get this out of the way Trump was a arraigned I guess is the term he was charged in New York with 34 felony counts of falsifying business records Alvin Bragg alleged Trump orchestrated catching kill scheme as well to suppress damaging information before the 2016 election of course Trump pleaded not guilty and did a feisty press conference or speech rally uh Mar-A-Lago after that prosecutors say the scheme involve falsifying business records to conceal payments to Stormy Daniels we know all that same thing Michael Cohen went to jail for the indictment wasn't a speaking indictment where it explained all the details so Alvin Bragg hasn't tipped his cards by explaining in detail what the legal theories are and which information he has and he was pretty clear about that that he was not going to tip his cards which makes us even more hard to understand what's going on and creates even more divisiveness predictably the ride is framing this as a Witch Hunt but surprisingly many on the left including former sdny head preet bharara of the amazing podcast stay tuned with preet which I love he felt this was the weakest of the four major investigations that trunk is under and he expressed some concerns uh on his podcast that it was light and not detailed and he might have not actually pursue this unless he had a 99 or something like that chance because it is the president's sex I guess everybody's expecting us to fight over this but to just be a little preemptive here as much as I think Trump is like the most unethical person to ever hold the office this does seem a little light and I'm hoping brag has the goods on him because why bring a Mr Mina case you know and these are all I guess misdemeanors that are being elevated to felonies because of tax evasion possibly or election interference so what what are you Steel Man or just generally speak about the the case here because I know that you're a man of Law and Order well many people on the left are criticizing this case uh Jonathan Chate who's a liberal writer for the New York Magazine wrote a good column about it and look here are the reasons why number one the underlying Behavior here is that Trump engaged in a private settlement with Stormy Daniels that's not illegal even if it is you know so-called hush money that is legal you're allowed to do that number two is that he used personal funds to do it he did not use campaign funds and this is why Alvin Bragg has had to make this kind of distorted ridiculous claim that he should have used campaign funds to do it but does anyone believe that if Trump had used campaign funds that wouldn't be alleged as the crime so he's kind of damned if he does damned if he doesn't here I think that you know what the law is trying to do with these rules around campaign funds is protect donors from Canada's misappropriating them and Trump had every right to use personal funds to engage in the settlement it's a major Distortion of campaign Finance rules third these campaign financials are federal laws they're not state laws so it's not up to Alvin Bragg to enforce them and in fact the feds looked at this and decided not to prosecute it because if they did they'd have to enforce similar laws against Hillary Clinton recall that Hillary Clinton had a problem where she used campaign funds to fund the payment to Christopher Steele to write the Steele dossier and that was a real problem and it was miscategorized as legal fees and she had to pay a fine for that but no one talked about locking her up over it and no one was talking about you know indicting her and sending her to jail and so part of the reason why I think the feds didn't want to look at this is because they'd have to look at similar cases that are even more egregious and then finally the last thing is that we're well past the statute of limitations on this whole matter so Alvin Bragg is really out here on the limb he's past the statue of limitations he's enforcing laws that are not his business to enforce they're distorted interpretations of those laws and the underlying conduct here is fully legal so I think everybody is kind of like wondering why he's doing this and I think there's two theories either Alvin Bragg is incredibly stupid which he's not or he's incredibly smart yeah and the the sort of three-dimensional chess explanation that Ann Coulter has is that this is all a giant Honeypot for Republicans because they're all rallying around Trump here because they perceive I think correctly that he's being railroaded and he's being he is the victim of a political prosecution but in rallying around him to defend him you see that Trump's poll ratings among Republicans in the primary are going through the roof distances are going down and so what and culture fears is that this is all elaborate ruse to make Trump the nominee because Biden would much rather face a re-election against Trump than against a young youthful vigorous Governor like a DeSantis do you think Bragg has a bunch of more information and maybe that tax evasion is the issue he'll go after because that seems to be the other Theory here is he's not going to do the federal you know election stuff he's going to go after the tax evasion which is what they already got the Trump organization on when weisel I guess the CFO is going to jail for six months it's going to be hard to connect 1.6 million fine for that company these are misdemeanor crimes and to convert them to a felony the crime needs to have been done in the process of aiding and abetting another crime and tax evasion is the concept here when he listed the bullet point list of all of the reasons that or all of his evidence it seemed to point to what David said which was just he's camping Finance violations yeah this whole thing just seems like such an enormous waste of time just think about the amount of money that will have to be spent on just securing New York City every time he shows up the five-car motorcades the Secret Service the police the this that the disruption to people for what really ultimately I think is right is kind of like you know it's a bit of like man this case should have been brought years ago well not at all in relation to that they were told to stand down from doing that because of the you can't indict a sitting president and that's paused so that's another legal Theory that's going to have to be tested Jason the feds looked at this years ago and they decided not to press charges they were told to not do it because he was a city president no they were no he's been kind of office now for a couple of years why didn't they move forward they were that was the process they were doing so that takes two years the previous D.A said he was told to stand down because decided not to prosecute on the same underlying offenses that was his decision he decided not to who who told him to stand down no one could tell him to stand down yeah the office of Cyrus Vance has decided not to move forward with this very same case when the statute of limitations had not expired now it has and Alvin Braggs moved forward yeah I mean you really have to stretch here to come up with any kind of plausibility to this to this case and I mean you have to wonder why he's doing it is it just naked partisanship or are they trying to make Trump the Republican nominee well here's what Vance said on Meet the Press this weekend I was asked by the U.S attorney's Office in the southern district to stand down on the investigation and they were asked to stand down as well because of the you can't indict a sitting president so anyway all this stuff's going to get done in the wash I don't think we have to spend too much time on it because we'll find out I think in the coming weeks do the Democrats actually want him to get convicted then what he's going to be under house arrest in Mar-A-Lago because he's not going to be sent to jail and then what then DeSantis actually will win the nomination so what exactly is the perfect outcome which is to create this theater waste taxpayer resources only to have Trump acquitted just so that he can win the nomination and then he can go against Biden and lose this seems so far-fetched and idiotic move on right close this chapter and move on totally this is ripping the country apart for no reason and such a stupid case such a stupid case even the people who would like to prosecute Trump like you Jason I think have a problem with it and one of the reasons why this is going to be counterproductive even to the the anti-trump forces is that by going first with this case yeah Alvin Bragg is poisoning the well for any future case they might bring against Trump because now all future cases against Trump are going to be seen as painted with the same brush which is a nakedly partisan sort of Witch Hunt there may be other cases out there that have more validity to them but they're all going to be seen as of a piece with this sort of Alvin Bragg uh yes that was preet's position I think it's a it's a logical one I don't disagree what do you think of the other three cases January 6 the interference in Georgia where they recorded them on tape and then the stolen documents in the obstruction of justice or do you think all four cases are politically motivated and none of them have any validity to them sex I mean look the question you have to ask is if Donald Trump was a private citizen who never ran for president would he be the target of any of these prosecutions I mean he was you know high profile business figure for decades and he wasn't prosecuted like this and so that's really the question you have to ask and yeah go to jail Cohen did go to jail for the same crime so the answer is yes what Michael Cohen wasn't prosecuted until after Trump was president what I'm saying is you asked if if he was not do you really believe if he would let me finish you you asked if if Trump was not a president if he would have been prosecuted for this crime in fact another person Michael Cohen was prosecuted for this crime and did serve jail time so the answer is yes he would have been and they've and they brought these cases the spanking kind of cases and they brought the other one for the 1.6 million fine and weasel were going to jail so I think they would actually but anyway do you think all four are politically motivated is my question to you or you think anything I can't I don't want to comment on the other cases until I see what case is actually made and what the merits of them are however I don't believe that all these prosecutors all over the country be looking at Donald Trump this way if he was just a private citizen who never ran for office and I think we have a big problem in our political system when political disagreements are criminalized and this has been a nasty Trend that's been going on for many years it was usually I guess practice against staffers you know here or there you'd have some you'd have some executive branch staffer would you know find themselves on the wrong end of a prosecution and they'd end up going to jail maybe they get pardoned or not but now it's reached all the way to the the top and you have presidential candidates basically being prosecuted and I do not believe they'd be prosecuted if they were not major political figures and it looks really bad for the political figure who is leading it right now in the Republican party to be Joe Biden's opponent in the next election to be prosecuted by one of Joe Biden's political allies I mean if this were happening in some other country the United States would be criticizing it as some sort of you know Banana Republic Type move so this is not the direction we want our politics to go and and look I don't I I don't want to disagree Trump to be the nominee I support a different candidate but I think that to be interfering in our elections for Alvin Brock to be interfering in the political process this way is a reach and it's setting a horrible precedent for the future I mean we're talking about major presidential candidates by local DA's I mean why would we want this so let me ask a follow-up question then do you the doj is currently investigating Hunter Biden and then obviously that goes up to the big guy with the 10 do you think the doj should be investigating Hunter Biden or do you think we should be giving a pass to presidential presidents and their families well the hunter Biden case I mean this is one where you've got foreign governments basically paying off Hunter Biden for political access now that may ultimately be legal because I think influence peddling is kind of a business that takes place all over Washington but that actually does speak to the Integrity of our political system at the end of the day would I send Hunter by into jail no I don't think so like I said I don't like criminalizing political disagreements but what honor Biden did was definitely pretty shady and for sure you know and I think Hunter Biden and Trump and his family are both shady is my feeling on it we got to get better candidates in here Nikki Haley your candidate hmoth raised 11 million dollars last week she's on fire Freeburg you want to jump into this and and touch the third rail you want us to move on uh let's move on all right so there's been a lot of Twitter back and forth about the D dollarization and if it's real if it's happening if it's not last week China and Brazil struck a deal to trade in their own currencies uh the Brazilian government announced the two countries were no longer use the U.S dollar as an intermediary I don't know if that's for everything they trade or for certain things they're trading it'll be a straight one for Ray eyes trade China is the top us rival obviously and Brazil is one of the largest economies in Latin America what are your thoughts generally speaking Freiburg I know that you have some exposure here you know with your company that I think you spacked recently and you have some knowledge of the space right well I mean China and Brazil are pretty sizable trade partners I think it's around 150 billion dollars a year of bilateral trade so China historically has made a lot of Investments through their companies in Railways infrastructure waterways ports and infrastructure to support the agriculture manufacturing economies in Brazil and it's a very deep tie obviously the closeness of that relationship China became a bigger trading partner for Brazil in 2009 surpassing the U.S by the way China has had similar trading strategies in Africa in Australia they've bought several companies in Australia they've made massive infrastructure Investments the currency of trade it's one element of a broader intertwining that China has kind of enabled by using its resources to invest in infrastructure development and then participating in the economic value and gain that arises from that it still also supports the local country the local population the local economies in a meaningful way I think it's worth noting that the anti-globalization moment that we're having in the U.S and it may be a longer term Trend doesn't mean that globalization and global trade is going to slow down between China and other really important well-resourced Nations around the world so the Brazil China Summit that happened a week ago where a lot of Brazilian Executives went to China and had a very deep set of dialogues but they also signed a ton of agreements on trade and also in some of those cases the trade being done in non-us dollar denominated currency it's worth noting as being that if the U.S does continue to push for deglobalization we can only leverage our side of those relationships China will continue to make investments continue to develop trade and continue to develop really deep tie-ins with countries around the world from a resource perspective from an economic perspective and ultimately The Leverage will sit with them on what currency folks are going to trade in so you know what we're seeing with the China Saudi discussion around the Petro Yuan which doesn't seem to be really a standard thing yet but we're starting to see inclines of some deals happening in Yuan but it's more related to the depth of the Chinese trade relationship with all these nations around the world so the more we kind of as the US think we want to de-globalize and reduce our trade relationships with other nations the more you know we're out of the way in allowing China to do that I think it's worth observing that the Chinese economy will grow the depth of their relationships will grow potentially the strength and importance of their currency will continue to mount as they build these really deep infrastructure and investment tie-ins around the world chamoth what does a party trading in one do with the one do they buy a bunch of stuff from China what happens to the one yeah this whole thing is a huge nothing Burger this is the third deal that that China has done the other two countries are Pakistan and Brazil and the reason why is I've see like people on Twitter now breathlessly rambling on about D dollarization and all of this stuff and I think if any of these people would think from first principles the first thing that you would know is that the yuan is pegged to the US dollar and so as long as it's pegged whether you trade through the US dollar or you don't and you directly go to Yuan your index to the US dollar and then you use a dollar swap to convert it into the currency you need so I don't know I think this is kind of like a lot of folks who don't really know what's going on what do you think about the the depth of China's trade relationship so forget about the denomination of the currency but the fact that um the statistics now is that you can't find the top trading partner with 120 countries you know they surpassed the US with many of these countries over the last you know decade or two in particular and continue to increase the the scale relative to the US where we're kind of decreasing our dependence on on Nations and reducing our trading the reason why China has had so much dominance as a trading partner and the reason why China's central bank has the largest amount of foreign US dollar reserves about three and a half trillion dollars is exactly because of the thing that you want to ignore in order to have this highfaluting intellectual conversation it is pegged to the US dollar and until it is unpacked in a free-floating currency we will never know what the real market clearing price is and just so China has been able to hold on China has been very effectively able to manipulate this currency since they were brought into the WTO in order to engender that trading partner status they were able to artificially suppress the value of their currency so that exports from China could gain Traction in countries all around the world you have to take into account this currency Peg and you have to ask the question where would the currency be if it wasn't free-floating and then what would the incentives be for folks to replace the dollar and I think that there's a lot of interesting questions there that are worth asking but I think you have to be a little bit more intellectually honest to have the discussion and just for clarity tremath you said they already have these deals with Pakistan and Pakistan she met Pakistan and Russia I think they already have those deals with those two Pakistan and Russia right okay good I just want to make sure it's clear there sax do you have any thoughts on this is is this an example of people just maybe taking the ray dalio book and it fits a certain narrative and over hyping it or do you think this is an actual real Trend in the world that to be concerned about I think the dollarization hasn't happened yet but I think it's a risk and I think there's a bunch of reasons why the risk is growing so first of all we have 32 trillion dollars in debt someone has to finance that debt and the bigger that number gets the more unattractive our debt is because they're they have to be concerned that we're eventually going to monetize The Debt Pay It Back by printing a bunch of new dollars so that's Point number one is we have these massive deficits and debts number two is that we have I think in the last couple of years really weaponized the dollar so if you look at like what we've done with Ukraine and and Russia we basically seized hundreds of billions of dollars of Russian reserves that were held in dollars we've excluded them from the Swift banking system we've imposed massive sanctions on them and in fact we now have sanctions on a huge number of countries all over the world so we're very sanctioned happy all of which makes these countries view the dollar as an unreliable store of value why would you store your money in something that can be taken away by the US and specifically by the state department so I think this is a major change in the way that we view the dollar the last couple years is we're going to use it as a weapon that again that makes it view that's not the first time we've ever done that right we've done sanctions against many different we've done sanctions but as far as I know we've never seized foreign currency reserves and excluded a country from Swift which is the banking system so as as an instrument of U.S foreign policy so I mean I could be wrong about that but this was a major event when it happened remember we also did stuff like Seas the the yachts and the the foreign Holdings of Russian oligarchs remember there are ill-gotten gains we suddenly decided they were all gone let me tell you we didn't think they were ill-gotten when those Russian billionaires were buying those Yachts or buying New York real estate or London real estate or investing in Facebook or investing in companies here or buying sports teams or what have you hold on we didn't think they were ill-gotten at the time that they were actually made and spent but we decided subsequently we're just going to seize those things well again if you are a foreign country or a wealthy person in a foreign country or decided to decide where you're going to keep your money you may not want it to be liable to the vagaries of U.S foreign policy so I think all these things do matter and when you're running the kind of debt and deficits we have and you're making the US dollar less attractive you are running a risk I mean people we have disagreements with on the dollar standard because that's good in terms of power for us which I think opens us up to a broader discussion okay just to clarify this it's not even the dollar standard right like what this deal was is to use this thing called sips and sips is the non-dollar competitor to Swift and so you settle right across let's just say you have two trading partners in two completely different countries that use a bank in each of their local areas they typically swap to Dollars and then they transfer right using this this backbone of the financial infrastructure called Swift China has built a competitor to it called sips cips and China's been going around and signing Folks up makes a ton of sense right Hey listen if we're trading between each other let's just use that so I think it's important to not paint this with more of a brush than it should be I'm not saying that D dollarization couldn't happen I just think that everybody tries to take one random data point and conflate it all together to reinforce a ray dalio point from a book three years ago I do think there's a group of catastrophists who maybe are maybe hoping this happens or it's a great Twitter fodder I think we are headed for some sort of government debt crisis I said that there's gonna be three prongs to this financial crisis one was these long-dated bonds having unrealized losses which is causing problems in Regional and Community Banks the second piece of it's the commercial real estate crisis which I think is metastizing right now which is also going to be a banking crisis once all those unrealized losses come to you and the third piece of it is government debt crisis we have this 32 trillion dollar debt that we're now having to refinance at much higher interest rates I read somewhere that half our government debt so 16 billion is going to come to you 16 sorry trillion yeah and it's going to have to be refinanced in the next three years the average rate on that debt is 1.7 percent well if you want to refinance it at 10-year rates you're going to be looking at somewhere between three and a half and four percent maybe more so you're looking at a doubling of the interest costs and I also read that by 2030 we're going to have over a trillion dollars of interest expense owed by the U.S government every year that is money that's not funding anyone's Social Security it's not funding anyone's health care it's not funding one weapons program we want it's this event it's going to be more than a quarter of our total federal budget yeah and this is where you start gambling when you're chasing that big payment you start taking risks this is also where you have to expect the FED will really want inflation to stay high that's sort of what we've said before the only way out of this mathematically is to keep rates high but the other thing David that you when you mention all of this is what about every other country if you think that's happening in the United States I think it's important to make sure we at least consider every other major economy because it's not as if they're pristinely sitting on the sidelines while this happens to the U.S this is my whole argument the whole time which is if you're going to have this argument you need to do it thoughtfully and relatively right because the euro is in the same amount of trouble if you look across it's not as if China is actually sitting pretty and smelling like roses either every major economy or trading block in the world is going to go through this at the same time so it becomes a relative trade argument and there I just don't know enough to know whether the US is poorly positioned versus Europe or China but it just seems like you get back to a place where it's like okay we need to find the flight to safety what is the canonical flight to safety if it's not a commodity like gold it's probably the dollar until it's not yeah okay Freebird obviously other countries have even more acute problems higher debt to GB GDP which means higher debt payments just rounding third here on this issue any final thoughts on the dollarization and servicing or debt look it's we're in trouble and it's uh it's unclear the timing and the path but the arithmetic is pretty simple in addition to the point Sachs made you guys saw the news the city of Chicago has a 44 billion dollar pension hole that's just the tip of the iceberg on unfunded pension liabilities from both state government city government even private institutions this is again hundreds of millions of people worldwide that are expecting money coming to them from institutions that ultimately the federal government of the US is likely going to have to backstop to some degree so that's another huge check that's going to need to be written that the federal government is inevitably going to have to write because we're not going to just let all these people have no money and become starving and Social Security right now is projected to go bankrupt sometime between 2030 and 2035. so we're gonna have to write a check to cover the hole there plus the interest payment checks what about your mocks Point Freeburg of like relatively on that uh relative to other societies other countries yeah so the very likely case is that relative wealth will decline so in the near term I think it's inevitable we have higher tax rates I've said this before because in order to kind of Meet The Gap even if we have these austerity measures or reduce costs or reduce the budget as the Republicans are going to push for is this debt ceiling debate reaches its apex in uh 60 days from now which you better believe this is going to be pretty pretty damn dramatic and there's going to be real questions of what happens if the U.S defaults on its treasuries if the U.S defaults on obligations it has on treasuries there will be a real shift away from using those assets as the Baseline of the risk-free rate worldwide what what the net what the other thing will be I don't know I I I'll speak about the challenges I see with Bitcoin you know if we want to at some point oh did you hit it but did it hit a million yet but if you put all of this together you're gonna have to Source income somewhere you're gonna have to take a piece of the assets and a piece of the income away from the private citizenry so you're going to have to tax and that tax will be used to kind of fill some of the hole and then more of the hole will be filled by printing money and that will lead to this kind of inflation of asset values which ultimately means that the relative cost of things go up and relative wealth goes down and I think that's the point to take note is that anyone who's concentrated assets is going to have them effectively went pretty quickly over a couple of those examples so just to take that that Chicago case the numbers I saw in an article this week I think I was in the Wall Street Journal was that 80 percent of the property taxes in Chicago are now going just to pay for pensions so 80 are going to pay former workers not current city workers and moreover those uh pensions are only 25 percent funded so they've already over promised by 75 percent benefits that they can't afford how is this going to work and you saw that we just had an election there and rather than fix the problem they voted for a candidate Brandon Johnson who is even softer on crime than Lori Lightfoot and the reason for that is because the the government workers unions basically all supported him so you have a situation in these blue cities and states where there's a massive Civil Service they are the strongest special interest in local and state politics they have already taken huge Appropriations out of the state budget in the form of these pensions which aren't even adequately funded we can barely afford them as they are should we have pension sacks what do you think sure so what what happened in the 1980s when there was a lot of pension reform in the private sector As you move from defined benefit to Define contribution so you start having more defined contribution like 401k the way that these public pensions work is to find benefits so you know what they'll do is they'll say that we're going to take your last year of employment with the city or state and whatever your whatever the amount of money was you made that last year you're going to get 80 or 90 of it for the rest of your not just your life but your spouse's life too and moreover any overtime you earned it becomes part of that calculation so everyone knows this game and so what you see is in their final year state or city employees will load up on the overtime they'll earn twice as much and then 90 of that yeah they get 90 of that for the rest of them and their spouse's life we just can't afford to have rules like that that don't make any sense and so but the point is that the benefit that's been defined Bears no relationship to the amount of money that's gone into these pensions right and so you have there's a simple solution here you have a huge unfunded liability yeah but to freeburg's point every blue city and state in the country is going to have this problem and who's going to pick up these expenses you bring up great points but you just mash them all together in this mashed potato of random things like unfunded pension liabilities you won remember Ray eyes trading and they're like the same thing they're not the same thing they're driven by two different subjects here but we're talking about listening amalgam soup an outcome the conversation classification so I'm just saying like if these are important topics but I'm just saying I do think they're motivated by totally different things and they're not related as much as we think they are related I think they're related let me walk you through how they're related okay I want to hear how the real eyes you want trade is connected to the Chicago pension system the holes need to be filled so the money is not going to just not get paid to the pensioners Social Security is not going to go away just like we saw in France if you start to do that you have Revolutions in the street there's literally bonfires at intersections in France in Paris today because people don't want to wait another two years before they get their pension payments so ultimately that check has to be written when you add up the column of how much money is not on the balance sheet today how much liability is not on the balance sheet today that is ultimately gonna have to get paid out and the US government is going to print money to pay it out it indicates that there is a higher degree of uncertainty on whether or not I'm actually going to get the value back for the bonds that I'm buying in US dollar denominated form or that the US dollar is actually going to be strong enough to cover the cost or it has enough kind of you know or has too much volatility because of this uncertainty and I think that that's really where people start to say well maybe the US dollar isn't that risk-free rate where it's a strong economy with a great balance sheet great economic growth there's certainly extraordinary potential because of the freedoms that we have to operate in this country as individuals through the Enterprise through the Innovation through the entrepreneurship through the attraction of talent from all over the world to come here but at the end of the day we do seem to have a very big set of checks that we're going to have to write and as those you know liabilities start to mount there becomes a real question on do I really want to hold dollars maybe I want to hold something else and maybe I diversify a little bit and maybe instead of holding just dollars I also hold other things and as that starts to happen you see a little bit of a shift it's not an overnight thing it's all catastrophic one or the other but it starts to bring into question whether the US dollar is the standard de facto system that's used for trade around the world that's the point and sax there is a solution to this superannuation is done in the UK and in Australia where you contribute you're forced to contribute to your 401k essentially but you get to learn how to put money away and you become a little more you have a little more authority over your future with these pensions where you're responsible for saving and you're kind of forced to save and it seems to have worked really well in Australia and other places where people have great savings and you don't have this major debt load by the government doing it so it's something for people to look into sex did you want to add anything to this yeah this one to the death just make it quick yes I don't think we're just leaving it to death because I think it is a huge issue I mean look the part of Chamas argument that I agree with is that you do have to evaluate the Dollar on relative terms and you know you can argue that the US and the dollar it's it's still the you know let's let's call it the most eligible bachelor in the leper colony um you know nothing started falling off on the man yet but um but that doesn't mean that it won't that's really good that's really good by the way the first default might be the nose is falling off you know the economist herb Stein once said that if something cannot go on forever it won't what we're doing right now cannot go on forever we are running deficits and debts and unfunded liabilities that we cannot afford and so it will stop and the only question is how it stops well I think there's yeah and it may stop in a way that is not it's not a voluntary Choice by us basically you guys want to make a bet a friendly wager for charity oh you know what happens in June I'll make a bet with you guys June you mean the debt ceiling yeah what what do you guys think happens you think this is going to be a fractious chaotic thing where the markets get roiled no I think it's going to be a pretty rubber straightforward deal where they're gonna it's gonna come down to the wire but my guess is No One's Gonna Want to default on the debt yep and there's going to be some concessions on spending and ultimately the debt ceiling will get extended and that those concessions on spending will allow the Republican party to save face with their voters and say look we we got some concessions here I'm not sure they're going to be enough to really address any of the major problems that the US is facing over the longer term but you know certainly letting the debt ceiling hit and defaulting is catastrophic I think the majority case is a bunch of hand ringing and then they make a concession people that are interested in this topic I would go use the way back machine and go and read all of the articles in the 80s where you could replace China with Japan and what happened with Japan is that Japan just hit a demographic wall not dissimilar to what China is about to hit in the next 15 or 20 years right it's a good counter argument yeah that's a really good point and I think that there is this element of you know China as the primary threat but I think the the bigger problem chamat is that we have voted ourselves into a stupor we have allowed ourselves to accrue these liabilities that are in many cases not on the balance sheet that we simply cannot afford to pay and the social unrest that will arise what if and when we don't pay them or the economic cost of us actually paying them either of those are going to be pretty significant but that's under that's water under the bridge and it has nothing to do with China it has just everything to do with how the US is spending thank you for being intellectually honest this is my point I agree with you about the importance of these unfunded liabilities I just completely disagree with you that this argument about these things being so hyper-connected or that all of a sudden we're at the Cliff of D dollarization I don't think it's rooted in facts and I think again it ignores this unbelievably important piece of logic that all of you guys that say this tend to ignore and it's still in it's not even well addressed in Dalia's book which is it is a pegged currency and the minute you unpack it none of you know what happens to it except that it probably isn't where it's trading today and if you actually didn't have to factor in dollar reserves that everybody holds that thing would Skyrocket in value and it would crush the export value of the Yuan and it happens to all currencies and this is this funny thing that has happened to the United States which is that it ran forward and it transitioned its economy to a service-led economy faster than other countries and other economies and other currencies did and nobody wants to just talk about that except we're talking about that's what sort of drives us good sex I don't think the big risk is that all of a sudden the dollar gets replaced by the Yuan as world's Reserve currency I think Freeburg lays out a more intermediate path which is people start to hedge their dollar exposure and decisions that used to be automatic like trading oil and dollars you know the so-called Petro dollar now it becomes a little bit you know more of a decision so you know the sounds that's what happened with the pound sterling it was a similar story and it was not an overnight collapse I mean there were certainly these kind of punctuated moments where there were hits but you know the history is that there was a slow devaluation over time and the you know as a result of obviously the economic pressure and the uncertainty actually no what happened to pound sterling was that it was pegged to the US dollar and then it became unpegged so exactly what I'm talking about no even post that even post that if it's a free-floating currency yeah no dude you're proving my point when Soros broke the back of the US dollar what he forced George Brown or when he forced the chancellor of the extractor could do was to basically depeg the pound and then yes you're right it's been like this ever since yeah that was what I'm saying if you let it be free-floating nobody wants to trade in that other currency everybody wants the dollar the worst affected leper in the leper colony yes we're still in the colony this is why you have to have if you're going to be intellectually honest just have a relative conversation about all of the currencies and all the things that they're also going through which are also not not perfect the debt payments for the emerging and the frontier markets are extraordinary and just realize that if you want to go and Peg your economy to somebody else's back they also come with their own trials and tribulations that you have to risk manage as well and now you have to decide on balance do you want to risk manage a centrally governed economy right from a central Bureau or a freewheeling Democratic like these are all the discussions yeah there's a lot of Trace is there just back to the the non-currency part of this for a second there are a lot of like connections between these things I I actually think there is a strong connection between what's happening for example in Chicago with the out of control civil service and the unfunded pensions all the way to the dollar status but there's also a connection between commercial real estate and these pensions so on a previous show we talked about the commercial real estate the looming crisis and a lot of people thought that you know some of the comments we were just talking our book which is not true I don't own I don't have a dollar invested in these office Towers but you know who does Pension funds yes who owns these office Towers so you're talking about Pension funds that are three-quarters unfunded and they may have a lot less funds than they even think they do because we're about to have a huge Reckoning where all of a sudden these office towers that were supposed to be blue chip that were supposed to have the Best Collateral there was in major American cities now all of a sudden they may not be nearly as valuable as they thought they were yeah and and if they don't own the building they definitely own the debt a hundred percent for sure in the fixed income portfolios of all these pension systems are the debt that was used to finance these buildings by the REITs and buy you know the big real estate funds that put those things together so you're absolutely right they are a hundred percent impacted by what's about to happen we're not we're not going to allow given the civil unrest and social unrest risk and obviously as a democracy we're not going to allow that all to go to zero and we're not going to let pensioners not get paid ultimately that's just a kiss of death maybe pension payments are reduced to some degree but again Paris is a really great example of as you start to try and shift the economic guarantees that have been made to pensioners even slightly yeah what was it two years in retirement 62.62 yeah and it was certainly like you know you could sit here and argue what people for years for their whole life have this expectation set we have all for our whole careers invested in the Social Security benefits that were owed as retirees through every paycheck that we've received and those Social Security payments may not end up coming back to us if Social Security is a lot to go bankrupt so ultimately the government has to set step in and issue new dollars to make that up then the economic question is what happens to the value of the dollar what happens to the value of the economy and so on as you issue trillions of dollars to fill these holes let me ask a um a question that's a little more positive here perhaps which is is there a path out of this you know debt cycle we're in and what are the top ways in which we're going to get ourselves out of this I I have three that come off the top of my increased productivity hold on I have three off the top of my head number one is austerity measures number two is productivity through technology and perhaps number three is maybe uh recruiting more entrepreneurs here to start more companies and you know fill some of these jobs so intelligent immigration yeah number one is higher taxes yeah so look higher taxes because you can go after assets you can go after wealth so there will be higher taxes okay so I still think I still think we'll end up seeing 70 tax rates on the wealthiest uh people seventy percent I don't see I don't see it being like unpopular I think it's going to be unpopular with the wealthy it's going to be popular elsewhere to fill the hole second is cut back on spending but that's a really hard thing to do because you know as we've talked about in the past people vote to get more stuff so you put the politician in is going to vote to get you more stuff you don't vote people in to go cut spending so generally you know we're going to likely see uh number one happen first maybe there'll be a Reckoning where you kind of reduce spending it's going to take extraordinary political will and an extraordinary depth of education and diffusion of understanding of this this key critical economic problem amongst the voting class uh which is a really hard thing to realize I think number three are you saying get the public to understand to understand that we have to have austerity measures yeah and then number three and and basically people are going to have to make sacrifices so the first sacrifice will be the wealthy they're gonna have to sacrifice through higher taxes the second sacrifice will be everyone else by seeing reduced spending and reduce kind of surveys the services Etc the third is the hopeful one but we don't have a guarantee on this which is do we see economic growth through productivity gains can we create leverage with our resources and our people by using new technologies to get more with less and so you know anytime yeah like again I gave the example last time but when a tractor was introduced in agriculture all the people that were farming the ground didn't have a job anymore but what happened is new jobs emerge in making tractors and servicing those tractors in uh you know gas pipelines to get gas to the tractors all these economies emerged as a result of that economic technical Innovation so I think as we see Ai and other Innovations hit the market you know new economies and new Industries hopefully really Blossom and and we can benefit from that economic growth and also lower costs for people on purchasing goods and services we've identified four things when Reagan came in wasn't wasn't the highest tax rate like like 70 yes yeah that was the top marginal tax rate 70 and 70 is not unheard of it will happen again in this uh in the U.S well and but Reagan unleash an economic boom by flattening the tax structure because marginal tax rates created a disincentive for people to work and produce more and so there is a big economic hit from this yeah and remember what this 1970s were like it was the malays days of Jimmy Carter we had a horrible economy with high inflation and everybody was paying high tax rates and the government wasn't making that much revenue because there wasn't as much economic activity going on and during the 1980s we had an economic boom and the government actually collected more Revenue with lower tax rates because so much economic progress was unlocked sex we identified four things so it's like we've learned nothing which one is the most important here which ones are the most important we talked about austerity we talked about increasing taxes we talked about Innovation and efficiency and then we talked about immigration recruiting more highly talented people when you look at those Fords you have any to add to that list to get out of this and which ones do you think are the most important and why when you look at Federal tax revenue over a 50-year period go look at the Fred charts what you see is that quite independent of the top marginal tax rate the amount of Federal receipts that the government's able to collect is roughly around 19 percent plus or minus two percent and so you can only get so much blood from a stone you can try to raise the top marginal rates but then rich people have an incentive to basically find more tax protected strategies so the history of this thing going back to 50 years is you can only extract so much from taxes and what you're better off is a lower tax rate that is broader based and you go for economic growth that produces more activity but look if you if you're spending too much there's no way out of that so austerity critically important and Entrepreneurship I mean when Bill Clinton left office and I I think Reagan through Clinton was the biggest 25-year period of economic boom we've ever had federal spending as a percentage of GDP was 18 and a half percent he got it down from like 22 percent and he did it through economic growth and he bragged about it yep so you know look where you want to be is I think federal spending should be in the low 20s I think you want tax revenue to be in the High Teens 19 you can have a small deficit those are the conditions for economic growth chamoth any thoughts here on our way out I'm going to take the complete opposite of all of this which is the um anti-chicken little version which is I think not much at all changes I think that jet debt to GDP will continue to rise not just for us but for every other country in the world whose fate is worse than the United States and I think that on a relative basis the United States will continue to be exceptional and that this will not really be an issue in our lifetimes okay and I'm not saying that's a good thing and I'm not saying that's a just thing and I'm not saying that's what I want to happen but pragmatically I think that that's what will happen and I don't think that there is a magic number where all of a sudden things start to break where there's some magic number for Jet debt to GDP where all of a sudden everybody finds religion instead I think that it just creeps higher and by the way if you look at where debt to GDP was at the turn of the 19th century and then what happened through the World War II what we've really done is you know we've retraced a lot as well so there have been moments where we've been out over our ski tips a lot and so I think it's just important to keep in mind that sometimes what works just continues to work and I keep asking myself the relative question which is what country what economy what group of human capital is better positioned in the United States and despite all of the things that are screwed up with this country it's hard to find a better example so yeah unless you happen to have the lucky mineral or oil club like Norway or Saudi Arabia you're you're going to be hard-pressed to find a better place to plant your money and I think entrepreneurship and immigration are the two most important things we can do as well as austerity and I think Joe manchin is like or these moderate candidates in the middle who might actually be able to talk about cutting but by the way you said something you said something really interesting which is if you look at the Norway Saudi Abu Dhabi what are those countries effectively becoming by monetizing the oil they invest in all of the economies that are working perfect segue thank you it's not as if the Saudis and Abu Dhabi and the Norwegians aren't trying to invest in America they're trying to put as much money to work as possible they're just trying to Pace it out so that they have time diversity and asset diversity so to your point Jason so this is a it's sort of a bit of a self-fulfilling prophecy I think that what has worked continues to work and then the burden for disruption gets higher and higher yeah that changes there's two things that work in the world having those natural resources or having entrepreneurship let's make a segue here this is the final point on that oh God we've been final pointing for 20 minutes here go ahead quick final point this is an important discussion I think okay so Adam Smith once said that there's a great deal of Rune in a Nation meaning it takes a lot of political bungling to screw up something as big as a nation especially a nation that's the number one superpower in the world that has the world's Reserve currency so we are in some ways the beneficiary and coasting on hundreds of years of Excellence of economic performance and great political leadership in this country and the question to ask is not whether we can still post on that but whether the political leadership we have today is living up to the standard we had in the past and I think it's clearly not and the only question is when it breaks and it's hard to predict exactly when it's going to break but what I do believe is that if we keep going the way we're going it it will have to stop well said we're definitely bending it right now and when you bend it sometimes it breaks right and and by the way the reason why we are going to pursue AI at Breakneck speed even though it may lead to some sort of weird dystopian future is because we need that productivity boost we need a choice now 100 because we are so frankly better us than the next guy whoever gets their first choice another perfect example Choice two major stories this week that we need to discuss the first is Saudi Arabia's public investment VC arm took a very interesting PR step of listing their funds that they have backed and it's a significant list everybody from Andreessen Horowitz to go to not surprising there and Mark Andreessen and Ben Horowitz and Adam Newman had a major keynote at a Saudi startup conference I was actually asked to Keynote the next one in Riyadh which I'm debating doing and then in sync with that happening at the same time there's been a debate of should LPS in America be backing firms like Sequoia China Matrix China Etc because those firms are now backing open AI competitors and a if we believe AI is the big race here uh should we as a country we don't we're not allowed to to back military stuff obviously in these countries but how do we on this Global chess board decide should we be taking money from Saudi should we be investing money in AI startups in China so I think tremath you've got a big perspective here globally let's start with you two separate issues any surprises here by Saudi the kingdom actually releasing the list of who they're backing and why would they do that at this point in time and then us investing in China because we are at a moment here a Crossroads I think of should we be engaging or not engaging and Building Bridges with China and Saudi you know for obvious reasons look Saudi Arabia Abu Dhabi all of the UAE these are countries that are really important on the world stage and increasingly so because they manage peace and prosperity regionally now right they have huge balance sheets that can accelerate all kinds of projects all around the world and so they have to be taken seriously and so this is a very smart marketing move by the pif which is to essentially say look we are an established Blue Chip LP of the Blue Chip organizations that you're used to hearing about and celebrating and I think that's very smart of them because what it does is it reinforces the feedback loop that other great firms should be going to them to raise Capital when it comes time for them to raise their n plus first fund and so I suspect especially now it makes even more sense because everything we've heard Friedberg mentioned in a couple of episodes ago the United States limited partner Market is essentially closed for business they have huge misallocation problems the endowments are sort of closed the universities are closed a lot of the family offices are licking their wounds and so this is a perfect time for folks in Saudi Arabia and the UAE to basically put the foot on the gas and basically tell everybody hey we are open for business so I think that that makes a lot of sense and I think that it'll be successful it'll work especially in a moment now where U.S dollar flows from US dollar limited partners are very difficult and harder to come by well and we're also selling billions of dollars in weapons to the kingdom and we are a major part of ours are valuable they're a valuable security partner of the United States they're valuable economic partnering the United States it's no different than doing business with any other country I think it's smart by the pif on the other thing though with U.S firms investing in China's AI it should not be allowed and I do think that the folks that are responsible for sypheus need to get a handle on this look I've done a bunch of deals where I have had to jump through a bunch of cipius Hoops where explain stuff yes please so basically cepheus is the committee on foreign investment in the United States now what that means is if folks want to invest in certain things that are on a list of things and I'll and I'll tell you the things that I've been involved with but that came under cypius rocketry and certain chip Technologies are so Advanced that the United States has very specific rules that limit the ability for foreign actors to invest in those businesses and in those situations where a few folks invested beside me in some of these companies we had to go through a process to get cypheus approval before that investment was allowed now what's interesting about that is that's about money coming in but I do think that the reverse now becomes important because if U.S dollars are going to go and see these extremely complicated Advanced Technologies abroad especially into the hands of countries that are Frenemies at Best of the United States I think we have a responsibility to have a point of view on that and so I think Keith were boy was the one that was very definitive and said this should not be allowed I do think it is so early Jason we talked about this we're on this curve of [ __ ] around and find out which means there will be some crazy examples of stuff that are very uncomfortable yep I don't think we want U.S fingerprints on this stuff being perfected outside of U.S borders sex when we look at the history of Engagement with China maybe we can take a multi-decade globalization perspective here when you look back on it the engagement with China created so much Prosperity so much intertwined dependency iPhones being the the best example possibly we're selling them in China we're making them in China China loses apple as a customer that would be absolutely devastating for them and it would obviously be devastating for apple as well so when we look back on that as a general rubric here do you think we enabled a competitor or we avoided future conflict because of the interdependency and where do you sit in terms of thinking about engagement versus maybe isolation or something in between those two for enemies best of Frenemies Etc the policy of constructive engagement as it was called 20 something years ago the the idea behind it was that if we engaged with China economically and help make them Rich then that they would become more like us they would somehow turn into democracy and they would have tremendous gratitude towards us and we'd become friends it's not the way it worked out there were people who warned that this was a foolish approach so most notably the realist scholar John muirsheimer at the University of Chicago warned back in 2002 that that was not the way this is going to play out if we made China Rich they would seek to convert that wealth into political power and then they would act the way that all other great Powers have behaved throughout human history which is they want to dominate their region and they would seek to push the United States out of Asia and the future that he predicted 20 years ago is the future that's come true and I think the you know all the constructive engagers I think has some egg on their face now I understand where they're coming from this is a fundamental difference between whether you see the world in economic terms which is about creating positive sum games basically trade or whether you see the world fundamentally in geopolitical terms which is about the balance of power which is more of a zero-sum game and I think that both views they're both extremely important we want to engage in positive some relationships that generate more trade and more wealth to the United States at the same time we have to be aware and concerned about the balance of power we do not want a number two country in the world who can rival the United States in terms of power who basically could win a security competition with us and we certainly don't want a country in the world to be more powerful than us so I think this is sort of the yin and the Yang is geopolitics versus economics and I think what's happened with China over the last several years is it's flipped I think we used to see the relationship primarily in positive some economic terms and now we see it in geopolitical terms and I think there's a lot of firms now in the United States you haven't embraced this new reality and to go back to your question about you know when should a venture capital firm take money from a foreign country when it should and I think there's a very simple rule for this which is if the country is a U.S Ally I think it's fair game because the U.S has said this is a partner of ours so why can't you do business with them but if the United States government has said this is an adversary you're putting yourself in a really difficult precarious spot by doing business with them because then you have to explain yourself to the US government yeah this is the very simple rule we would use is I don't we would never consider taking money from Russia or North Korea any country that the US government says is an adversary of ours but if the US government assistance is a partner and an ally then I think you could consider it do you think there's a way Saks to salvage the the relationship with China and make it productive or do you think it's a fargone conclusion at this point because one might argue and I've heard people argue this maybe China would have invaded Taiwan already if it wasn't for the interdependency so I know we're dealing with you know a lot of we're doing a lot of predictions here but do you think it can be salvaged and do you think it would have been a worse relationship if we hadn't had this interdependency that's been built up I'm not quite sure that the economic interdependence Theory preventing War has been definitively proven if you go back to World War One For example it was the case that Britain and Germany actually were each other's number one trading partners and they still got in World War one for reasons that in hindsight seemed really silly so I'm not sure that economic interdependence can prevent it certainly doesn't prevent security competitions from arising and and therefore I don't think it can necessarily prevent a war although you know having business ties can lead to positive interactions yeah so I I'm just saying the jury's still out on that theory but I think that like I said I think once you're in a security competition the way that we are with China I think geopolitics rather than economics is in the driver's seat and that's what's happening right now yeah Freeburg intellectually way I think to process this you would never invest in a North Korean AI company a Russian AI company or an Iranian AI company how do you think about China and then just generally this topic of when to engage when Venture capitalists when startups uh you know and trade Partners should engage with various countries how do you think about a free bird in what role as an investor well we could we could take multiple roles here founder investor would be the top two for this program I think or taking money from yeah those three possibilities very few portfolio companies that don't benefit some way from the trade relationship with China so you know to Sax's point I'm not sure you can really say China is a true and complete adversary in the sense that we're on opposite sides there's obviously deep interdependencies so you know it's hard to kind of say I draw the line at this kind of Technology investing there but identified from their technology investing that's going on there in other ways with some of my other businesses right I think that that's really where you kind of run into a a bit of a conundrum that we do have a deep interdependency so you know like with respect to like investing in China I don't know I think the investing in China I think is pretty difficult given that there is a single power that gets to decide what does or doesn't happen I mean look at what happened with Alibaba a lot of shareholders got pretty wiped out there these are these governments where you have like the op the potential of getting completely wiped out by government action is a pretty scary place to invest in general I'd be more oriented as an investor around those concerns than I am about you know it's really hard to do the calculus on on am I helping or hurting America versus China you know you you could argue 100 ways each of those sides what do you think of Sax's framework if we're partners you know fair game if not Partners not a good idea to put your neck out but we're part sorry are you asked are you saying like we're not partners with China well it seems like the US government has said we're adversaries now and that we're in a in a pretty dogged competition well Jake out just be specific I'm talking about a situation in which you're taking money from them yes the situation we're taking money I do think that selling them products that are you know not like super strategic like I think selling them our most advanced chips is dangerous but you know look I think if you're selling them products that help restore the trade deficit and correct that movie I have a problem with that yeah I don't have a problem with uh-selling movies or cars or something like that to China the question is though I think if you're a venture capital firm do you take their money that's what I'm specifically talking about and I think whether you're allowed to or not we don't because we just don't have to think about what complications that could cause down the road also getting your money out of China also a difficult task it seems these days cash app creator Bob Lee AKA crazy Bob on Twitter that was his Twitter handle was stabbed to death The Tragically in San Francisco earlier this week he was squares for our CTO he worked at Google on Android who is the chief product officer at mobile coin also an angel investor and a ton of companies figma Space X Clubhouse well known in the industry officers responded at about 2 35 am to report a stabbing on the 300 block of Main Street and arrive to find Lee who had maintained her hospital to come to his injuries there no arrests has been made a lot of San Francisco politicians are sending their thoughts and prayers but obviously San Francisco is still very dangerous place it seems any thoughts on this and how it might act as some sort of uh Crossroads or not and thoughts and prayers obviously to his family I think this um this was a pretty tragic event there's a lot of people who I knew that were pretty close with him I got several messages on his passing he was I didn't know him uh personally I think we met maybe once or twice he worked on Android at Google and obviously had a key role at Square in the early days and was a pretty uh impactful and important person but also supposedly I didn't know him very well again but everyone says just such an incredibly kind and generous person so uh tragic loss um I used to live two blocks from uh where the the event happened I'll I'll zoom out where is it Freeburg is it a bad place in Soma at Rincon Center right by the big condo Towers there and it's right where the Salesforce uh offices used to be and you know block from the wall is it part of all that drug craziness it's not in the heart of the camping District it's just a nice area and so I'm a quiet area right so at night there's no one there I went to San Francisco a few weeks ago I told you guys I pulled up to a restaurant on the Embarcadero and I joked with my buddy in the car I'm like Oh my car's gonna get broken into while we're at dinner because I'm parking on the street we went to dinner 90 minutes later it came out of course my car had been broken into the trunk had been popped up and it's just like this is very fancy area Soma look here's the thing if you park at a parking meter in San Francisco for eight minutes too long you get a 60 to 100 parking ticket and San Francisco has become an upside down town what I mean by that is I think that like so much of the response that we've had in the last couple of years to power dynamics and concerns about the powerful having too much influence over those who are less powerful who have less influence and who suffer as a result of their demeaned influence the response has been to turn things upside down which is to give those who were lacking in the power structure everything and to try and take everything away from those who are at the top of the power structure so if you want to deal drugs in the open air if you want to walk into Walgreens and steal thousands of dollars of goods and walk out nothing will happen to you because you were embedded with this powerless kind of position in life but if you have a car and you park at a parking meter and you stay at the parking meter for more than 10 minutes you get a ticket and the consequences of responding to power dynamics by flipping the power structure upside down is obviously can be more negative as we're kind of experiencing I think acutely in San Francisco but also around the nation and by the way I think that this applies in a lot of other ways in terms of how we're doing College admissions in terms of how we're selecting people for jobs in terms of you know recent applications for Pilots for doctors where the assessment is less about did the person who was disadvantaged at the beginning of their life or career or trajectory or educational path be given greater opportunity and greater resources to catch up and to get there or did we just flip the power Dynamic upside down and just give them the end point and as a result there's a massive kind of detriment that I think can arise and it's not necessarily always the case that it will arise it is not necessarily the case that selecting someone based on some demographic profiling to be an airline pilot necessarily means that that Airline is more likely to have airplane crashes but in certain cases when you don't prosecute certain crimes like robberies or people walking into stores or breaking windows or dealing drugs in the middle of the street or camping on the street and you fast forward a couple of years that power Dynamic the flip of that power Dynamic causes the whole town to go upside down and everyone who's sitting on the bottom ends up becoming a victim themselves and I think we're starting to see inklings of this in San Francisco we certainly have for years Saks is ranted on about this with respect to some of the non-prosecution that's happened historically and I totally agree with him on those points and I think that it's come to a Breaking Point in San Francisco but that's really a beacon for what else is going on and you know some people call it wokism I I think maybe this notion of wokism is one small element or segment of the broader issue with how we are tackling with and dealing with embedded power structure issues in this world today and the flipping of those power structures upside down doesn't necessarily yield the outcome we all want and I think we're starting to see reasons why Zach's any thoughts here that's my rant I can't disagree with you yeah so similar Freeburg I I didn't know bobbly but I I know many people who knew him and I was getting texts and obviously we feel really bad for him his whole family his kids as a father his co-workers friends we don't know exactly what happened yet but I think we suspect and I would bet dollars to dimes that the story is very similar to a case we had in La recently the Brianna kupfer case where a young woman was basically stabbed for no reason by a psychotic homeless person who had been through the revolving door of the jail and Criminal Justice System who could have been locked up who was arrested multiple times but was not kept locked up because of this push for decarceration and you can argue that maybe it'd be better for that person to be in mandatory treatment or in a even maybe a mental Asylum but this idea of just releasing these people onto the street I just think is an outrageous abdication of responsibility by our elected officials who run the criminal justice system who passed our laws and the thing I just wish is that I could lock for 24 hours the the people alike are supervisors or our governor or the people who basically make these laws or the people who are pushing for decarceration of these violent offenders by these non-profits I wish I could lock them up in a room for 24 hours with the people that they think are safe to release on our streets let's see if they really would take that test because it seems to me that these these elected leaders and these non-profits are pushing for these outcomes they are setting loose on us a predatory criminal or psychotic element that jeopardizes our safety and makes these cities unlivable and we should not tolerate that and quite frankly the responsibility goes beyond those elected leaders it goes to all the voters as well because we keep putting up with this and where is our governor when this happened he was in Florida doing some sing-along at some high school where he was trolling Ron DeSantis because DeSantis has taken on di at that school so that's where Newsome was and he's extremely popular in California culture wars instead of saying culture wars in a distant state instead of basically fixing the criminal justice system in California it's even worse than that because he's actually shut down two prisons and released lots of people so where is the push for Criminal Justice Reform in California and protecting the citizenry and until the voters in San Francisco and California start demanding this there's never going to be a change and at the same time listening to Gary tan you know just vote for who are the Gary tan tells you to vote for okay I think it's probably a good guy I can't disagree and this the supervisor seemed to control a lot of this and uh chamat shared just this week mayor Francis Suarez is talking about on his Twitter the reduction in homicide shootings and they have literally counted the if you want to say a drug addicted mentally ill homeless there's obviously three or four different things going on here when you look at the population that's living on the street some number of them down on their lot some number mentally ill some number addicted to drugs and some number a combination of those things he seems to be getting it done in Miami and you know other states seem to and other cities seem to have gotten this under control is there any hope for San Francisco tomorrow or is this just gonna take five or ten years to bottom out I mean it takes regime change I think New York had a long period of lawlessness where people were afraid to walk down the streets it took a handful of mirrors to draw a hard Line in the Sand to increase policing sometimes to introduce some pretty controversial Concepts at the time or at the time that were supported which now seemed controversial you're talking about stop asking Frisk I think it was called the broken windows theory of policing yep take care of them take care of the little things so that the little things don't compound into the big things but whatever you believe needs to get done I think it's pretty clear that what is being done isn't working and so the real question is can people see through the naked partisanship to agree that this is not working and sadly what I would tell you guys is that I don't think they're there yet and the reason is because America is the most divided it's ever been especially on issues of race and social justice and social norms and I think that crime has gotten caught and painted with that brush which means that the idea of very aggressive policing and safety are now viewed as opposite and antithetical to social justice and I don't know how that happened but the result of it is this which is these folks will never agree that this is not working and you'll have to go through recall election after recall election and even then it's not going to be enough because the smart politicians will say what they want in terms of like safety matters but then a lot of Voters will vote the opposite the example in Chicago that David brought up earlier is really interesting because it was essentially a social justice candidate versus a Law and Order candidate through their Democratic ranks and the social justice candidate won the progressive candidate one and the person that wanted to tax businesses and individuals one and the person that wanted to sort of focus on Law and Order Lost so what does that say it says that we are still in a moment where we can't agree on what is important yep that's really scary and so I think you kind of have to unfortunately vote with your feet if you are lucky enough to do so I think that's the key yeah who's left over or a lot of people who are not in a position to just up and leave and then they are unfortunately left behind tragic situation all around and I will never host a conference or any event in San Francisco until this is solved because I um when people ask us to do events I'm like people don't want to come to San Francisco they're afraid so I do my events in Napa or in San Mateo Nat started a Bilingual School Italian English that is on the IB system International Baccalaureate system and it's a sister school to a school in the city we had a fundraiser which was literally right downtown in that encampment area and when I pulled up I was like is this for real it's an open-air drug Market where folks are doing drugs selling drugs right in front of you they're passed out completely incapacitated about a third of the guys are wearing balaclavas so you can't identify them you have no idea what they look like I grew up in Brooklyn in the 70s and 80s when it was legit dangerous and when I walk in San Francisco it feels much more dangerous then though that crazy era it feels random it doesn't feel like there's organized crime gang crime like I grew up in a pretty crappy neighborhood and you knew who the gangs were you knew who the tough guys were you knew how to avoid trouble they didn't come and randomly come and stab you to death right and so yeah Jason you become Street Smart growing up in a culture like that because you know how to avoid it you know how to be alert this doesn't feel like that this is no it's just like a bad roll of the dice and you could get stabbed to death just walking down the street not just not where where are the politicians to stop this I mean they don't care there's a the level of corruption in San Francisco is unbelievable the incompetence amongst those supervisors the mayor the DA's everybody it's just incompetence and nobody has the hood spa or the wherewithal to say enough and I think the other group to blame are all the rich people and powerful people who just haven't been active in politics and I know some of us have in different ways but I think it's going to take a coordinated effort by people who really care to vote out all these supervisors and bring in it's got to be regime change and I just don't know if there's the wherewithal to do because every time as a person who has some means or is successful in some way that you stick your neck out there like you have done sex the the attacks that you will get from this insane left I I don't want to even use the word woke I think it's a different derangement I think it's actual corruption where they're making so much money offer this homeless industrial complex they're getting paid so much money that the grift is so deep that they are going to fight for this and it's going to take some really courageous people like Gary tan and maybe David sacks and other folks to back a slate of people um to change this and we need people to run for government who are brave and who want to put their neck out there and say enough is enough we're going to police the city I just don't know if it uh it's gonna happen all right listen yeah I mean the the issue is that it takes it takes more than one election so listen I think we made a positive change by removing Chase of Boudin I think Brooke Jenkins has the right attitude she cares about victims I think she wants to prosecute the issue is that you've got a police department that's 50 of the number of officers that they want because they flirted with this whole defund the police movement you've got the Board of Supervisors and you've got like an oversight board on the police that basically make their jobs harder and it's not it's not one election because even the mayor doesn't control it because the Board of Supervisors really has all the power in San Francisco so they take a job that really should be one or two people's jobs like the D.A like the mayor and they break it up into this like Board of Supervisors where you've now got to be familiar with a dozen different races in order to effectuate a change well the machine knows how to do that but the average citizen doesn't so they make it really hard to effectuate change but there are groups that are springing up in San Francisco like grow SF and you know people like Gary who are on top of it and that's why just follow them and and vote for their recommendations because they're actually tracking how to make a difference all right I think on that we will wrap for the dictator tramath polyhapatia the Rayman David sacks and the Sultan of science I am the world's greatest moderator we'll see at the all in Summit 20. love you boys [Music] and they've just gone crazy [Music] besties [Music] foreign [Music] [Music]










welcome to episode 124 of the all in podcast my understanding is there's going to be a bunch of global fan meetups for episode 125 if you go to Twitter and you search for all in fan meetups you might be able to find the link but just to be clear we're not they're not official all in this they're fans it's self-organized which is pretty mind-blowing but we can't vouch for any particular organization right nobody knows what's going to happen at these things you can get robbed it could be a setup I don't know but I retweeted it anyway because there are 31 cities where you lunatics are getting together to celebrate the world's number one business technology podcast it is pretty crazy you know what this reminds me of is in the early 90s when Rush Limbaugh became a phenomenon there used to be these things called Rush rooms where like restaurants and bars would literally broadcast rush over their speakers during I don't know like for the morning through lunch broadcast and people would go to these restrooms and listen together what was it like sex when you were about 16 17 years old at the time what was it like when you hosted this it was a phenomenon but I mean it's kind of crazy we've got like a phenomenon going here where people are I love it organizing you've said phenomenon three times instead of phenomenon he said it's phenomenon phenomenal why is Saxon a good moochima what's going on there's a specific secret toe tap that you do under the bathroom stalls when you go to a rushroom which we're already off the rails I think you're getting confused about a different event you went to [Music] let your Rain Man [Music] [Music] there's a lot of actual news in the world and generative AI is taking over the dialogue and it's moving at a pace that none of us have ever seen in the technology industry I think we'd all agree the number of companies releasing product and the compounding effect of this technology is phenomenal I think we would all agree a product came out this week called Auto GPT and people are losing their mind over it basically what this does is it lets different gpts talk to each other and so you can have agents working in the background and we've talked about this on previous podcasts but they could be talking to each other essentially and then completing tasks without much intervention so if let's say you had a sales team and you said to the sales team hey look for leads that have these characteristics for our sales software put them into our database find out if they're already in the database alert A salesperson to it compose a message based on that person's profile on LinkedIn or Twitter or wherever and then compose an email send it to them if they reply offer them to do a demo and then put that demo on the calendar of the salesperson thus eliminating a bunch of jobs and you could run these what would essentially be cron jobs in the background forever and they could interact with other llms in real time sex just gave but one example here but when you see this happening give us your perspective on what this Tipping Point means let me take a shot at explaining it in a slightly different way not that your explanation was wrong but I just think that maybe explain it in terms of something more tangible sure so I had a friend who's a developer has been playing with auto GPT by the way so you can see it's on GitHub it's kind of an open source project it was sort of a hobby project it looks like that somebody put up there it's been out for about two weeks it's already got 45 000 stars on GitHub which is a huge number explain what GitHub is for the audience is this a code repository and you can create you know repos of code for open source projects that's where all the developers check in their code so you know for open source projects like this anyone can go see it and play with it it's like PornHub but for developers it would be more like amateur or PornHub because you're contributing your scenes as it were your code yes but yes continue this thing has a ton of of stars and apparently just last night I got another 10 000 Stars overnight this thing is like exploding in terms of popularity but anyway what you do is you give it an assignment and what Auto GPT can do that's different is it can string together prompts so if you go to chat GPT you prompt it one at a time and what the human does is you get your answer and then you think of your next prompt and then you kind of go from there and you end up in a long conversation that gets you to where you want to go so the question is what if the AI could basically prompt itself then you've got the basis for autonomy and that's what this project is designed to do so what you'll do is what my friend did is he said okay you're an event planner Ai and what I would like you to do is plan a trip for me for a wine tasting in heelsburg this weekend and I want you to find like the best place I should go and it's got to be kid-friendly not everyone's going to drink we're gonna have kids there and I'd like to be able to have other people there and so I'd like you to plan this for me and so what Auto GPT did is it broke that down into a task list and every time I completed a task it would add a new task to the bottom of that list and so the output of this is that it searched a bunch of different wine tasting venues it found a venue that had a bocce ball lawn area for kids it came up with a schedule it created a budget it created a checklist for an event planner it did all these things my friend says he's actually in a book The Venue this weekend and use it so we're going beyond the ability just for a human to just prompt the AI we're now the AI can take on complicated tasks and again it can recursively update its task list based on what it learns from its own previous prompt so what you're seeing now is the basis for a personal digital assistant this is really where it's all headed is that you can just tell the AI to do something for you pretty complicated and it will be able to do it it will be able to create its own task list and get the job done in quite complicated jobs so that's why everyone's losing their [ __ ] over this freeberg your thoughts on automating these tasks and having them run and and add tasks to the list this does seem like a sort of seminal moment in time that this is actually working I think we've been seeing seminal moments over the last couple of weeks and months kind of continuously every time we chat about stuff or every day there's new releases that are Paradigm shifting and kind of reveal new applications and and perhaps Concepts structurally that we didn't really have a good grasp of before some demonstration came across chat GPT was kind of the seat of that and then all of this Evolution sense has really I think changed the landscape for really how we think about our interaction with digital world and where the digital world can go and how it can interact with the physical world it's it's just really profound one of the interesting aspects that I think I saw with some of the applications of Auto GPT were these almost like autonomous characters in in like a game simulation that could interact with each other or these autonomous characters that would speak back and forth to one another where each instance has its own kind of predefined role and then it explores some set of Discovery or application or prompt back and forth with the other agent and that the kind of recursive outcomes with this agent to agent interaction model and perhaps multi-agent interaction model again reveals an entirely new paradigm for you know how things can be done simulation wise you know Discovery wise engagement wise where One agent you know each agent can be a different character in a room and you can almost see how a team might resolve to create a new product collaboratively by telling each of those agents to have a different character background or different set of data or a different set of experiences or different set of personality traits and the evolution of those that multi-agent system outputs you know something that's very novel that perhaps any of the agents operating independently we're not able to kind of reveal themselves so again like another kind of dimension of interaction with these with these models and it again like every week it's a whole other layer to The Onion it's super exciting and compelling and the rate of change and the pace of kind of you know New Paths being being defined here really I think makes it difficult to catch up and particularly it highlights why it's going to be so difficult I think for Regulators to come in and try and set a set of standards and a set of rules at this stage because we don't even know what we have here yet and it's going to be very hard to kind of put the genie back in the Box yeah and you're also referring I think to the Stanford and Google paper that was published this week they did a research paper where they created essentially The Sims if you remember that video game put a bunch of and what you might consider NPCs non-playable characters you know the merchant or the whoever in a um in a video game and they said each of these agents should talk to each other put them in a simulation one of them decided to have a birthday party they decided to invite other people and then they have memories and so then over time they would generate responses like I can't go to your birthday party but happy birthday and then they would follow up with each player and seemingly emergent behaviors came out of this sort of simulation which of course now has everybody thinking well of course we as humans and this is simulation there are living in a simulation we've all just been put into this is what we're experiencing right now how impressive this technology is or is it oh wow human cognition maybe we thought was incredibly special but we can actually simulate a significant portion of what we do as humans so we're kind of taking the Shine off of Consciousness I'm not sure it's that but I would make two comments I think this is a really important week because it starts to show how fast the recursion is with AI so in other Technologies and in other breakthroughs the recursive iterations took years right if you think about how long did we wait for from iPhone 1 to iPhone 2 it was a year right we waited two years for the App Store everything was measured in years maybe things when they were really really aggressive and really disruptive were measured in months except now these incredibly Innovative breakthroughs are being measured in days and weeks that's incredibly profound and I think it has some really important implications to like the three big actors in this play right so it has I think huge implications to these companies it's not clear to me how you start a company anymore I don't understand why you would have a 40 or 50 person company to try to get to an MVP I think you can do that with three or four people and that has huge implications then to the second actor in this play which are the investors in Venture capitalists that typically fund this stuff because all of our Capital allocation models were always around writing 10 and 15 and 20 million dollar checks and 100 million dollar checks then 500 million dollar checks into these businesses that absorbs tons of money but the reality is like you know you're looking at things like mid-journey and others that can scale to enormous size with very little Capital many of which can now be bootstrapped so it takes really really small amounts of money and so I think that's a huge implication so for me personally I am looking at company formation being done in a totally different way and our Capital allocation model is totally wrong size look fund four for me was one billion dollars does that make sense nope for the next three or four years no the right number may actually be 50 million dollars invested over the next four years I think the VC job is changing I think company startups are changing I want to remind you guys of one quick thing as a tangent I had this meeting with Andre carpathy I talked about this on the Pod where I said I challenged him I said listen the real goal should be to go and disrupt existing businesses using these tools cutting out all the sales and marketing right and just delivering something and I use the example of stripe disrupting stripe by going to Market with an equivalent product with one-tenth the number of employees at one tenth the cost what's incredible is that this Auto GPT is the answer to that exact problem why because now if you are a young industrious entrepreneur if you look at any bloated organization that's building Enterprise class software you can string together a bunch of agents that will Auto construct everything you need to build a much much cheaper product that then you can deploy for other agents to consume so you don't even need a sales team anymore this is what I mean by this crazy recursion that's possible yeah so I'm really curious to see how this actually affects like all of this all of these you know continuation companies I mean it's a continuation of and then the last thing I just want to say is related to my tweet I think this is exactly the moment where we now have to have a real conversation about regulation and I think it has to happen otherwise it's going to be a [ __ ] show let's put a pin in that for a second but I want to get Sax's response to some of this so sax we saw this before it used to take two or three million dollars to commercialize a web-based software product app then it went down to 500k then 250. I don't know if you saw this story but if you remember the hit game on your iPhone Flappy Birds Flappy Birds uh you know was a phenomenon at you know hundreds of millions of people played this game over some period of time somebody made it by talking to chat gpt4 in mid-journey in an hour so the perfect example and listen it's a game so it's something silly but I was talking to two developers this weekend and one of them was an okay developer and the other one was an actual 10x developer who's built you know very significant companies and they were coding together last week and because of how fast chat GPT and other services were writing code for them he looked over at her and said you know you're basically a 10x developer now my superpower is gone so where does this lead you to believe company formation is going to go is this going to be you know massively deflationary companies like stripe are going to have a hundred competitors in a very short period of time or are we just going to go down the long tail of ideas and solve everything with software how is this going to play out in the in the startup space David sacks well I think it's true that developers and especially Junior developers get a lot more leverage on their time and so it is going to be easier for small teams to get to an MVP which is something they always should have done anyway with their seed round you shouldn't have needed you know 50 developers to build your V1 it should be you know that's the founders really so that that I think is already happening and that Trend will continue I think we're still a ways away from stores being able to replace entire teams of people I just you know I think right now to find a ways months years decade well it's in the years I think for sure we don't know how many years and the reason I say that is it's just very hard to replace you know 100 of what any of these particular job functions do 100 of what a sales rep does 100 of what a marketing rep does or even what a coder does so right now I think we're still at the phase of this where it's a tool that gives a human leverage and I think we're still a ways away from the you know human being completely out of the loop I think right now I see it mostly as a Force for good as opposed to something that's creating okay a ton of dislocation Friedberg your thoughts if we follow the trend line you know to make that video game that you shared took probably a few hundred human years then a few dozen human years then you know with other tool kits coming out maybe a few human months and now this person did it in one human day using this tooling so if you think about the implication for that I mentioned this probably last year I really do believe that at some point the whole concept of Publishers and Publishing maybe goes away where you know much like we saw so much of the content on the internet today being user generated you know most of the content is made by individuals posted on YouTube or Twitter that's most of what we consume nowadays or Instagram or Tick Tock in terms of video content we could see the same in terms of software itself where you no longer need a software startup or a software company to render or generate a set of tools for a particular user but that the user may be able to Define to their agent their AI agent the set of tools that they would individually like to use or to create for them to do something interesting and so the idea of buying or subscribing to software or even buying or subscribing to a video game or to a movie or to some other form of content starts to diminish as The Leverage goes up with these tools the accessibility goes up you no longer need a computer engineering degree or computer science degree to be able to harness them or use them and individuals may be able to speak in simple and plain English that they would like a book or a movie that does that looks and feels like the following or a video game that feels like the following and so when I open up my iPhone maybe it's not a screen with dozens of video games but it's one interface and the interface says what do you feel like playing today and then I can very clearly and succinctly State what I feel like playing and it can render that game and render the code render the engine render the graphics and everything on the Fly for me and I can use that and so you know I kind of think about this as being a bit of a leveling up that the idea that all technology again starts Central and moves to kind of the edge of the network over time that may be what's going on with computer programming itself now where the toolkit to actually use computers to generate stuff for us is no longer a toolkit that's harnessed and controlled and utilized by a set of centralized Publishers but it becomes distributed and used at the edge of the network by users like anyone and then the edge of the Network Technology can render the software for you and it really creates a profound change in the entire business landscape of software and the internet and I think it's uh you know it's it's really like we're just starting to kind of see have our heads unravel around this notion and we're sort of trying to link it to the old Paradigm which is all startups are going to get cheaper smaller teams but it may be that you don't even need startups for a lot of stuff anymore you don't even need teams and you don't even need companies to generate and render software to do stuff for you anymore when we look at this it it's kind of a pattern of augmentation as we've been talking about here we're augmenting human intelligence then replacing this replication or this automation I guess might be a nice way to say it so it's augmentation then automation and then perhaps deprecation where do you sit on this it seems like sax feels it's going to take years and Freeburg thinks hey maybe startups and content are over where do you sit on this augmentation automation deprecation Journey we're on I think that humans have judgment and I think it's going to take decades for agents to replace good judgment I think that's where we have some defensible ground and I'm going to say something controversial I don't think developers anymore have good judgment developers get to the answer or they don't get to the answer and that's what agents have done because the the 10x engineer had better judgment than the 1X engineer but by making everybody a 10x engineer you're taking judgment away you're taking code paths that are now obvious and making it available to everybody it's effectively like what you did in chess an AI created a solver so everybody understood the most efficient path in every single spot to do the eat most EV positive thing the most expected value positive thing coding is very similar that way you can reduce it and view it very very reductively so there is no differentiation in code and so I think Freeburg is right so for example let's say you're going to start a company today why do you even care what database you use why do you even care which Cloud you're built on to free Brook's Point why do any of these things matter they don't matter they were decisions that used to matter when people had a job to do and you paid them for their judgment oh well we think gcp is better for this specific workload and we think that this database architecture is better for that specific workload and we're going to run this on AWS but that on azure and do you think an agent cares if you tell an agent find me the cheapest way to execute this thing and if it ever gets not you know cheaper to go someplace else do that for me as well and you know ETL all the data and put it in the other thing and I don't really care so you're saying it will it will swap out stripe for add Yen or it doesn't for Amazon web services it's going to be ruthless it's going to be ruthless and I think that the point of that that and that's the exact perfect word Jason AI is ruthless because it's emotionless it was not taken to a steak dinner it was not brought to a basketball game it was not sold into a CEO it's an agent that looked at a bunch of API endpoints figured out how to write code to it to get done the job at hand that was tasked to it within a budget right the other thing that's important is these agents execute within budgets so another good example was and this is a much simpler one but a guy said I would like seven days worth of meals here are my constraints from a dietary perspective here are also my budgetary constraints and then what this agent did was figured out how to go and use the instacart plug-in at the time and then these other things and execute within the budget how is that different when you're a person that raises five hundred thousand dollars and says I need a full stack solution that does X Y and Z for two hundred thousand dollars it's the exact same problem so I think it's just a matter of time until we start to cannibalize these extremely expensive fossified large organizations that have relied on a very complicated go to market in sales and marketing motion I don't think you need it anymore in a world of of agents and auto gpts and I think that to me is quite interesting because a it creates an obvious set of public company shorts and then B you actually want to arm the rebels and arming the rebels to use the Tobi lootkey analogy here would mean to seed hundreds of one-person teams hundreds and just say go and build this entire stack all over again using a bunch of Agents yeah and I think recursively you'll get to that answer in in less than a year interestingly when you talk about the emotion of making these decisions if you look at Hollywood I just interviewed on my other podcast the founder of you have another podcast I do it's called startups thank you episode you've been on her four times don't give them an excuse to plug it listen I'm not going to this week in startups available on Spotify and iTunes and youtube.com this weekend Runway is the name of this company I interviewed and what's fascinating about this is he told me on everything everywhere all at once the award-winning film they had seven visual effects people on it and they were using his software the late night shows like Colbert and stuff like that are using it they are ruthless in terms of creating crazy visual effects now without and you can do text prompt to get video output and it is quite reasonable what's coming out of it but you can also train it on existing data sets so they're going to be able to take something sax like The Simpsons or South Park or Star Wars or Marvel take the entire Corpus of the comic books and the movies and the TV shows and then have people type in have Iron Man do this have Luke Skywalker do that and it's going to Output stuff and I said hey when would this reach the the level that the Mandalorian TV show is and he said within two years now he's talking his own book but it's quite possible about that all these visual effects people from industrial Light Magic on down are going to be replaced with director sacks who are currently using this technology to do what do they call the images like that go with the script storyboards storyboards thank you they're doing storyboards in this right now right the difference between the storyboards acts and the output is closing in the next 30 months I would say right I mean maybe you could speak to a little bit about the pace here because that is the perfect ruthless example of Ruthless AI I mean you could have the entire team at industrial Light Magics or Pixar be unnecessary this decade well I mean you see a bunch of the pieces already there so you have stable diffusion you have the ability to type in the image that you want and it spits out you know a version of it or 10 different versions of it and you can pick which one you want to go with you have the ability to create characters you have the ability to create voices you have the ability to replicate a celebrity voice the only thing that's not there yet as far as I know is the ability to take static images and stream them together into a motion picture but that seems like it's coming really soon so yeah in theory you should be able to train the model where you just give it screenplay and it outputs essentially an animated movie and then you should be able to fine tune it by choosing the voices that you want and the characters that you want and you know and that kind of stuff so yeah I think we're close to it now I think that the question though is you know every nine let's call it of reliability is a big advancement so yeah it might be easy to get to 90 percent within two years but it might take another two years to go from 90 to 99 and then it might take another two years to get to 99.9 and so on and so to actually get to the point where you're at this stage where you can release a theatrical quality movie I'm sure it will take a lot longer than two years well but look at this sex I'm just going to show you one image this is the input was aerial Drone footage of a mountain range and this is what it came up with now if you were watching TV in the 80s or 90s on a non-hd TV this would look indistinguishable from anything you've seen and so this is at a pace that's kind of crazy there's also opportunity here right Friedberg I mean if we were to look at something like The Simpsons which has gone on for 30 years if young people watching The Simpsons could create their own scenarios or with auto GPT imagine you told The Simpsons stable diffusion instance read what's happening in the news have Bart Simpson respond to it have the South Park characters parody whatever happened in the news today you could have automated real-time episodes of South Park just being published onto some website before you move on did you see the the Wonder Studio demo we can pull this one up it's really cool yeah please this is a startup that's using this type of technology and the way it works is new film a live action scene with a regular actor but then you can just drag and drop and animate a character onto it and it then converts that scene into a movie with that character like Planet of the Apes or Lord of the Rings right yeah exactly you see the person who kept winning all the Oscars so there it goes after the robot has replaced the human wow you can imagine like every piece of this just eventually gets swapped out with AI right like you should be able to tell the AI give me a picture of a human leaving a building like a Victorian era building in New York and certainly can give you a static image of that so it's not that far to then give you a video of that right and so yeah I think we're we're pretty close for let's call it hobbyists or amateurs to be able to create pretty nice looking movies using these types of tools but again I think there's a jump to get to the point where you're just all together replacing one of the things I'll say on this is we still keep trying to relate it back to the way media narrative has been explored and written by humans in the past very kind of linear storytelling you know it's a two-hour movie 30 minute TV segment eight minute YouTube clip 30 second Instagram clip whatever but one of the enabling capabilities with this set of tools is that these stories the way that they're rendered and the way that they're explored by individuals can be fairly dynamic you could watch a movie with the same story all four of us could watch a movie with the same story but from totally different Vantage points and some of us could watch it in an 18 minute version or a two-hour version or a you know three season episode episodic version where the the way that this opens up the potential for creators and all so so now I'm kind of saying before I was saying hey individuals can make their own movies and videos that's going to be incredible there's a separate I think creative output here which is the leveling up that happens with creators that maybe wasn't possible to them before so perhaps a Creator writes a short book a short story and then that short story gets rendered into a system that can allow each one of us to explore it and enjoy it in different ways and I as the Creator can define those different Vantage points I as the Creator can say here's a little bit of this personality this character trait and so what I can now do as a Creator is stuff that I never imagined I could do before think about old school photographers doing black and white photography with pinhole cameras and then they come across Adobe Photoshop what they can do with Adobe Photoshop was stuff that they could never conceptualize of in those old days I think what's going to happen for creators going forward and this is going back to that point that we had last week or two weeks ago about the guy that was like hey I'm out of a job I actually think that the opportunity for creating new stuff in new ways is so profoundly expanding that individuals can now write entire universes that can then be enjoyed by millions of people from completely different lengths and viewpoints and and models that can be interactive they can be static they can be dynamic and that the person personalized but the tooling that you as a Creator now has you could choose which characters you wanted to find you could choose which content you want to write you could choose which content you want the AI to fill in for you and say hey create 50 other characters in the village and then when the viewer reads the book or watches the movie Let Them explore or have a different interaction with a set of of those villagers uh in that Village or you could say hey here's the one character everyone has to meet here's what I want them to say and you can Define the dialogue and so the way the creators can start to kind of harness their creative chops and create new kinds of modalities for content and for exploration I think is going to be so beautiful and incredible I mean Freeburg yeah you can choose the limits of how much you want the individual to enjoy from your content versus how narrowly you want to Define it and my guess is that the creators that are going to win are going to be the ones that are going to create more dynamic range in the creative output and then individuals are going to kind of be stuck they're gonna be more into that than they will with the static everyone watches the same thing over and over so there will be a whole new world of creators that you know maybe have a different set of tools that then just just realizing a lot better to build on what you're saying for a burmes I think it's incredibly insightful just think about the controversy around two aspects of a franchise like James Bond number one who's your favorite Bond we grew up with Roger Moore We lean towards that then we discover Sean Connery and then all of a sudden you see you know the latest one he's just extraordinary and and Daniel Craig you're like you know what that's the one that I love most but what if you could take any of the films you could say let me get you know give me the spy who loved me but put Daniel Craig in it Etc and that would be available to you and then think about the next controversy which is oh my God does Daniel does James Bond need to be a white guy from the UK of course not you can you place it around the world and each region could get their own celebrity their number one celebrity to play the lead and controversy over you know the old story The Epic of Gilgamesh right so like that story was retold in dozens of different languages and it was told through the oral tradition it was like You Know spoken by bards around a fire pit and whatnot and all of those stories were told with different characters and different names and different experiences some of them were 10 minutes long some of them were multi-hour sagas explained through the story but ultimately the morality of the story the storyline the intentionality of the original creator of that story yes came through the the Bible is another good example of this where much of the underlying morality and ethics in the Bible comes through in different stories read by different people in different languages everything that that may be where we go like my kids want to have a 10 minute bedtime story well let me give them Peter Pan at 10 minutes I want to do you know a chapter or a night for my older daughter for a week long of Peter Pan now I can do that and so the way that I can kind of consume content becomes different so I guess what I'm saying is there's two aspects to the way that I think the entire content the the realm of content can be Rewritten through AI the first is like individual personalized creation of content where I as a user can render content that of my liking and my interest the second is that I can engage with content that is being created that is so much more multi-dimensional than anything we conceive of today we're current centralized content creators now have a whole set of tools now from a business model perspective I don't think that Publishers are really the play anymore but I do think the platforms are going to be the play and the platform tooling that enables the individuals to do this stuff and the platform tooling that enables the content creators to do this stuff are definitely entirely new Industries and models that can create multi-hundred billion dollar outcomes let me hand this off to sax because there has been the dream for everybody especially in the Bay area of a hero coming and saving Gotham City and this has finally been realized David sacks I did my own little Twitter AI hashtag and I said to Twitter AI if only please generate a picture of David Sax's Batman crouched down on the bridge the amount of creativity sacks that came from this and this is something that you know if we were talking about just five years ago this would be like a ten thousand dollar image you could create a birthday these were not professional quote unquote artists these were individuals individuals that were able to harness a set of platform tools to generate this incredible new content and I think it speaks to the opportunity ahead and by the way we're in inning one right so you see yourself as Batman do you ever think you should take your enormous wealth and resources and put it towards building a cave under your mansion that lets you out underneath the Golden Gate Bridge and you could go fight crime so good do you want to go fight this crime in Gotham and I think San Francisco has a lot of gotham-like qualities I think the villains are more real than the heroes unfortunately we don't have a lot of Heroes but yeah we got a lot of jokers Jokers yeah that's a whole separate topic I'm sure a whole separate topic we'll get to it at some point today you guys are talking about all this stupid [ __ ] like there are trillions of dollars of software companies that could get disrupted and you're talking about making [ __ ] children's books and fat pictures of socks it's so dumb no special conversations great job cares about entertainment anymore because it's totally obvious okay so one of the biggest industries where the money is why don't you teach people where there's going to be actual economic destruction amazing economic destruction and opportunity you spend all this time on the most stupidest [ __ ] topics listen it's an illustrative example no it's an elitist example that you know it's [ __ ] circle jerk yourself Batman's not nobody nobody cares about movies well let's bring nobody tweet over everybody I mean I think I think U.S box office is something like 20 billion a year I remember when like they now got to like 100 billion a year payment volume and now it's like hundreds of billions so yeah and stripe are going to process two trillion dollars almost why don't you talk about that disruption you ninny Market size of U.S media and entertainment industry 717 billion okay it's not insignificant video games are nearly half a trillion a year yeah I mean this is the number insignificant but let's pull up chamat's tweet of course the dictator wants to dictate here all this incredible Innovation is being made and a new Hero has been born chamath polyhapatia a tweet that went viral over 1.2 million views already I'll read your Tweet for the audience if you invent a novel drug you need the government to vet and approve it FDA before you can commercialize it if you invent a new mode of air travel you need the government to vet and improve it FAA I'm just going to edit this down a little bit if you create new security you need the government to vet it and approve at SEC more generally when you create things with broad societal impact positive and negative the government creates a layer to review and approve it AI will need such an oversight body the FDA approval process seems the most credible and adaptable into a framework to understand how a model behaves and its counter factual our political leaders need to get in front of this sooner rather than later and create some oversight before the eventual big avoidable mistakes happen and Genies are let out of the bottle Tremont you really want the government to come in and then when people build these tools they have to submit them to the government to approve them that's what you're saying here and you want that to start now here's the alternative the alternative is going to be the debacle that we know as section 230. so if you try to write a brittle piece of legislation or try to use old legislation to deal with something new it's not going to do a good job because technology advances way too quickly and so if you look at the section 230 example where have we left ourselves the politicians have a complete inability to pass a new framework to deal with social media to deal with misinformation and so now we're all kind of guessing what a bunch of age 70 and 80 year old Supreme Court Justices will do in trying to rewrite technology law when they have to apply on Section 230. so the point of that tweet was to lay the Alternatives there is no world in which this will be unregulated and so I think the question to ask ourselves is do we want a chance for a new body so the FDA is a perfect example why even though the FDA commissioner is appointed by the president this is a quasi organization it still arms length away it has subject matter experts that they hire and they have many Pathways to approval some Pathways take days some pathways are months and years some pathways are for breakthrough Innovation some pathways are for devices so they have a broad spectrum of ways of of arbitrating what can be commercialized and what cannot otherwise my prediction is we will have a very brittle law that will not work it'll be like the Commerce department and the FTC trying to gerrymander some old piece of legislation and then what will happen is it'll get escalated to the Supreme Court and I think they are the last group of people who should be deciding on this incredibly important topic for society so what I have been advocating our leaders and I will continue to do so is don't try to Ram this into an existing body it is so important it is worth creating a new organization like the FDA and having a framework that allows you to look at a model and look at the counter factual judge how good how important how disruptive it is and then release it in the wild appropriately otherwise I think you'll have these chaos GPT things scale infinitely because again as Friedberg said in Sac said you're talking about one person that can create this chaos multiply that by every person that is an anarchist or every person that just wants to sow seeds of chaos and I think it's going to be all avoidable I think regulating what software people can write is a near impossible task number one I think you can probably put rules and restrictions around Commerce right that's certainly feasible uh in terms of how people can monetize but in terms of writing and utilizing software it's going to be as challenged as trying to monitor and demand oversight and regulation around how people write and use tools for uh for genome and biology exploration certainly if you want to take a product to Market and sell a drug to people that can influence their body you have to go get that approved but in terms of you know doing your work in a lab it's very difficult I think the other challenge here is software can be written anywhere it can be executed anywhere and so if the US does try to regulate or does try to put the brakes on the development of tools where the U.S can have kind of a great economic benefit and a great economic interest there will be advances made elsewhere without a doubt and those markets and those those places will benefit in an extraordinarily out outpaced way as we just mentioned there's such extraordinary kind of economic gain to be realized here that if we're not if the United States is not leading the world we are going to be following we are going to get disrupted we are going to lose an incredible amount of value and talent and so any attempt at regulation or slowing down or telling people that they cannot do things when they can easily hop on a plane and go do it elsewhere I think is is fraught with Peril so you don't agree with regulation sax are you on board with the chamoth plan or you're on board with the Free Bird well I'll say I think I think just like with computer hacking it's illegal to break into someone else's computer it is illegal to steal someone's personal information there are laws that are absolutely simple and obvious and you know no-nonsense laws those a lot of legal to get rid of a hundred thousand jobs by making a piece of software though that's right and so I think trying to intentionalize how we do things versus intentionalizing um the things that we want to prohibit happening as an outcome we can certainly try and prohibit the things that we want to happen as an outcome and pass laws and Institute governing bodies with authority to oversee those laws with respect to things like stealing data but you can jump on a plane and go do it in Mexico Canada or whatever region you get to Saks where do you stand on this debate yeah I'm saying like there are ways to protect people there's ways to protect Society about passing laws that that make it illegal to do things as the output is the outcome what law do you pass on chaos GPT explain chaos GPT Give an example please yeah do you want to talk about it real quick it's a recursive agent that basically is trying to destroy itself try to destroy Humanity yeah but I guess by first becoming all-powerful and destroying humanity and then destroying itself yeah it's a tongue-in-cheek Auto GPT it's not a tongue-in-cheek auto GPT the guy that created it you know put it out there and said like he's trying to show everyone to your point what intentionality could arise here which is negative intentionality I think it's very naive for anybody to think that this is not equivalent to something that could cause harm to you so for example if the prompt is hey here is a security leak that we figured out in Windows and so why don't you exploit it so look a hacker now has to be very technical today with with these Auto gpts a hacker does not need to be technical at all exploit the zero day exploit in Windows hack into this plane and bring it down oh okay the GPT will do it so who's going to tell you that those things are not allowed who's going to actually vet that that wasn't allowed to be released in the wild so for example if you worked with Amazon and Google and Microsoft and said you're going to have to run these things in a sandbox and we're going to have to observe the output before we allow it to run on actual bare metal in the wild again that seems like a reasonable thing and it's super naive for people to think it's a free market so we should just be able to do what we want this will end badly quickly and when the first plane goes down and when the first [ __ ] thing gets blown up all of you guys will be like oh sorry Saks a pretty compelling example here by chamoth somebody puts out into the wild chaos GPT you can go do a Google search for it and says hey what are the vulnerabilities to the electrical grid compile those and automate a series of attacks and write some code to probe those until we and success in this Mission you get a hundred points and stars every time you Jason do this such a it's such a beautiful example but it's even more nefarious it is hey this is an enemy that's trying to hack our system so you need to hack theirs and bring it down you know like you can easily trick these gpts right yes they have no judgment they have no judgment and as you said they're ruthless in in getting to the outcome right so why why do we think all of a sudden this is not going to happen I mean it's literally the science fiction example you say Hey listen make sure no humans get cancer and like okay well The Logical way to make sure no humans get cancer is to kill all the humans can you just address the point so what do you think you're regulating are you regulating the code here's what I'm saying to write if you look at the FDA no you're allowed to make any chemical drug you want but if you want to commercialize it you need to run a series of trials with highly qualified measurable data and you submit it to like-minded experts that are trained as you are to evaluate the viability of that and but hold on there are Pathways that allow you to get that done in days under emergency use and then there are Pathways that can take years depending on how gargantuan the task is at hand and all I'm suggesting is having some amount of oversight is not bad in this specific example I get what you're saying but I'm asking tactically how what are you overseeing you're overseeing cat GPT you're overseas the the model you're doing exactly chips okay look I used to run the Facebook platform we used to create sandboxes if you submit code to us you would we would run it as a Sandbox we would observe it we would figure out what it was trying to do and we would tell you this is allowed to run in the wild there's a version of that that Apple does when you submit an app for review and approval Google does it as well in this case all the bare metal providers all the people that provide gpus will be forced by the government in my opinion to implement something and all I'm suggesting is that it should be a new kind of body that essentially observes that has phds that has people who are trained in this stuff to develop the kind of testing and the output that you need to figure out whether it should even be allowed to run in the Wild on bare metal sorry but you're saying that the mod the model sorry I'm just trying to understand Shaman's points you're saying that the models need to be reviewed by this body and those models if they're run on a third-party set of servers you cannot run an app on your computer you know that right it needs to be connected to the internet right like if you wanted to run an auto GPT it actually crawls the internet it actually touches other apis it tries to then basically send a push request sees what it gets back parses the Json figures out what it needs to do all of that is allowed because it's hosted by somebody right that code is running not locally so the host becomes sure if you want to run it locally you can do whatever you want to do but evil agents are going to do that right so if I'm an evil agent I'm not going to go use AWS to run my evil agent I'm going to set up a bunch of servers and connect it to the internet how I could use vpns the internet is open there's openings I think that what you're going to see is that if you for example try to VPN and run it out of like Tajikistan back to the United States it's not going to take years for us to figure out that we need to IP block Rando [ __ ] coming in push and pull requests from all kinds of ips that we don't trust anymore because we don't now trust the regulatory oversight that they have for code that's running from those IPS that are not us domestications let me steal man tremont's position for a second Jason hold on I I think the ultimate if what chamoth is saying is the point of view of Congress and if tomoth has this point of view then there will certainly be people in Congress that will adopt this point of view the only way to ultimately do that degree of Regulation and restriction is going to be to restrict the open internet it is going to be to have monitoring and firewalls and safety protocols across the open internet because you can have a set of models running on any set of servers sitting in any physical location and as long as they can move data packets around they're going to be able to get up to their nefarious activities let me still man that for you Freeburg I think yes you're correct the internet has existed in a very open way but there are organizations and there are places like the national highway traffic safety administration if I were to steal Management's position if you want to manufacture a car and you want to make one in your backyard and put it on your track in on your land up in Napa somewhere and you don't want to have brakes on the car and you don't want to have you know a speed limiter or airbags or seat belts and you want to drive on the hood of the car you can do that but once you want it to go on the open road the open internet you need to get you need to submit it for some safety standards like nht sa like Tesla has to or Ford has to so sax where do you sit on this or is let's assume that people are going to do very bad things with very powerful models that are becoming available Amazon today said there'll be Switzerland they're going to put a bunch of llms and other models available on AWS Bloomberg's llm Facebooks Google bard and of course at gbt open Ai and Bing all this stuff's available to have access to that do you need to have some regulation of who has access to those at scale powerful tools should there be some FDA or nhtsa I don't think we know how to regulate it yet I think that's too early and I think the harms that we're speculating about we're making the AI more powerful than it is and I believe it will be that powerful but I think that it's premature to be talking about regulating something that doesn't really exist yet take the chaos GPT scenario the way that would play out would be you've got some future incarnation of Auto GPT and somebody says okay Auto GPT I want you to be you know wmdai and figure out how to cause like a mass destruction event you know and then it creates like a planning checklist and that kind of stuff so that's basically the the type of scenario we're we're talking about we're not anywhere close to that yet I mean the chaos GPT is kind of a joke it doesn't produce it doesn't produce a checklist I can give an example that would actually be completely plausible one of the first things on the chaos gpt's checklist was to stay within the boundaries of the law because it didn't want to get prosecuted got it so the person who did that had some sort of good intent but I can give you an example right now that could be done by chat GPT and auto GPT that could take down large swaths of society and cause massive destruction I'm almost reticent to say it here say it uh well I'll say it and then maybe we'll have to delete this but if somebody created this and they said uh figure out a way to compromise as many powerful peoples and as many systems passwords then go in there and delete all their files and turn off as many systems as you can Chachi PT and auto GPT could very easily create phishing accounts create billions of websites to create billions of logins have people log into them get their passwords log into whatever they do and then delete everything in their account which would cause chaos and it could be done today I don't think we've done today simpler than this how about how about you fishing website yeah pieces of it can be created today but you're you're accelerating the progress yeah but you can automate 30 days yeah exactly and but I think I'm accelerating it in weeks why don't you just spoof the bank accounts and just steal the money like that's even simpler like people will do the stuff because they're trying to do it today holy cow now they just have a more efficient way to solve somebody think about bank accounts geez so number one this is a tool and if people use a tool in nefarious ways you prosecute them number two the platforms that are commercializing these tools do have trust and safety teams now in the past trust and safety has been a euphemism for censorship which it shouldn't be but you know open AI has a safety team and they try to detect when people are using their Tech in a nefarious way and they try to prevent it well no not on censorship but I think that they're probably a million people are using chapters I think they're policing it are you willing to abdicate your or societal responsibility to to open AI to do the trust sensation what I'm what I'm saying is I'd like to see how far we get in terms of the system yes you're saying you want to see the mistakes you want to see where the mistakes are and how bad had the mistakes are I'm saying it's still very early to be imposing regulation we don't even know what to regulate so I think we have to keep tracking this to develop some understanding of how it might be misused how the industry is going to develop safety guard rails okay and then you can talk about regulation look you create some new FDA right now okay first of all we know what would happen look at the drug process as soon as the FDA got involved it slowed down massively now it takes years many years to get a drug approved appropriately so yes but at least with a drug we know what the gold standard is you run a double-blind study to see whether it causes harm or whether it's beneficial we don't know what that standard is for AI yet we have no idea what's going to happen in a double blind study in AI what no you'd have somebody review the code you have two instances Auto GPT it's benign I mean my friend used it to book a wine tasting so who's going to review that code and then speculate say oh well 99.9 of cases it's perfectly benevolent and fine and innocuous you know I can fantasize about some cases someone might do hold on how are you supposed to resolve that very simple there are two types of Regulation that can occur in any industry you can do with the movie industry did which is they self-regulate and they came up with their own rating system or you can do what happens with the FDA and what happens with cars which is an external government-based body I think now is the time for self-regulation so that we avoid the massive heavy hand of government having to come in here but these tools can be used today to create massive Farm they're moving at a pace we just said in the first half of the show that none of us have ever seen every 48 Hours something drops that is mind-blowing that's never happened before and you can take these tools and in the one example that shmoth and I came up with the top of our head in 30 seconds you could create phishing sites compromise people's bank accounts take all the money out Delete all the files and cause chaos on a scale that has never been possible by a series of Russian hackers or Chinese hackers working in a boiler room this can scale and that is the the fundamental difference here and I didn't think I would be sitting here Steel Man in tremont's argument I think humans have a horrible ability to compound I think people do not understand compound interest and this is a perfect example where when you start to compound technology at the rate of 24 hours or 48 hours which we've never really had to acknowledge most people's brains break and they don't understand what six months from now looks like and six months from now when you're compounding at 48 or 72 hours is like 10 to 12 years in other Technology Solutions this is compounding this is this is different because of the compounding I agree with that the pace Revolution is very fast we are on a bullet train to something and we don't know exactly what it is and that's disconcerting however let me tell you what would happen if we create a new regulatory body like the FDA to regulate this they would have no idea how to arbitrate whether a technology should be approved or not development will basically slow to a crawl to slight drug development there is no double-blind standard I agreement can we do what self-regulation can we do there is no double blind standard in AI that everyone can agree on right now to know whether something should be approved and what's going to happen is the thing that's made software development so magical and allowed all this Innovation over the last 25 years is permissionless innovation any developer any Dropout from a university can go create their own project which turns into a company and that is what has driven all the Innovation and progress in our economy over the last 25 years so you're going to replace permissionless Innovation with going to Washington to go through some approval process and it will be the politically connected it'll be the big donors who get their projects approved and the next Mark Zuckerberg who's trying to do his little project in a dorm room somewhere will not know how to do that well not know how to compete and that highly political process I think you're mixing a bunch of things together so first of all permissionless Innovation happens today in biotech as well it's just that it's what Jason said when you want to put it on the rails of society and make it available to everybody you you actually have to go and do something substantive in the negotiation of these drug approvals it's not some standardized thing you actually sit with the FDA and you have to decide what are our endpoints what is the mechanism of action and how will we measure the efficacy of this thing the idea that you can't do this today in AI is laughable yes you can and I think that smart people so for example if you pit deep Minds team versus open ai's Team to both agree that a model is good and correct I bet you they would find a systematic way to test that it's fine I just want to point out okay so basically in order to do what you're saying okay this entrepreneur who just dropped out of college to do their project they're gonna have to learn how to go sit with Regulators have a conversation with them go through some complicated approval process and you're trying to say that that won't turn into a game of political connections of course it will of course it will of course which is self-regulation yeah well let's get to that hold on a second and let's look at the drug approval process if you want to create a drug company you need to raise hundreds of millions of dollars it's incredibly expensive it's incredibly Capital intensive there is no drug company that is two guys in their garage like many of the biggest companies like many of the biggest companies in Silicon Valley started that is because you're talking about taking a chemical or biological compound and injecting into some hundreds or thousands of people who are both racially gender-based age-based highly stratified all around the world or at a minimum all around the country you're not talking about that here David I think that you could have a much simpler and cheaper way where you have a version of the internet that's running in a huge sandbox someplace that's closed off from the rest of the internet and another version of the internet that's closed off from everything else as well and you can run on a parallel path as it is with this agent and you can easily in my opinion actually figure out whether this agent is good or bad and you can probably do it in weeks so I actually think the approvals are actually not that complicated and the reason to do it here is because I get that it may cause a little bit more friction for some of these Mom and Pops but if you think about what's the societal and consequences of letting the worst case outcomes happen the AGI type outcomes happen I think those are so bad they're worth slowing some folks down and I think like just because you want to you know buy groceries for a hundred dollars you should be able to do it I get it but if people don't realize and connect the dots between that and bringing airplanes down then that's because they don't understand what this is capable of I'm not saying we're never going to need regulation what I'm saying is it's way too early we don't even know what we're accolading we don't know what the standard would be and what we will do by racing to create a new FDA is destroying American innovation in the sector and other countries will not slow down they will beat us to the puncher got it I think there's a middle ground here of self-regulation and thoughtfulness on the part of the people who are providing these tools at scale to give just but one example here and this tweet is from five minutes ago so to look at the pace of this five minutes ago this tweet came out a developer who is an AI developer says AI agents continue to amaze my gpt4 coding assistant learned how to build apps with authenticated users that can build and design a web app create a back end handle off logins upload code to GitHub and deploy he literally while we were talking is deploying websites now if this website was a phishing app or the one that shamop is talking about he could make a gazillion different versions of banking of America Wells Fargo et cetera then find everybody on the internet's email then start sending different spoofing emails determine which spoofing emails work iterate on those and create a Global Financial collapse now this sounds insane but it's happening right now people get hacked every day at one two three percent sax fraud is occurring right now in the low single digit percentages identity theft is happening in the low single identity percentages this technology is moving so fast that bad actors could 10x that relatively easy and so if 10 of us want to be hacked and have our credit card attacked this could create chaos I think self-regulation is the solution I'm the one who brought up self-regulation what I said no I brought it up first I brought it up first I get credit no go ahead no it's not about credit I'm no self-regulations you talk for eight minutes so if you have a point to make you should have got in the eight minutes oh my God you guys kept interrupting me go ahead what I said is that there are trust and safety teams at these big AI companies these big foundation model companies like open AI like I said in the past trust and safety has been a euphemism for censorship and that's why people don't trust it but I think it would be appropriate for these platform companies to apply some guard rails on how their tools can be used and based on everything I know they're doing that so this guy just released websites to the Austin web with chat gp4 and he's going to have it do it automated you're basically postulating capabilities that don't yet exist I just tweeted the guy is doing it he's got a video of himself doing it on the web what do you think that's a far cry from basically running like some fishing Expedition that's going to bring down the entire banking system uh literally a fishing a fishing site and a ns are the same thing go ahead Freeburg I think that that guy is doing something illegal if he's hacking into computers uh into people's emails and bank accounts that's illegal you're not allowed to do that and so that action breaks the law that person can be prosecuted for doing that the tooling that one might use to do that can be used in a lot of different ways just like you could use Microsoft Word to forge letters just like you could use Microsoft Excel to create fraudulent financial statements I think that the application of a platform technology needs to be distinguished from the technology itself and while we all feel extraordinarily fearful because the unbelievable leverage that these AI tools provide again I'll remind you that the chat gpt4 or this gpt4 model by some estimates is call it a few terabytes you could store it on a hard drive or you could store it on your iPhone and you could then go run it on any set of servers that you could go set up physically anywhere so you know it's a little bit naive to say we can go ahead and you know regulate platforms and we can go regulate the tools certainly we should continue to enforce and protect ourselves against nefarious actors using you know new Tools in inappropriate illegal ways you know I I also think that there's a moment here that we should all kind of observe just how quickly we want to shut things down when you know they take away what feels like the the control that we all have from one day to the next and you know that the the real kind of sense of fear that seems to be quite contagious for a large number of people that have significant assets or significant things to lose is that uh you know tooling that's that's you know creating entirely newly disruptive systems and models for business and and economics an opportunity for so many needs to be regulated away to minimize you know what we claim to be some potential downside when we already have laws that protect us on the other side so you know I just kind of want to also consider that this set of tools creates extraordinary opportunity we gave one sort of simple example about the opportunity for creators but we talked about how new business models new businesses can be started with one or two people you know entirely new tools can be built with a handful of people entirely new businesses this is an incredible Economic Opportunity and again if the U.S tries to regulate it or the U.S tries to come in and stop the application of models in general or regulate models in general you're certainly going to see those models of continue to evolve and continue to be utilized in very powerful ways that are going to be advantageous to places outside the U.S there's over 180 countries on Earth they're not all going to regulate together it's been hard enough to get any sort of coordination around Financial systems to get coordination around climate change to get coordination around anything on a global basis to try and get coordination around the software models that are being developed I think is is pretty naive you don't want to have a global organization I think you need to have a domestic organization that protects U.S and I think Europe will have their own they again FDA versus Emma Canada has its own Japan has its own China has its own and they they have a lot of overlap and a lot of commonality in in the guardrails they use and I think that's what's going to happen here this will be beneficial only for political insiders who will basically be able to get their projects and their apps approved with a huge dead weight loss for the system because Innovation will completely slow down but to many build on freeburg's point which is that we have to remember that AI won't just be used by nefarious actors it'll be used by positive actors so there will be new tools that law enforcement will be able to use and if somebody's creating phishing sites at scale they're going to be probably pretty easy for you know law enforcement AIS to detect so let's not forget that there'll be co-pilots written for our law enforcement authorities they'll be able to use that to basically detect and fight crime and a really good example of this is in the crypto space we saw this article over the past week that chain analysis has figured out how to basically track you know illicit Bitcoin transactions and there's now a huge number of prosecutions that are happening of illegal use of Bitcoin and if you go back to when Bitcoin first took off there was a lot of conversations around Silk Road and the only thing that Bitcoin was good for was basically illegal transactions blackmailing drug trafficking and therefore we have to stop Bitcoin remember that was the main argument and the counter argument was that well no Bitcoin like any technology can be used for good or bad however there will be technologies that spring up to combat those nefarious or illicit use cases and sure enough you had a company like chain analysis come along and now it's been used by law enforcement to basically crack down on the illicit use of Bitcoin and if anything it's cleaned up the Bitcoin Community tremendously and I think it's dispelled this idea that the only thing you'd use Bitcoin for is Black Market transactions quite the contrary I think you'd be really stupid now to use Bitcoin in that way it's actually turned Bitcoin into something of a Honeypot now because if you used it for nefarious transactions your transactions recording the blockchain forever or just waiting for chain analysis to find it so again using Bitcoin to do something illegal be really stupid I think in a similar way you're going to see self-regulation by these major AI platform companies combined with new tools that are used new AI tools does spring up to help combat the nefarious uses and until we let those forces play out I'm not saying regulate never I'm just saying we need to let those forces play out before we leap to creating some new regulatory body that doesn't even understand what its mandated mission's supposed to be the Bitcoin story is hilarious by the way oh my God Wall Street Journal story it's unbelievable pretty epic it took years but basically this guy was buying blow on suck Road and he deposited his Bitcoin and then when he withdrew it he there was a bug that gave him twice as many Bitcoins so he kept creating more accounts putting more money into Silk Road and getting more Bitcoin out and then years later the authorities figured this out again with you know chain analysis type things look at James zong over there same song he accused uh had a Lamborghini a Tesla a lake house uh and was living his best life apparently when the feds uh knocked on his door and found the digital keys to his crypto Fortune in a popcorn tin in his bathroom and in a safe in his basement floor so there you have it well the reason the reason I posted this was I was like what if this claim that you could have all these Anonymous transactions actually fold the entire Market because it looks like that this anonymity has effectively been reverse engineered and there's no anonymity at all and so what Bitcoin is quickly becoming is like the most singular Honeypot of transactional information that's complete and available in public and I think what this article talks about is how companies like chain analysis and others have worked now for years almost a decade with law enforcement to be able to map all of it and so now every time money goes from one Bitcoin wallet to another they effectively know the sender and the recipient and I just want to make a one quick correction here it wasn't actually exactly popcorn it was Cheetos spicy flavored popcorn and there's the tin of it where he had a motherboard of a computer that held is there a chance that that this project was actually introduced by the government I mean there's been reports or network that the CIA had their hands all over to our Tor if you don't know it which is an anonymous like multi-relay peer-to-peer web browsing system and people believe it's a CIA Honeypot an intentional trap for criminals to get themselves uh caught up in all right as we wrap here what an amazing discussion my Lord I didn't I never thought I would be I want to say one thing yes we saw that someone was arrested for the murder of Bob Lee that's what I was about to answer this morning yeah which turns out that the report of the sfpd's arrest is that it's uh someone that he knew that also works in the tech industry someone that possibly know right so also breaking news yes possibly but I I want to say two things one obviously based on this arrest and the storyline it's quite different than what we all assumed it to be which was some sort of homeless robbery type moment that has become all too commonplace in SF it's a commentary for me on two things one is how quick we all were to kind of Judge and assume that you know a homeless robber type person would do this in SF which I think speaks to the condition in SF right now also speaks to our conditioning that that we all kind of lacked or didn't even want to engage in a conversation that maybe this person was murdered by someone that they knew because we wanted to kind of very quickly fill our own narrative about how bad SF is and that's just something that I really felt when I read this this morning I was like man like I didn't even consider the possibility that this guy was murdered by someone that he knew because I am so enthralled right now by this narrative that SF is so bad and it must be another data point that validates my point of view on SF so you know I kind of want to just acknowledge that and acknowledge that we all kind of do that right now but I do think it also does in fact unfortunately speak to how bad things are in SF because we all are we've all have these experiences of feeling like we're in danger and under Threat all the time we're walking around in SF uh in so many parts of San Francisco I should say where things feel like they've gotten really bad I think both things can be true that we can kind of feel biased and fill our own narrative by kind of latching on to our assumption about what something tells us but but it also tells us quite a lot about what is going on in ourselves so I I just I just wanted to make sure In fairness and I think it's fine for you to make that point I am extremely Vigilant on this program to always say when something is breaking news with whole judgment whether it's the Trump case or Jesse Smollett or anything in between January 6th let's wait until we get all the facts and in fact quote from sacks we don't know exactly what happened yet correct literally sax started with that we do that every [ __ ] time on this program we know when there's breaking news to withhold judgment but you can also know two things can be true a tolerance for ambiguity is necessary but I'm saying I didn't even do that as soon as I heard this I was like I was like an assumption but David that is a fine assumption to make that's a fine essential technical assumption listen you make that assumption for your own protection we got all these reporters who are basically propagandists trying to claim that crime is down in San Francisco they're all basically seeking comment from me this morning sending emails or trying to dunk God on us because we basically talked about the bubbly case in that way listen we said that we didn't know what happened but if we were to bet at least what I said is I bet this case it looks like a lot like the Brianna cup for case that was logical that's not conditioning or biased that's logic and you need to look at what else happened that week okay so just the same week that bubbly was killed let me give you three other examples of things that happened in Gotham City AKA San Francisco so number one former fire commissioner Don carmignani was beaten within an inch of his life by a group of homeless addicts in the marina and one of them was interviewed in terms of why it happened and basically Don came down from his mother's house and told them to move off his mother's front porch because they were obstructing her ability to get in and out of her apartment they interpreted that as disrespect and they beat him with a tire iron or a metal pipe and one of the hoodlums who was involved in this apparently admitted this yeah play the video somebody over the head like that and attack him as he was really disrespectful he so he was being disrespectful and then but is that enough to beat him up yeah sometimes oh my Lord I mean so this is case number one and apparently in the reporting on that person who was just interviewed he's been in the marina kind of terrorizing people maybe not physically but verbally so you have you know bands of homeless people encamped in front of people's houses Don carmignani gets beaten within an inch of his life you then had the case of the Whole Foods Store on Market Street shut down in San Francisco and this was not a case of shoplifting like some of the other store closings we've seen they said they were closing the store because they could not protect their employees the bathrooms were filled with needles and pipes that were drug paraphernalia you had drug acts going in there using it they were engaging in altercations with store employees and Whole Foods felt like they had to close the store because again they could not protect their employees third example Board of Supervisors had to disband their own meeting because their internet connection got vandalized the fiber for the cable connection to provide their internet got vandalized so they had to basically disband their meeting Aaron Prescott was the one who announced this and you saw in the response to this yeah my retweetingham went viral there were lots of people said yeah I've got a small business and the fiber or the copper wire whatever was vandalized and in a lot of cases I think it's basically drug addicts stealing whatever they can they steal ten dollars of copper wire sell that to get a hit and it causes forty thousand dollars of property damage here's the insincerity sex literally the proper response when there's violence in San Francisco is hey we need to make this place less violent is there a chance that it could be people who know each other of course that's inherent in any crime that occurs that there'll be time to investigate it but literally the Press is now using this as a moment to say there's no crime in San Francisco where that people are acting like I just have the New York Times email me during the podcast Heather knight from The Chronicle San Francisco Chronicle in light of the Bob Lee killing appearing to be an interpersonal dispute she still doesn't know right we don't have all the facts with another tech leader do you think the Tech Community jumped to conclusions why are so many Tech leaders painting San Francisco as a dystopian hellscape with the reality with the reality is more nuanced I think it's a little typo there yeah yes it's like of course the reality is nuanced of course it's a hellscape walk down the street Heather can I give you a theory please I think it was most evident in the way that Elon dismantled and manhandled the BBC reporter oh my God that was brutal this is a small microcosm of what I think media is so I used to think that media had an agenda I actually now think that they don't particularly have an agenda other than to be relevant because they see waning relevance and so I think what happens is whenever there are a bunch of articles that tilt a pendulum into a narrative they all of a sudden become very focused on refuting that narrative and even if it means they have to lie they'll do it right so you know I think for months and months I think people have seen that the quality of the discourse on Twitter became better and better Elon is doing a lot with Bots and all of this stuff cleaning it up and this guy had to try to establish the counter narrative and was willing to lie in order to do it then he was dismantled here you guys I don't have a bone to pick so much at San Francisco I think I've been relatively silent on this topic but you guys as residents and former residents I think have a vested interest in the quality of that City and you guys have been very vocal but I think that you're not the only ones Michelle tandler you know sheldonberger there's a bunch of smart thoughtful people who've been beating this drum Gary tan and so now I think reporters don't want to write the N plus first article saying that San Francisco is a hellscape so they have to take the other side and so now they're going to go and pick up the counter narrative and they'll probably dismantle the truth and kind of redirect it in order to do it so I think that what you're seeing is they'll initially tell a story but well then there's too much of the truth they'll go to the other side because that's the only way to get clicks and be seen so I think that that's what you guys are a part of right now they are in the business of protecting the narrative but I I do think there's a huge ideological component to the narrative both in the Elon case where they're trying to claim that there was a huge rise in hate speech on Twitter the reason they're saying that is because they want Twitter to engage in more censorship that's the ideological agenda here the agenda is this radical agenda of decarceration they actually believe that more and more people should be led out of prison and so therefore they have an incentive to deny the existence of crime in San Francisco and the rise in crime in San Francisco if you pull most people in San Francisco large majorities of San Francisco believe that crime is on the rise because they can see it they hear it and what I would say is look I think there's a pyramid of activity a pyramid of criminal or anti-social behavior in San Francisco that we can all see the base level is you've got a level of chaos on the streets where you have open-air drug markets people doing drugs sometimes you'll see you know a person doing something disgusting you know like people defecating on the streets or even worse then there's like a level up where they're chasing after you or you know harassing you people have experienced that I've experienced that then there's a level up where there's petty crime your car gets broken into or something like that then there's the level where you get mugged and then finally the top of the pyramid is that there's a murder and it's true that most of the time the issues don't go all the way to the top of the pyramid where someone is murdered okay but that doesn't mean there's not a vast pyramid underneath that of basically quality of life issues and I think this term quality of life was originally used as some sort of way to minimize the behavior that was going on saying that they weren't really crimes we shouldn't worry about them but if anything what we've seen in San Francisco is that when you ignore quality of life crimes you will actually see a huge diminishment in what it's like to live in these cities like quality of life is real and that's the issue and I think what they're trying to do now is that say that because Baba Lee wasn't the case that we thought it was that that whole pyramid doesn't exist that pyramid exists we can all experience oh my God I mean and that's the insincerity of this it is insincere and the existence of that pyramid that we can see and hear and feel and experience every day is why we're willing to make a bet we called it a bet that the Bob Lee case was like the Brianna kupfer case and in that with the disclaimer with a disclaimer and we always do a disclaimer here and just to George Hammond from the financial times who emailed me here's what he asked me there's a lot of public attention lately on weather San Francisco status has one of the top Business and Technology hubs in the US is at risk in the aftermath of the pandemic duh obviously it is I wondered if you had a moment to chat about that and whether there's a danger that negative perceptions about the city will damage its reputation for Founders and capital locations in the future so essentially the enemy says the obviously a lot of potential for hysteria in this conversation which I'm Keen to avoid and it's like have you walked down the street and I asked him have you walked down the street in San Francisco Jason the best response is send him the thing that Sac sent which is the amount of available office space in San Francisco companies are voting with their feet so it's already if the quality of life wasn't so poor they'd stay this is the essence of gaslighting is what they do is the people who've actually created the situation in San Francisco with their policies their policies of defunding the police making it harder for the police to do their job decriminalizing theft under 950 allowing open-air drug markets the people who have now created that Matrix of policies have created the situation what they then turn around and do is say no the people are creating the problem are the ones who are observing this that's all we're doing is observing and complaining about it and what they try to do is say well no you're you're running down San Francisco we're not the ones creating the problem we're observing it and just this week another data point is is that the mayor's office said that they were short more than 500 police officers in San Francisco yeah nobody who who's going to become a police officer here are you crazy well and there's another article just this week about how there's a lot of speculation rumors are swirling of an unofficial strike in an informal strike by police officers who are normally on the force who are tired of risking life and limb and then you know they basically risk getting at a physical altercation with a homeless person they bring them in and then they're just released again so there's a lot of quiet quitting that's going on in the job it's like this learned helplessness because why take a risk and then the police commission doesn't have your back it seems like the only time you have prosecutorial Zeal by a lot of these prosecutors is when they can go after a cop not one of these repeat offenders and you just saw that by the way in L.A oh look motherboard and New York Times just emailed and dm'd me and then and then did you guys say that instead of solving these issues the Board of Supervisors was dealing with a wild parrot what was it the meeting that was disbanded they had or yeah they had scheduled a meeting to vote on whether the wild parrots are the official animal of the city of San Francisco so that was the uh the scheduled meeting that got uh disbanded also connect may I just clarify what is talking about with the Elon interview a BBC reporter interviewed Elon and said there is much more race and hate and hate speech in the feeds on Twitter and he said can you give me an example and he said well I don't have an example but people are saying this he said which people are saying it and the BBC reporter said well just different groups of people are saying it and you know I've certainly seen you said okay you saw it and for you he goes no I stopped looking at for you he said so give me one example of hate speech that you've seen in your feed now we without speaking about any inside information which I do not have much of they've been pretty deliberate of removing hate speech from places like for you and you know it's a very complicated issue when you have an open platform but the the you people may say a word but it doesn't reach a lot of people so if you were to say something really nasty it doesn't take a genius to block that and not have it reach a bunch of people this reporter kept insisting to Elon that this was on the rise with no factual basis for it that other people said it and then he said but I don't look at the feed he said so you're telling me that there's more hate speech that you've seen But you just admitted to me that you haven't looked at the for you feed in three months and it was just like this completely weird thing and this is the thing if you're a journalist just cut it down the middle come with prepared with facts listen and stop taking a position either way I want to connect one dot please which is that he filled in his own narrative even though the data wasn't necessarily there in the same way that you know we kind of filled in our narrative about San Francisco with the Bob Lee you know Murder being another example we put a disclaimer on it we did it hold on a second we so we knew we didn't know and furthermore we're taking great pains this week to correct the record and explain what we now know yeah to be intellectually honest this is just intellectual honesty honestly you're you're you're going soft here Freeburg you're getting gas lit by all these people I think the guy the guy totally the guy totally had zero data put the report on data and evidence so he certainly you know I think probably with Don carmignani it's the same story yeah this is that Don Don happened to survive guys I love I love you but I gotta go goodbye here's what Maxwell from motherboard have fun there's been a lot of discussion about the future of San Francisco and the death has quickly become politicized has that caused any division or disagreement from what you've seen or has that not been the case the Press is gleeful right now like oh my God you know it's just like the right was gleeful with Jesse Smollett having gotten himself beaten up or you know setting up his own all right everybody four the Sultan of science currently conducting experiments on a beach to see uh exactly how burned he can get with his SPF 200 under an umbrella wearing a sun shirt and pants Freeburg on the beach wears the same outfit astronauts wear when they do space walks hey stable diffusion make me an image of David Friedberg wearing a full body bathing suit covered in SPF 200 under three umbrellas on a sunny Beach oh my God for the dictator polyhapatia creating regulations and the regular oh the regulator you can call me the regular the regulator see you tonight when we'll eat our orchalant what's left of them the final four or five ortalons in existence otherwise I'm putting you on the b list today I will be there I will be there I promise I promise I promise can't wait to be there and the Rain Man himself he didn't even get to putting Ron versus I think you should ask Auto GPT how you can eat more endangered animals have a plan for you yes and then have it go kill those animals on the dark web to go kill the remaining rhinos and bring them to chamat's house for poker night I don't think rhinos would taste good wasn't that the plot of a movie but it was a oh did you guys see is cocaine bear out yet no it was a Matthew Broderick Marlon Brando movie right where they're doing the takeoff on The Godfather was the Freshman yeah yeah yeah yeah yeah it's like a conspiracy to eat uh endangered animals yes the freshman the president came out in 1990 yeah that Marlon Brando did it with um Matthew Broderick and like Bruno Kirby they actually they that was the whole thing there's no Kirby that's a deeper actually uh they were eating endangered animals what do you what do you think heat too is that going to be good sex I know Heat's one of your favorite films me too it's awesome is there a sequel coming they're gonna do he too and the novel's already come out Adam Driver so I saw the novel yeah he's amazing one of those movies where when it comes on you just can't stop watching yeah best bank robbery slash shootout in movie history you know that is literally the best film ever like it's up there with like the Joker with Reservoir Dogs the the the Joker in that Batman movie where he robs the bank like I mean what I love you guys all right love you besties and four blah blah blah blah blah this has been the all-in podcast 124. if you want to go to the fan meetups and hang out with others we'll let your winners ride [Music] and they've just gone crazy [Music] foreign [Music] [Music]








hey everybody Welcome to episode 125 of the all in podcasts on a historic day we're taping 420 really excited that SpaceX was able to launch Starship and it made it off the launch pad and Incredibly successful today day today we have of course with us the Rayman David sacks the Sultan of science David Friedberg and of course the dictator tremath polyhapatia but two special guests are here special guests Gavin Baker from a tradies how do you pronounce it a tradies house of tradies House of tradies if you know Dune and then SpaceX board member Antonio gracias one of the First Investors in SpaceX Antonio a big day for you maybe you could just tell the audience what happened today why that is so important in the history of this company well first I want to thank you guys for letting me uh come on and have a little chat with you about this today was extraordinarily important for for SpaceX I think for America and for Humanity and the Starship is the realization of the vision hat Elon had 20 years ago 25 years ago even as a child really to to go to Mars and the engineers here at SpaceX and on the entire team working extremely hard or really just to get this this vehicle off the pad Asiana said right this is a brand new vehicle everything about it is new so the engines the material science the structure the design all of it new and the most important thing here was to get off the pad so we acrylic data and this technology platform is the platform that allow us to go to Mars so from a non-engineer standpoint why this is important is that what we've proven with this flight we got past a point called maxq which is the point at which the vehicle takes maximum stress that's how I think about it I'm sure Engineers would tell us a lot more description to it or David Friedberg give you a better script to it but it's the most funnest rest in the vehicle which means this vehicle will get to orbit and this is the vehicle that's going to take us to Mars so today's the day that all of the hard-working people at SpaceX accomplished a goal of making the human race space fairing when we look back in history I believe this will be the day when you mark the the technological development that we broke through and built a vehicle that could actually go to Mars now when we look at it obviously it didn't make it to orbit maybe you can give some context into what is the typical life cycle of a new rocket ship coming out the Falcon the original one has done I think 224 missions 222 of them successful I think 160 or so actually landed themselves yes and so you had two or three mulligans I think in the development of that maybe two actually so what can we expect here when are they going to stack and rack and launch the next one Antonio let's see what's the timeline here to getting to orbit what would we expect versus some of the other projects that we've seen like the Russian Rockets so look this is um a brand new vehicle and whenever we develop brand new vehicle it takes a long time development you know my understanding all this is as again a Layman and sort of as a board member non-executive year is it it'll take at least called two or three months two or three months to really get the pad rebuilt and get another vehicle back on for testing uh maybe longer but it's really important to note here that we've gotten sort of used to the idea that SpaceX launches rockets and all these Rockets come back and all those vehicles are stable because the Falcon 99 heavy are so stable and they're so well engineered and they're amazing vehicles but the most reliable vehicles on Earth in human history this is a brand new vehicle this was a huge win I mean it was an enormous room for the company an enormous room for the country just getting it off the pad and collecting the data and now we know it works we just have to get it stable now get up to orbit so it's it's really it's it's a hard problem but it's a soluble problem from here and the the we learned here is that this vehicle does work amazing can you guys talk about like the impact of this vehicle cost to launch payload like the big metrics that are that kind of help realize that outcome govern I think I saw you did a bunch of really good tweets on this you shared some of the metrics that I that I thought were really succinct and really helpful yeah sure so when this is I think it's a long road to full reusability um you know the first step will be CCA Zilla catching the booster doesn't it doesn't have uh legs like the Falcon 9 and then the second step will be landing the Starship which is really hard but once you do that they should be able to send over a hundred metric tons to orbit at a variable cost of under two million dollars per public data this these are public statements I would never confirm or deny those damages this is Gavin's map on the back of the envelope two million dollars is the cost to get 100 tons into orbit that's that's the the metric variable cost variable cost so but I think the point gav is making if I might just play that is that it is a step function change it's not like a small change it's an enormous change right can you compare that to the numbers before for folks to understand the Falcon 9 Mass to useful orbit is 17 metric tons and the variable cost that you know I I have seen Elon tweet about is somewhere around 15 million dollars so you are lifting more than five times the mass to orbit and based on other statements at 100 metric tons is a very conservative estimate and you're doing it I'd call it 10 to 15 of the cost so this is a you know we can all do the math but we can envelope it um you know roughly a 50x huge change in this you know massively changes needed economics for starlink for sending anything into orbit and as Antonio said it's it's great for SpaceX it's great for America and it's great for uh for everyone we have the humanity is great for Humanity can you explain how that then translates into going to Mars so now we can get 100 tons into orbit for two million dollars what happens next in terms of like how that payload capacity and low cost enables you know full transport to Mars and you know I know that the timelines are tough but it would be super helpful to just to translate the orbit concept into the let's go to Mars concept it's important to know that like the size of this thing it gives a sense of scale is the Interior Space of it is the size of the International Space Station so it's a huge amount of time I just think about all that's going to take to get to Mars right you gotta you have to lift a payload into orbit you have to you know create a base either on the moon or or in um it's orb in the earth to actually refill ships and send them out into space and this same design will scale up to become the Mars Colonial transporter reverse similar design that's why it's important and look the timeline that I don't know I'm hoping that it will be um well I am still able to go that would be great if is it able to go but that's really why it's important think of this as a small version of the same vehicle we will actually use to go to Mars and then all the stuff you have to transport to orbit it becomes more economic because as Gavin just said we've had you know 50x kind of reduction in cost can I ask you another question sorry I don't mean to monopolize the questions but these are things that I think are like super important questions but that a lot of people often ask or I hear them asking but what happens with the space industry in the nearer term so there's this great long-term goal get tomorrow that's a that's a big project but it'll certainly be funding I'm sure to run that project but what other economies now emerge as this this cost down of 50x happens and what else do you think happens besides you know Communications and starlink obviously there's that's already a pretty scale business what other markets can develop here in the near term what other economies do you see happening as a result of this costume yeah I mean look having to jump in here too but the reality is once you can take that much Master orbit you can move anything around the planet very quickly you can kind of go out but or spin below even come down so Transportation generally changes you know if you want to fly to Tokyo from New York City it goes from being you know a day trip to a matter of hours it's extraordinary or a container chip in a couple hours kind of yeah everything that's rapid transport around the earth you run a package around there everything gets faster Kevin yeah there will be no more trans-pacific or transatlantic cargo flights I think in five six seven eight ten years you're gonna need a big Starship Fleet to accomplish that but I think the um transatlantic and trans-pacific Aerospace cargo routes go away so transmission Logistics I think is a fundamental change human transport fundamental change um and then there's all the knock-on effects of buildings kind of Technology look the space program the American space program that took us to the moon created the cell phones we use right I mean there's so much the chip designs all the technology came off of that the same kind of effects We Believe will happen here so it's hard to predict but it will be a lot of great stuff well that's kind of the point when you can get payload up there now entrepreneurs can think of a million different crazy ideas and affordably put something up there whether they want to mine an asteroid or they have a science project now a thousand flowers a million flowers can bloom and then entrepreneurs can start thinking about it and that's already happened to a certain extent with Falcon yes that people are able to come up with great ideas well I have to say and the inspiration it provides it does it's amazing to be here and feel the inspiration and the just the dream I think that's what I was going to ask you about if you know as we wrap here with YouTube if you could if you could take people inside mission control which were privileged enough to be in the sense of history and the feeling in that room if you could describe it for the audience what those Engineers were feeling and what you in fact felt at that moment Antonio so I would start by juxtaposing with Monday so we were here Monday we're here Monday and Monday I think there was a real sense of concern you know the the countdown stopped around 10 minutes the vehicle we had a valve failure and without got stuck open basically and uh we had to stop and and kind of regroup and by the way from my perspective that's like a solid success because the vehicle did not get destroyed in the pad yeah which is like the number one thing to have happen here the second and so that was kind of Monday and I think Monday was um yeah caution and intensity it was it was a very intense very intensity can this will this will this ever happen when will it happen yeah today what I felt in that room was a sense of um there was a high sense of intensity a high sense of focus and also a sense of people were excited there was an excitement about it it felt different today it felt more electric today they were super focused but you could feel the exam in the room they believed it was going to happen they thought it was highly probable and that it was going to work and when it did work I would say it was a sense of elation and joy and just you know this is this is 20 plus years of work and you know Elon was in the room with the engineers and it just sing him light up seeing the joy that he felt seeing the joy the engineers felt together for me and I haven't been a board member here in investor for a long time and sort of been a bit along this company and scene develop it it brought a real sense of of Hope yeah for what's going to happen to this country and what's happening to humanity and and it's such a joy to my heart yeah Gavin do you have any emotional feelings there when you watch it you want to add yeah well I think it's also just what I had what always strikes me when I'm here is this is a Sandy spit of land there was no power no electricity no potable water you know no sewage no utilities nothing and out of this you know Sandy spit of desert you know on the Gulf of Mexico a extremely talented group of Engineers the last five years have lived in you know these these airstreams you know a long way from a major city and it is it is just an amazing place to visit and you know the sense of commitment and when you talk to anyone at SpaceX anyone here at Starbase you know what are you trying to accomplish make Humanity multi-planetary species yeah get to Mars so just the experience of visiting star base is amazing second I'll just say launches are very visceral it's shocking if you have not experienced one the ground shaking yeah feeling your chest you feel it in your feel the yeah yeah you feel your body shaking like an earthquake yeah but it doesn't stop and it's incredibly dramatic you know the rocket it's going so slow at first and then it accelerates and then you hear this enormous crackling noise that's you know louder than any concert louder than any you know Sports Stadium you then a blast of hot air hits you you feel it and I would I would say a lot of people at launches cry it's a very emotional experience often for people who are who are not yeah it's hard not to get emotional yeah I think just the human beings can accomplish something like this is amazing and then what I would just say is you know there was the rocket flew for four minutes it went through Max Q it went to 39 kilometers the Soviet N1 which was comparable rocket only reached 12 kilometers like the team was ecstatic yeah um The Joy on their faces to be cheering I've never seen anything like it yeah it was awesome it was very inspirational and I felt very uh very grateful to be there yeah um incredible yeah okay with one thought of what I'm thinking right now yeah the after effect the after effect after glow it's just it destroys into gratitude I mean there has been so much sacrifice here and we have witnessed it over 20 years from from Elon of course and the amount of just you know unbelievable worth going from him and the entire team at SpaceX is Engineers everyone works here yeah it's been extraordinary and it just really I'm just deeply grateful incredible and grateful to you all for having us on thank you uh incredible it's great to hear that perspective because you would not have gotten it from off the Twitter feed you know from the mainstream media David if you'd come here with us you could have gotten yeah David you were invited you were invited you almost we almost shame everything from Miami so it's a new term called as opposed to Shanghai we're going to Shanghai and Starship you we're gonna Starship you next time yeah I'm bummed I couldn't be there but I'm excited to see how excited you guys are and just the point I was making is that when I was reading the mainstream media coverage of this it was almost like ghoulish it was like a type of Glee it was almost like I said that the rocket blew up but they didn't they didn't really mention any of the things you're mentioning I mean from the point of view of the people who are there it was a Triumph and it was exciting because of the data that was collected and the fact that this rocket even got off the Earth for four minutes but the media never really conveyed that so thank you for giving us perspective that you just would not have gotten today from The New York Times or other mainstream media and just to add that just a little bit of context you know this is an inner design process with rapid Improvement this Starship had 31 engines that were made over the course of one year had different tolerances behaved unpredictable unpredictably you know this was far from the best Starship the one that's going to launch in three months or two months or four months or five months or whatever it is they've already made over a thousand discrete improvements to it and that was before they got all the data for today and then there's a Starship after that and after that so I think it's it really is a the with the mainstream media just failed to understand is the process under which a new rocket platform is deployed and how revolutionary this is they they are iterating at a speed here I don't think people can comprehend I mean honestly that's important they don't care and it was a way to paint somebody who they dislike and they are threatened by it a negative light the front page of the Wall Street Journal says spacex's Starship explodes shortly after launching uncrewed test flight if you take Antonio gracias's explanation which was articulate and transparent and fair and this headline you could not be more further apart on the spectrum of the truth Antonio just said that this is a date this is for the audience of which there are millions of people now Antonio said this is the day that you look back on when we are multi-planetary as this Cambrian moment if you will this incredible point of innovation and human Ingenuity and teamwork and sacrifice you know Gavin said it as well just giving up five years of your life to move in the middle of nowhere live in an Airstream trailer and then the Wall Street Journal was basically perspectives I mean it was just fireworks it was just a fireworks display right I said no to my own team sure he just said I said ignore please ignore the news media yeah it's total BS this is a huge success it's a huge success and you know we should just step back for a second and enjoy a success because part of the problem with the news media is this is a moment that should Galvanize our country I think they can't see that it galvanizes potentially galvanizes support for a human being that they feel deeply threatened by and that's what it all comes down to ultimately and that's what you see in the headlines that's why what's so interesting about this is that the behavior of the mainstream media did not paint this as something unsuccessful or a joke or rocket goes boom or fireworks when you look back on something as meaningful as this it'll just make them even less credible that's what that's unfortunately what they're doing to themselves is shooting themselves in the foot it's pretty sad yeah Wall Street Journal this is CNN New York Times everybody just painted it as a failure and it's like oh here's a collection headlines well done producer Nick I mean literally you would think if you read the mainstream media that SpaceX failed and it really the when I was talking to Elon months ago about this you know he said listen 50 50 we get off the launch pad yeah if we can get off the launch pad and we don't blow up the launch pad that's a huge success the fact that this thing got as far as it is in four minutes and they got all that data and they've got when you see the scale of this factor and I hope you all get to come down here and and all Americans get to see this because for me you know and being friends with Elon for as long as I have and to watch him go from the idea of this and he showed me I went with Elon to see the the horthon factory when he was considering renting it and from that moment to now to see the suffering that he went through personally to do this and the team the amount of suffering to get to this point has been so tremendous but when you go to the gigafactory in Texas when you see what's happening here at Starbase it should let you know that this is still the greatest country in the world with the greatest entrepreneurs and and he is truly the greatest entrepreneur of our lifetime and I'm not just saying that because he's my bestie I'm saying it because it's objectively true and when you see headlines in the Press look at what has been accomplished look at the Teslas on the road look at what happened with this rocket ship and and judge The Man by what has been produced to date and understanding he's going to keep going and the team he has inspired is Relentless I spoke I sat there on the deck an hour or two after all this went down and I just ate some chips and salsa with a half dozen of the people who are in Mission Control they love the podcast they listen to every episode of all in I I kid you not and they said will you talk about this on all and I said well we talk about someone thank you for what you've done for Humanity this is the most inspiring thing I've experienced in my life we love you guys we love you guys SpaceX charge ahead be relentless as you've been and know that despite these absolutely insignificant headlines what you're doing is so meaningful to every American and every human on this planet don't stop go faster go harder be more Relentless we're all cheering and we're in awe of you this is one topic we can all agree on this is something that can Galvanize America we are leading the world again yes we're leading the world in the space race again we're going to be on the moon we're going to be on Mars what about Uranus [Music] that was great I'm surprised I beat your mouth to the punch there yeah oh no we were all cute was having a moment he was like daydreaming about the future and not thinking about the line I was taking the number of shares of SpaceX I know and multiplying it by a billion trillion a million trillion dollars per share wow yeah the rest of us are thinking about Humanity America inspiring people and shabbat's got his like little calculator out I'm gonna have like a Babushka of planes a plane the moment make it about you oh my God [Music] we open source it to the fans and they've just gone crazy [Music] I did have a business question about how the Starship impacts starlink very simple there's a graphic online you can find on the SpaceX YouTube channel and they show the starship and it literally looks like a goddamn Pez dispenser shooting out the next version of starlink and these are you know without I don't want to speak about any specifics but you can you can watch it spit them out you can put out more and they're obviously going to be more powerful and if you have seen the size of the satellite I have starlink at both houses the ski house and my main house is a backup it's getting scary how good it is and if you look at the size of them and again I don't want to speak about any future products it's not my place but if you see the size getting smaller there's one or two things that we all know about technology cheaper faster better smaller and just so I would just say if you're if you're a fan of starlink just keep those words in mind yeah it's going to be pretty amazing what starlink's going to be able to do yeah I thought that maybe I read this somewhere that Starship can carry 600 plus satellites whereas the previous top of the line rocket the Falcon 9 could only carry was it like 50 or something or yeah maybe a little less yeah there's like 30 40. so so you're talking about 20 times the number of satellites can go up and at a lower expense yeah and I guess SpaceX has gotten permission from the FCC to put up about twelve thousand Starling satellites so you could do that you know with I guess just 20. you know 20 missions the big disruption is going to happen by the end of 2026 because this next Generation set of licenses uh spectral licenses that the FCC sold came with a condition that you had to launch satellite capacity by the end of 2026 I think otherwise you lose it or you have to do your first launch I think by the end of 20. any the point is that the only company that actually has the capability to build and to launch is SpaceX so they have a complete Monopoly and because they're advantaging their own solution it puts everybody else behind the eight ball so not only will they probably offer the best global internet connectivity at every single natural point in the world that you could be which is going to be a really big leap they're going to do it Jason as you said at a throughput that's going to surprise people and it's also going to render every other existing provider in a really difficult situation who's like you know what is their alternative you can't launch with Ula because they're inconsistent you can't launch with blue origin because they're inconsistent you can't log to the Europeans in general because they're inconsistent SpaceX is the only solution but then SpaceX is just going to Advantage themselves and there's nothing illegal about that so you're going to be left with a bunch of these existing telecommunications companies in a really difficult spot in the next couple years so it's going to be really Dynamic space I think very much worth paying attention two-line sentences regards to the all-in community stay in a nap man has not slept in the last couple days uh he's taking a well-deserved nap right now so hopefully we'll have a mind in a future episode very quickly where are you taping from jcal just curious where are you taping from there I'm at Starbase and uh there are little tiny homes and anyone um lent us one to to stay in here and yeah it's because it's just inspiring to be here it's been it's been a great experience and I've been this is I've been here a couple times and it the the the scale of the factory the ships and just over the last like they said the list I've been here a couple times maybe three or four years ago um it really is growing exponentially and the other really positive thing is people are driving again back to the enthusiasm in the public and what you don't see mirrored in the Press which I think was really astute Point sax I met a guy who gave me a ride in his golf cart I was I was late to a meeting guy says hey are you going somewhere and I said yeah because I was literally running down the street trying to get catch a flight and uh the guy drives me in his golf court and I say hey he says hey are you here for the launch I said yeah I'm here for the lunch he says so am I say can I ask you um do you work for SpaceX he says no I'm just a fan of elon's I'm a fan of SpaceX and I said can I ask who you drove for me so I drove 19 hours through somewhere in Texas Houston or something he drove 19 hours to come here to spend the week to see the launch and the crowds here have gotten bigger and bigger and there's hundreds of people uh it's I think I call San Padre Island over here uh there's a little Beach Community kind of like a like a Las Vegas on the beach or a Reno or New Orleans and um and they're just lined up there with cameras these are Americans just Americans in RVs in cars setting up cameras to see history happen and it's it really is truly inspiring these are just softly Earth normal folk this isn't the media this isn't like affluent people or necessarily they're just Americans who who are inspired and that's I think what all entrepreneurs who hear these stories about what's going on down here you'll overestimate what you can do in a year you're going to underestimate what you can do in 10. and I think that's you know we all know Elon pretty well here and have watched this journey they're cooking with oil they're moving fast and the iteration process is extraordinary and they're making everything here and it's Americans making everything that the tiles I remember being here three years ago and Elon and I have two in the morning we're walking through the factory while where they were working 24 hours a day trying to figure out the tiles on Starship to get it back in and they were making the tiles themselves and and just trying to figure out that formula that's the level of detail that's occurring here and as Gavin said there's a thousand different things changing on each iteration of this so more great stuff to come I I believe yeah has been another episode of Phil helm youth mentions his relationship with Elon thanks everybody for tuning in yeah exactly no I mean what am I supposed to do you know like I'm sorry that my friend you know started a rocket ship company and I don't apologize for it you guys doing great stuff in the world as well so do we want to talk about AI do I want to go to this uh tiger marking down their book where would you like to go gentlemen we can talk about the fox settlement with Dominion that was something you and I talked about last week sax I'd love to get your opinion on that they paid 787 million dollars in this settlement uh for defamation it didn't go to trial uh you were hoping it would go to trial how do you feel I mean and this is an extraordinarily large settlement so yeah but what are you what are your thoughts on this you wanted to see this go to the mat and go to the Supreme Court and maybe see the laws in the United States change eventually um catch us up on your reaction to this ginormous find yeah yeah there's a big speeding ticket yeah yeah well it's funny you you call it a speeding ticket because when I saw this it reminded me of a scene at the beginning of Apocalypse Now where Martin Sheen says that charging a man with murder in this place is like handing out speeding tickets at the Indianapolis 500. I mean the analogy here is that the media is so dishonest whether at CNN or MSNBC or the New York Times I mean they're constantly inaccurate or whatever and yeah so still defending Fox so for this one network to get a fine of like 800 million it's like pretty pretty incredible um I mean they should be handing out a lot more of these in my in my view not just to Fox but yeah look I would like to see to that end I would like to see the standard in New York Times versus Sullivan revised by the Supreme Court the standard is actual malice so you have to prove not just that the Press told a lie but that there was malice behind it and that's what this trial would have been about and um which should have changed too yeah I think we want to change too what would be a better standard in your mind I think that if the media makes a mistake they should have to correct it and I would say the correction needs to be at the same level that they publicize the original story so if they make a mistake if it's untruthful and it damages someone's reputation and they refuse to post a correction then I think they should be liable that seems fair to me if you were to put something on page A1 if you were to give it five minutes at the start of a show on whether it's Rachel Maddow or Tucker or whoever makes the mistake it could be anybody if they made the mistake in the first five minutes top of the show they don't get to buried on the website they don't get to buried on page seven they gotta say it up front Hey listen we made a mistake correct here's the mistake correct yeah I think it's reasonable correction she got the same level but let's see as the original story and by the way if they correct it that would be like a safe harbor but if they refuse and they publish a lie and it damages somebody then they should be liable for that I think there should also be something that's what I think but yeah I'm in agreement with that because they there is the trick in journalism to bury the correction and and there's another trick that I think needs to be looked at and it's a little more nuanced which is somebody makes a mistake or an accusation in a in a publication and then the next publication says oh the New York Times Fox News CNN said this but they don't check it themselves so they're using another publication as like a proxy to kind of give them some level of protection I think they should have to on a firsthand basis right no that's the game they play you're right so they start with a super Shady Source yeah that you know it just attributes it to some sort of anonymous source then the second most Shady publication quotes that one and the third most shitty quotes that and then it just goes through the whole food chain yeah so you're right reposting something in the Echo chamber because other Publications are doing it you're right that should not be protected they have to do their own sourcing basically yeah or just some base level of fact checking if you and now if if you called it Fox opinion that's slightly different than calling it Fox News so maybe the part of this is branding a chamoth or Freeburg Germany thoughts on this just in general Fox I think has only four billion of cash so they just spent 20 some odd percent of it paying this off and if I were a shareholder the question I would ask is did we actually make enough money to justify having to pay almost 800 million dollars of our cash balance the answer is probably no and this is the first of a bunch of lawsuits that they have the next one which is I think is like smartomatic which is another voting machine company that's an even bigger lawsuit actually that's a two and a half billion dollar lawsuit and so it's could it be the same outcome and another settlement and so now all of a sudden you would deplete half their cash all for a lie to do what at some point some smart business governance needs to kick in over at Fox and they need to realize that this stuff just doesn't make economic sense maybe they thought it made political and ratings sense but you can't justify that when it costs two billion dollars there's a concept here I think sax that is particularly interesting in Finland when you get a speeding ticket speaking of speeding tickets your speeding ticket is proportional to your net worth and so these NHL players who like to speed and a Nokia executive it was given the equivalent and this is a bit excessive of a hundred and three thousand dollar fine for going 45 into 30 Zone on this motorcycle and an NHL player got a 39 000 fine two years earlier I I think that this is part of the problem and sometimes fines don't match the crime and or the they're not proportional enough for the person to feel them and so then we kind of can Joe that they're speeding tickets one very rich person said to me you know when they would they I'd watch them parking you know incredibly illegally in a small town and I said uh you know you're gonna get a pretty serious ticket that's in it's a pretty gnarly spot to be parking and they said Oh you mean the VIP parking charge and I was like yeah that kind of sucks but okay so there might be some concept here of um a proportional fine and I think the EU is starting to work on that as well because you know big tack was ignoring this is going to embossing a lot of people to take matters into their own hands and Sue some of these media companies if the LIE is egregious enough and it negatively impacts them enough I think it would embolden a lot of folks so Saks is right that up until now most folks haven't done anything about this but if you feel like the media has really wronged you in a meaningful way there's probably also now a lot of private Equity organizations that would do the lawsuit Finance or hedge funds that would do the lawsuit Finance um and so now Peter did yeah like you're free rolling it right so you you get one of these folks to pay it they get 50 of the gains you get 25 the lawyers get 25 and you go and you litigate I'm sure that you'll see more not less because this fine is it's really big and again we don't know the end of all of these 2020 election hoax Shenanigans because this is the first not the last of these I do think it's a really big number I mean I did I did want the the case to go to all these courts so they could revise New York Times versus Sullivan but I I do wonder about the size of this settlement here it's just it seems extraordinary they paid it it was a interesting it's a settlement yeah they they voluntarily agreed to do it yeah absolutely so so in any event look I I hope your math is right that this actually incentivizes more actions against media companies because I think their feet need to be held to the fire and they need to do a better job publishing the truth there was an interesting thread by a Twitter poster called kanakoa do you I don't know if you guys saw this where he posted an hour of footage by democrats and uh Democratic groups and more democrat-leaning political science experts questioning whether voting machines could be hacked basically this this idea that voting machines could be hacked is not it's not an allegation that is unique to Fox so apparently there's evidence that Fox News was bogus so they definitely should not have run with it but I do Wonder Hey why why shouldn't other people be liable for this too well I mean the the question is I think those internal text messages between the host who knowingly knew it was false and then we're doing it I think that's why they took that settlement because 800 million or whatever or so is a lot less than 1.4 or 1.5 and so there's speculation that maybe clearly they got some bad Discovery they got some Discovery problems yeah these allegations about electronic voting machines being hackable or rigged this seems like an allegation that's been made well it's actually interesting not just in 2020 but it's been made multiple times by whichever side loses yeah and so I would wonder why more parties aren't liable for this by the way I never I never bought into I never bought into those allegations I said so at the time I thought they were bogus I thought the whole Sydney Powell thing you know the release the Kraken or whatever was ridiculous so I don't feel too bad for Fox or anything like that but it seems to me like I'm saying they're they're not the only ones speeding here there's a lot of people who need to get speeding tickets yeah there is a road map for the press to learn from this and to get better right like to maybe take to heart that that maybe the public now is looking at them and assuming that the Trust in Media has is at an all-time low Alex John find a billion dollars right it's a judgment judgment judgment the fox thing's a settlement right he got a judgment of over a billion from multiple courts yeah so he said a bunch of stuff that you know was in court provable to be false and then he kind of restated it and he got you know this massive fine I think there's an interesting question here on how far this goes with respected you know maybe it invites the lawsuits like you guys say where there's things that are more on the on the line and then we really start to have kind of a tough set of conversations that it maybe there are things that are factually debatable arguable opinionated or they were true at a certain point and then you didn't really have evidence to disprove it what are you allowed to say are you only allowed to say things that you've proven or things that haven't been disproven and that becomes a pretty tough set of conversations and what I think might be interesting from here if so much of media over time gets replaced by chat and AI aggregating lots of different information synthesizing that and making representations back to us and that becomes our primary source of call it news or quote media in the future what happens when those models or the synthesis of data or the source of the data leads to a statement that has a similar sort of descent around whether or not it's true or not and that you really end up kind of ending up in a pretty cloudy environment you know by started starting this process I think it's a very insightful moment we'll get to in a minute I just coming as a coming from a journalism background myself and then becoming a commentator there really needs to be three or four very simple things that the media needs to do number one more fact checking and number two less Anonymous sources it's they were like too much on Anonymous sources and then there needs to be very clear delineation between what is a fact and what is an opinion and the public is trying to sort this out is it Fox News is an opinion and what you're saying is this an opinion or is this a fact did you do journalism or did you just have an opinion is Rachel Maddow an opinion or did she actually have a journalist check these facts and I think this is where self-policing and maybe rebuilding their rebuilding trust is on the media it is now the news and the media's job to rebuild Trust and if not they're going to get more fines but let's get into I think some of the stuff we're seeing with AI we had talked on this show before many times about the Corpus of data under which these models are being built well Reddit announced plans to start charging companies that use its data to train AI models the co-founder Steve Huffman who came back after contacting us Nast had bought Reddit and then sold it back to the founders and paradoxically I believe Sam Altman has a major investment in Reddit he said more than any other place on the internet Reddit is a home for authentic conversations there's a lot of stuff on the site that you'd only ever say in therapy AAA or never at all a lot of people use pseudonyms obviously and the Reddit Corpus of data is incredibly valuable but we don't need to give all that value to some of the largest companies in the world for free crawling Reddit generating revenue and not returning any of the value to our users or something we have a problem with it's a good time for us to tighten things up your thoughts shamoth on what we talked about two different episodes maybe we'll play drop a clip in here Nick if you want to in post it's going to be the large data sets quora Yelp the App Store reviews Amazon's reviews so there are large corpuses of data that you would need like Craigslist has famously never allowed anybody to scrape Craigslist the amount of data inside Craigslist as but one example of a data set would be extraordinary to build chatgpt on chatgpt is not allowed to because as you brought up robots.txt last week There's going to need to be an ai.txt are you allowed to use my data set in Ai and under and how will I be compensated for it will the rights to the data will will Google just data quora hey we'll give you a billion dollars a year for this data set you those were our previous discussions that we just played what do you think it's so incredible we are witnessing such an important moment for Silicon Valley but frankly how the world works and it's just everything is changing that's what I'm just in awe about that you know we talked about this and we were basically spitballing something two or three months ago and not but 60 or 90 days later these things come to pass right we talk about something in one week and then you know 14 days later it's completely upended like how impressed Saks was about plugins and then plug-ins were rendered useless and somewhat impotent Two Weeks Later by Auto gpts it's just so profound I think what's going on so Google today announced that they're going to merge two organizations that I thought were so orthogonal to each other disparate brain and Deep Mind the cultures just seem so totally different but now they're merging those two things together something that I thought would never happen they did it so all these competitive pressures are so real I was in LA for the Breakthrough prize I was flying home with somebody on Saturday I won't say who it is but they are right at the bleeding edge of a lot of this AI stuff and they let go a third of their company replaced it with an agent Within six weeks of training it so how is this not going to affect everybody else I guess is maybe the bigger question and then I go back to what I said last week which is that we've talked about a lot of the positive things and I think it's important to make sure that people understand that there are a bunch of non-trivial negative things and I think I shared one on Twitter which was around this company that used an AI model to build a library of 40 000 toxic compounds that could kill all kinds of numbers of humans so there's all kinds of really really tough things going on right now that I think to me means it's the moment where I have the least sense of how to do my job and so I've tried to kind of like put a pin in everything and just go back to learning mode it's a bit humbling is what you're saying like it's incredibly humbling the entire rule book even for us as capital allocators company formation it has you it has YouTube even as I do this as a CEO I'm like should I be using models to do parts of the workflow inside of my business inside the portfolio companies that were invested in am I supposed to go into the board meeting now on Monday and say hey XYZ person just did one two and three and cut Opex by a third do I demand the CEO do that do I force change if they don't do it do I say so I don't I don't I don't exactly know what to do the carousel is spinning increasingly faster and we're alone I'll just say a general point which I kind of made at this event today it feels like the pace of change is so high that you're kind of in a dust storm you don't really know where you're going to end up so it's very hard to sit as an investor right now and say I'm going to pick these things because you know two weeks later you just don't know whether that path even exists anymore because the dust storm washes it away or you know blows it away and I think that there will as a result there will be a lot of money lost by investors by companies building in this space net net the index for investing in like.com companies the majority a large amount of money was lost during that era but from that era also emerged a handful of winners and those winners ended up creating extraordinary value I think we're at a point in time right now where we could see 10 times the value generated in this phase of Technology advancement than we saw during the internet and the advancement of the internet and if if that is true I think you'll end up seeing certainly the same thing happen which is the index will lose money but the few winners will accrue such extraordinary gains the problem is you can't deterministically pick those winners today totally because of the dust storm problem you just don't know the path totally so if you were to meet Jeff Bezos versus some CEO of some.com selling pet stuff back in 1995 to 97. 94 to 97 would you have recognized Jeff Bezos was going to stand out would you have recognized Larry and Sergey were going to stand out would you have recognized Bill Gates was going to stand out or Zuck at the end of the day this is harder than it has ever been in terms of predicting a technology cycle but what we still know to be true is that the capital will be allocated within a company the operations will be run managed and driven and led by an individual or a set of individuals and that's effectively what I think a lot of investing in the cycle is going to come down to we're all going to sit here and pontificate and intellectually masturbate ourselves to some you know genius you know path that we think is going to evolve and at the end of the day most of it won't turn out to be true and that path won't be real because this is such a dynamical system right now there are so many feedback loops one thing makes one step change and it changes every other step but but what we still know is that great leaders can lead you know and especially coming out of this this Elon discussion and seeing the extraordinary achievements he he's delivered particularly today I think that's maybe what a lot of early stage Venture is going to shift to an AI it's really you know finding great people and and I'll tell you one thing for sure and I was kind of commenting on this earlier today was I really think a lot of series C in later companies and I know we're going to talk about this implosion discussion later so many of those companies have a valuation that's less than their preference stack and as a result those Founders that work there and those employees that are there are getting their Equity wiped out they'll have to get restructure can you just explain what that means technically to the audience when you when you raise money into a startup the investors that give you that money that invest that money it's effectively a loan you owe them that money back first before your shares get paid out in the in the future so if the company ends up being worth less than the money that they've invested they get the money first and ultimately if the company goes public or gets sold they can convert their what are called preferred shares into common shares and participate so even though you only quote sold 20 of your company for let's say 200 million dollars that 200 million dollars actually has to get paid first so now you've raised this 200 million dollars the investors the company is now repriced because the market has come down by 80 and investors are saying hey your company's now worth 175 million your company is now worth less than what you owe the pre the pro the preferred investors and if it's worth less than what you owe which I think is the case for over 70 or 80 percent of series C and later companies you know we can kind of yeah and and this but this number comes from what I shared a few months ago which is that 70 of publicly traded companies that went public in the last three years are trading below the cash that they've raised so if you translate that on a one-to-one basis to the private Market you know and these by the way were the best companies actually got public so in the private Market you've got to assume that something in that late stage Market is on the order of 70 80 is worth less than their preference stack so a lot of those employees are going to run those Founders don't want to go work for the VCS when they get recapped and get offered a four percent because it looks like they're going to start AI companies and I think that's fantastic and I think that's what's really shifting it right now that's kind of a big Dynamic is a lot of these I'm calling them zombie corns are going to see this kind of mass Exodus of talent and a lot of the investors that don't know how to price stuff and don't want to deal with Recaps in the late stage or diverting their attention to seed and a and early stuff and so there's both A Rush of talent and a rush of capital to this kind of very early stage and so we'll create this massively bubalific you know index of AI stuff but some number of these things with some great leaders will emerge in World crew extraordinary value across many Industries I really agree with a lot of what you're saying the thing to keep in mind is that the problem with the use of Auto gpts as an example is that the order of magnitude of capital that you need has now just gone down yeah yeah instead of a 10 million dollar series a so we used to be you know people in the height we're doing 30 and 40 million dollar series A's into crazy very bubblish ideas in nfts and all this other stuff that's idiotic today because a two or three person company can now do the work of 20 to 30 people and the amount of capital that they need is really their salaries plus the cost of renting some gpus on your favorite pick your cloud and so all of a sudden you can get huge amounts of progress in weeks and months with hundreds of thousands or low millions of dollars so if you've raised all of a sudden a five billion dollar fund because you were trying to do late stage deals and now all of a sudden said well wait we'll just pivot to early stage but what are you going to do find the next 30 person company that's not going to work because you have to know how to write 500 000 to million dollar checks with two or three people and a lot of really and really help them and really understand their technical ability to execute right yeah but then it also quickly becomes a thing where maybe you're better off just doing 500 of these two and three person teams we tried this experiment seven years ago this thing called Capital as a service where we were doing this automated investing I don't know if you guys remember this but it was like some machine learning that we did on all of our portfolio companies and all somebody had to do was fill out a form and send us some metrics and we would have a machined decision right so humans would not be allowed to make the investment decision the problem that we ran into was there was a lot of great companies all around the world but the administrative burden of supporting 500 companies was unbelievably large and complicated oh you have a company in Indonesia well there's another company in South Korea and here's a company and you know they're raising a new round they have to get board approval they got to do this and signatures I mean it's hard to scale yeah so so that the VC which is a software light people heavy artisanal business all of a sudden becomes misfactured right so you actually need to be highly automated and use software yourself in order to put 500 three-person teams on the field so this is what I mean by it's really I think Freebirds use of the term dust storm is a really good one it's extremely extremely confusing what to do and if you have large amounts of money that may actually now what used to be a real differentiator and a key to success may actually become an impediment because you yeah you you are forced to do business in a classical way that has changed frankly in the last 90 days what do you think sax what's the question because we're touching a lot of different things here do you feel like this is a dust storm and it's murky and it's just hard to place bets as a capital allocator because something comes out the next day or 48 hours later or the next week that takes the previous idea and wipes it out and then and how do you scale and be Capital efficient well we're at the early stages of a huge new wave and I think that creates a lot of opportunity so yeah you've gotta basically separate what's really interesting from the Fool's Gold there's definitely going to be a lot of that but at least there's a reason now to believe that say dozens of unicorns could be created in the next couple of years so before we were getting kind of long in the tooth on some of these Tech Cycles I mean Cloud Social Mobile I mean there was a reason to believe that those earlier waves that sort of played out that the big Winners already been determined and maybe there wouldn't be too many more big winners in those spaces but now we have a whole new Catalyst for Founders to do all sorts of new things and so I tend to think that's super exciting you know we're in the early stages and I do think there will be dozens of new unicorns minted in various aspects of AI it could be in AI infrastructure you know whether you're seeing now there's a lot of funding that's gone into Vector databases or platforms for creating agents or it could be in AI co-pilots basically that tackle various professional categories and create a copilot for coders or co-pilot for doctors or lawyers or Architects I think there's going to be potentially multiple unicorns created in in those categories I think there's going to be SAS software products that were just good before but now will actually be great because the incorporation of apis from you know AI Foundation models we're we'll just Turbo Charge the capabilities and so there's a whole bunch of SAS products that I think become newly interesting and and better they go from being vitamins to painkillers so you know we're looking in all those categories and I think we'll end up making some batch but there's also going to be a lot of companies there are flashes in the pan or get undermined you know there'll be SAS companies that actually become less attractive because of disruption from AI but look I think all of this this Maelstrom is great for an investor I mean if you're going to spray and pray it's not good you've got to be selective about where you take your shots but I think this is the most exciting environment we've been in in a number of years I mean it makes me want to go to work every day and see it's so funny you say that sex because I literally am looking for an office space in San Mateo to start like doing the incubator in person again and on Monday I'm having 60 companies come to San Francisco we'll be at my attorney's office and we're having like a Foundry University with just all these new startups that we invested in to just hang out for a day the enthusiasm right now is amazing and what's really unique is the developers who had three out of seven companies they interviewed with offer them 150 or 250k packages rsus whatever now there's no offer from Facebook there's no apple there's no Twitter there's no Google or Microsoft offer coming in to be the backstop against starting a company so what are they doing they're saying you know what I got two friends who got laid off I got one friend who's halfway at the door let's just start something let's just start something who can give me 100k who can give me 500k and it's uh it's it's so invigorating to see the talented people not people who've learned how to you know hack a pitch deck together and tell a story but people were actually coding and making MVPs it's it's truly exhilarating right now the amount of two and three person startups I'm seeing yeah and so while you'll have this and it's and it's an incredible I've never seen this amount of Destruction and creation occurring simultaneously I love this zombie concept you have one half of your portfolio coming apart at the seams layoffs reducing their targets while people are coming in the door with products that are absolutely awe-inspiring I just give one example I I had a company come out of our founder University I gave them twenty five thousand dollars to incorporate a developer and his brother who's a screenplay writer they're taking screenplay writing software Sac so you'll appreciate this having produced two amazing movies thank you for smoking and the dolly film is called Dolly land dollyland yeah two months coming on two months congratulations to uh Emmy award-winning oscar-winning producer he's gonna win an Oscar this time he's you know the screenplay writing tools that have existed they're like what word processors with formatting what they're doing is they're saying hey write some dialogue and then you can have dialogue and say hey make it a little snappier make it a little tarantino-ish make it a little more you know sorkinish and then make a storyboard with you know uh stable diffusion and I was like well this is the genius idea I mean it's unbelievable of course I'll give you 25 000 for your incorporation and then they're coming to the Excel I'm gonna give another 100K and and every single piece of software will that company and success Ever Raised 25 or 30 million dollars do you think no I think there'll be 12 people I think it'll be 12 people I'll I'll give them 2500k and then a million our industry raises 100 billion dollars a year on the premise that each company before they become a unicorn will absorb between 500 and a billion dollars yeah no I'm gonna own 20 10 to 20 of the company for low millions and and we'll see mid-journey is 12 people and no it's totally bootstrap like I guess what I'm saying is because in the world of AI so much work is done for you for free this is why I'm asking maybe we will have to change how we do business on the Hollywood example there's about to be a writer's Guild strike and they may want to think twice about that because this is not the time where you want to be encouraging the industry to find alternatives to writers okay you want to get back in the office and you want to say hey can I could is there any other work I can do this weekend boss did you see the news about BuzzFeed today they had won a Pulitzer they just shut down BuzzFeed news the entire news division gone another 15 gone the layoffs and then there was a report this week that Zuckerberg's doing his third round of layoffs another 4 000 people that puts him at 24 000. yeah with a hiring freeze so the way I described the current funding environment is It's A Tale of Two Cities it's the best of times it's the worst of times if you're a hot AI startup that's able to tap into the Zeitgeist that's doing something that's perceived as Cutting Edge or relevant there's a strong why now and you're early you know your early stage you're able to raise money for that the spigot is turned back on there's a lot of funding for those types of early State startups but if you're a series sea Sage start you're a late stage startup with a it's called a pre-ai model the spigot is just turned off completely I mean let's look at that chart from French base where the amount of serious C funding has gone from something like 10 billion a quarter last year or to like zero I mean this is hardly I thought this was an error in the chart look at this chart everybody it's seriously funding to U.S companies by quarter there is just no growth stage funding it's just completely dried up I mean look at that I mean it got cut in a half and then it got cut in half again and then it just flatlined and so when you see this is your thesis let me ask you this actually sure thesis here that people aren't trying to raise money and they're just busy cutting their companies down to a smaller team size and they'll come back out in the second half of the year or that anybody with that amount of dry powder is out of the game now yeah I think that we're in this awkward stage where the the companies who raise money and call it 2020 and 2021 all those valuations are obsolete and you've had a lot of late stage players leave the game or they're in the Penalty Box they're in timeout I mean look at Tiger for example the single most active funder at late stage is trying to figure out how much to mark down his portfolio so I just think that a lot of the funding has dried up there this idea that there's tons of dry powdersing out there I think is a myth or maybe it's there but there's no willingness to deploy it the valuations are all out of whack and VCS generally would rather lead around in a new startup with a fresh cap table than in a cap table they got to restructure because no one would want to talk about a year ago that's what we talked about a year ago I asked you point blank would you if they cut the valuation and you know they redid everything and said Hey listen we understand this is reality would you get involved and cut a check and you're like I don't want to deal with that kind of amount you know that kind of hard bucket too hard too hard bucket for you yeah and so now once again a year six months or a year after we talk about this it has now manifested this is metastasized into no it hasn't even started I think we are going to get started okay I think I think we're still being really prescient like the tiger thing was very important because they are in many ways at the front of the line in terms of the number of companies they've touched the amount of capital they've written and because they're in the middle of a very large fundraise their need to Mark the market quite accurately so that their existing LPS know what they're signing up for in this next fund so they're the ones that have the most incentive to move the marks but it still leaves an entire industry of folks that don't necessarily need to do that because they have whether it's dry powder that dry powder is real or not the point is that there's a lot of money that hasn't been deployed and so again I've asked this question before what is their incentive to really mark their book down 50 percent they don't have an incentive why would they do that they would rather let it decay down naturally I'll give you an example of this or do you converts that keep it alive that basically allow them to delay yeah but even the convert Market Freebird that was hot for about six months and then it just yeah no nobody's doing that stuff either but I'll give you one example there's a very good company that we are investors in along with every kind of Big Blue Chip tier one marketing muck organization we did the A and they stacked on afterwards and when we thought about what our valuation should be we did something we got to a number which was a third of what the Mark was and we're like well if we think the price is two-thirds off we should probably just sell it now and we actually went and got some term sheets from some private Equity firms to validate it and what they it was incredible they both independently got to that same number and so while the deal was closing we went through the end of quarter we moved the markdown and we pointed to that valuation and we said look this is what these two other very well known firms have said this is what we've said so this is what our new valuation is and you know we're trying to sell it and we ended up selling it but every other organization didn't touch their their valuation that valuation folks maybe you could explain to the audience why the private Equity folks are such a good backstop in terms of valuation versus say Venture capitalists well I think that Venture capitalists we tend to be glass half full and we are conditioned especially if you do your job well to be smart buyers of deep out of the money options what does that mean it's like when you meet an entrepreneur and you give them three or four million bucks or five hundred thousand dollars or whatever at some nominal valuation you're not trying to get your money back you're trying to figure out whether he is a zoc or an Elon or Larry Page and all of a sudden you get a thousand X on your money back right so we are buying these deep out of the money options most of them don't hit but when they do they can just have these crazy statistical outlier outcomes yum yum so we're trying to buy the future and we tend to be Believers of what can go right private Equity has refined a very powerful toolkit of putting two or three orders of magnitude of the money we put into companies to work on the premise that the glasses actually half empty and what can go wrong and how do we mitigate that risk and so they tend to be much more sober I think in my experience dealing with them in what is the true valuation of a business what are the upsides of a business what are the warts on a business they they really kind of see the truth the ground truth much better than VCS do in general because they're closer to public markets and they're they flip these things two or three years their margins are much thinner they're they're trying to make 1.5 1.6 X their money 2x is a huge outcome for them yes so they they have a much more sober version of reality a bunch of this tiger stuff yeah got released and I mean their funds underwater just like masi yoshi-san's fund is underwater and uh it's gonna be years of pain and suffering to get out from under this and so again I think sax nailed it with tal of Two Cities anybody else want to chime on this before we talk a little bit about well for us our friend of the Pod Brian Armstrong I've been I've been investing off balance sheet since 2018 and six months ago we started to explore whether we should raise a fund and I think it was like two weeks ago we brought the senior Partners In Me and the five other guys that run our business and we said we're not going to raise a fund and the biggest reason is this Dynamic which is that you know we have dollars of private assets I don't actually know what they're really worth but I have a responsibility to try to get as much of that Capital out and so I thought the best thing to do is just to take our time and try to figure it out because I I have way more questions and answers right now and that's really the first time since I've moved to Silicon Valley where I've had that sensation is a sensation humility I think it's like I mean I'm joking but it is it is for somebody like you who has done extremely well placing bets deeply I mean I I say this a joke but I mean it as like a point of self-awareness for you because listen you've placed some amazing bets whether it's the Warriors or Facebook or Bitcoin or whatever or slack or whatever I don't know whether I should be writing 200 million dollar checks or 200 000 checks and I don't know whether I should be doing that sort of as an incubator actually as an accelerator that's what I'm doing or actually just as a series a detached investor so I don't know I'm trying to take the time to figure it out and my thought was if I raise a fund right now I could barely stand the idea of me putting money to work right now of my own Capital without any answers but then the idea of like having a bunch of sovereign wealth funds and folks that were ready to work with us I don't know I just I just about the right time just to tell you my fundraising story I um I'm publicly raising launch fund 4. I get over 50 million dollars in just you know High net worth individuals uh you know and family offices who are interested immediately close uh I don't know 26 27 28 of it and then I'm gonna go out on the road to meet with LPS and Silicon Valley Bank blows up nobody's can take a meeting that month right and so now thank the Lord I said I'm going to have a one-year window to raise the fund and I talked to some old school VCS Fred Wilson Bill Gurley these people would take a year to raise a fund it used to be or I'm sorry in the height of this uh bubble you tell me a sacks the the quickest you closed one of the the crafts funds but I was hearing people saying they're closing funds within two or three months I think we're back to it's a year on the road to close a fund what's your experience accent listen you're an All-Star so yeah I think it's just depends on your situation to be honest but but I I think the important thing for Founders to know is just that the way that late stage financing is dried up is very real I'll give you like two data points just this week so I got my first notification from a portfolio company this is a company I invested in before craft it's not a craft investment but my personal Investments and they're doing a pay to play round you know what that is explain what that is that means pain yeah Yeah so basically the way it works is they say they're going to raise 20 million dollars well by the way they said they went out to raise growth funding weren't able to get a term sheet from anybody and no takers and this is a good product I mean a lot of startups use this product I think they're ARS in the 20 something million maybe 30 something million it's not like doubling over years growing like let's call it 50 year over year this is a company that should have been able to raise money I don't understand why they weren't maybe because they're burning too much money so instead of cutting costs the way they should they're doing like a 20 million pay to play around and what that means is that everybody is an investor in the company you either have to do your prorated share of the 20 million or you get diluted ten to one if you had 10 percent of the company you have to put in two million dollars for your 10 of the company is now one percent no it'd be it'd be more because you would look at let's say 50 of the companies owned by the investors and the other 50 is common just to take round numbers okay if you own 10 of the company that would actually be twenty percent of the preferred yes yeah the employees are not buying shares in this 20 of the of the of the 24 million so it's four minutes yeah exactly so basically you have to own one percent right right so basically it's almost like a capital call where you just have to Pony up more money in order to preserve your ownership in the company if it makes you feel alternative but yeah I had one of those just happen to me as well and I was just like we'll put in the bare minimum because like the thing that it puts you in it paints you in a corner where you're like well I've been with this thing for eight or nine years is this the moment to basically lose all of that compounding or value or work that you've put in or seen their team do and it's just a really tough position right yeah so look I'm not on the board so I don't know what reasoning went into this but what they should be sending out to all the shareholders is look here are all of our metrics here's our burn you know here's the steps we took to reduce our burn I don't really like the idea of having to do essentially a capital call from your existing investors when you haven't reduced your own burn I mean why can't the company operate at break even if you're at 30 something million of ARR you should be able to operate you may not want to operate at break even but you but they should be able to but sax this is what I mean I'll tell you after we stop taping who it was that that told me this about their company but they were basically able to let go a third of their Workforce by moving a bunch of work to models and let me guess the founders get to keep their shares or they get re-upped in this whole mashugana no no but wait hold on can we can I just finish this yeah so so the point is like if you can cut off X by a third by using all of these new AI you know models and gpts and auto gpts what are you as a board member or shareholder supposed to do and also as a Founder don't you have to go there first before you start to ask people for more money and why aren't people doing that first much more aggressively and so this is what doesn't make any sense to me that's exactly my point is what steps were taken to cut costs before you just went to the investors to Pony up more money that's what I want to know if they actually did that work and this is like the last money they need okay then you know I'll Pony up my share and by the way we need investors no we don't and we need investors to be much more aggressive in holding folks accountable because these examples need to be better discussed well if XYZ company was able to do it why aren't you able to do it and if it's because we're not technically capable mad that's maybe a plausible answer but even that reason will go away in a few months I suspect but if it's that we just have such institutional rot we're incapable of doing it well then you might as well just not write the check because that company is going to get undercut by some new white sheet version of that business that doesn't have any of these impediments that yeah in a way to mop and sacks management has told you they're incapable of running this business this concern in a in a thoughtful way I had this happen to us as well and the the question I have used access in these situations where this pay to play happens you basically everybody gets wiped out except those who who play but the founders and the management team always seem to get re-up and they're whole because the new investor doesn't want the management team not incentivized so in these kind of situations it's kind of like the management team gets to reboot the cap table and they don't get penis no I I actually I don't I don't have those details yet yeah remember I didn't lead around I was just uh angel investor in the company so I checked with one of the VC firms that led around and I'm like are you gonna do this and they said probably not you know and so like the round might fail I mean they can make it as punitive as they want but if the shareholders don't believe that the company has fixed its problems they're not gonna Pony up the money let's get free bargain yeah I think one of the problems that a lot of folks are facing is it becomes less about the fundamental value of a business in a lot of these conversations as you guys know and it's becoming a lot more about who will fund the next round if the company is still burning money and so you're making a social Market bet not a bet on the team or the business or the value it's that there's someone else that's going to lead the next round and this is fundamentally why he's called the greater fool that's called the greater pool Theory look I mean it's historically we wouldn't call him a fool if it's just about progress towards profitability but right now there's so much trepidation it's almost like a self-fulfilling prophecy that there's so much trepidation in doing late stage rounds that no one wants to be the last guy in because you're not sure if the next guy is going to be there to fund the last round to get to profitability and that's why half of biotechs that are public are trading below cash because historically the way biotech companies which is a really good pointed example of this they make progress to hit milestones and then the next round of capital comes in they make progress hit Milestones next round of capital comes in and then eventually you get you know phase three approvals and you go sell the company or or whatever you get profitable and they almost always get Acquired and in the case of other technology companies if the business has to do three or four things it's got three or four Milestones it has to hit in your case tax it might be that they got to get to 50 million ARR and they got to get you know the certain cost function down in the business and if they can do those two things then the business profitable but it's going to take us around a 20 and we'll get the first chunk down and then another round of 30 to get the last chunk done and no one knows if the next 30 is going to be there and that's really where a lot of these market dynamics are falling apart that there's historically been a model in the market of hit Milestones next round shows up hit Milestones next round shows up and now no one knows if the next round will show up so no one wants to fund this round particularly where there's High burn it requires a lot of capital to make that bed so the social you know the self-fulfilling problem the social Market bed right now is you know it it's self-fulfills and and we're um you know we're sitting here kind of spinning our thumbs wondering if the next guy's gonna find it do you think that only 10 or 15 percent of companies have now properly reset value like you said 70 of these unicorns are actually zombie corns yeah that's why I think the number from I I don't I don't know Tiger's book at all but when I hear numbers like 20 for a for a fully invested mature book that invested during the peak of the cycle it doesn't sound right that it's 20 percent it sounds like it should be a lot lower like I think that 20 by the way you know comes after like two other smaller write Downs so they might be cumulative I don't want to talk about tiger I think like sure the statistic of 70 of these public companies trading below their cash the cash that they've burnt that they've raised in their lifetime and again just to for anyone that's Analyst at home trying to figure out how we get to that number you look at the um retained earnings on the balance sheet and so the cumulative retained earnings tells you if it's negative tells you how much money they've burnt over their lifetime and that tells you effectively how much money has been invested so when you look at the Enterprise Value which is the market cap minus the cash they have today you get their Enterprise Value if their Enterprise Value is less than their cumulative retained earnings it means that they're currently worth less than the money they've spent and that's a statistic that is a fact right now in public markets in technology gone public in the last three years and then you compare that to private markets and I don't think we've seen a 70 write down yet or you know 70 of these things being worth less than the cash so it's um you know it's still yeah I think you're right Jamaica is probably a another Hammer to drop multiple hammers multiple times before we move on to a different topic so I think one of the interesting differences in opinion in Silicon Valley is the way that Founders in VCC see the nature of the relationship and I've been on both sides of this I've been on the side of being a founder and I've been on the side being a VC and what you'll see is that VCS always talk about it as a partnership but a lot of Founders will talk about it as if the money is just a commodity and frankly when everything is up and to the right and everything's going great and you're in a bull market and you can just keep raising money and definitely because there's always someone willing to lead the next round then the money is a commodity but when you're in a in a down market and all of a sudden there is no market like you can't raise your next round all of a sudden it is a partnership because you've got to go to your investors and ask them to do something that they may not otherwise want to do is this was purely a transactional decision as opposed to a relationship they might not want to to fund your next round and you're asking them to say no actually believe in our long-term relationship and I think that you know this is the type of environment which you find out it is more of a partnership and it should have always been it should have always been it should have been but it but it wasn't and look I don't know what happened with that other company and all of a sudden I get a notification out of the blue well I want to understand the thinking that went into that before you know I'm just gonna this is where trust comes in right and like I think in a zero interest rate environment you know there's no need for trust you just this cash splashing around just grab whoever the latest person in town is who wants to drop a couple of bags you just take one of their bags the most important thing to me like what make it a partnership is for me to know that the founders have done everything in their power to reduce costs and put the company on the right trajectory before going out and basically issuing Capital calls to the investors I want to know they've done that work all right listen Freeburg I know you got to go take care of something of science I'll just wrap up with the other boys here with uh one piece of breaking news stack Overflow says they will join the parade of data providers like Reddit and Twitter that will require permission and payment to use their data sets and stack Overflow has a lot of answers to a lot of developers questions in there I was just curious to get your thoughts SEC obviously sent to Wells notice we talked about this before to Brian Armstrong of coinbase he said he's thinking about uh or considering relocating out of the U.S if the regulatory Clarity does not improve crypto's dead in America it is done in America crypto's dead in America I mean now you have you had ganster even blaming the banking crisis on crypto so they've the the United States authorities have firmly pointed their guns at crypto is it a scapegoat or was it a around find out moment for crypto in your mind or a little bit of both I I don't know I just think that they were probably the ones that were the most threatening to The Establishment okay and they were the ones that In fairness to The Regulators did push the boundaries more than any other sector of the startup economy and yeah so now they're paying the price for the the bill has come due for them Saks is it a around find out moment is it uh protecting the American dollar somewhere in between or incompetence on Regulators part the more I think about it the more I think it's probably not a coincidence that you're seeing all these concerns about dedolarization at the same time they're cracking down on crypto so look there were a bunch of crypto companies that might have done shitty things but I think we all agree that coinbase was not one of them coinbase was the gold standard in terms of doing everything right and they've just agreed asked over and over again for a regulatory framework they're just like tell us how to operate and we'll do it so I think jamatha is right that they're effectively Banning crypto in the United States they're going to drive all these companies overseas which is terrible for American innovation I don't know exactly where blockchain and crypto are going to go from here but I think that we should find that out in America you know we don't want that Innovation going offshore you bring up a really good point too it's just like coinbase played by the rules stood in line tried to do the right things it seems that every step along the way right everything from board composition to Executive composition to how they try to interact with the Regulators yet they were probably the furthest away from getting a license the one that came the closest was the one that was the most fraudulent which is FDX fascinating how is that even possible I mean because he had skills in gaming the system yeah he's splashy cashy splashy cashy well he he ponied up large amounts of money because it wasn't his money so it was easy for him to make huge donations but he knew how to play the game to quote SPF he said this is the dumb game we woke westerners play we say the right Chevrolet so Everyone likes us that's the game he was playing which is my my whole concern about if we jump the gun on regulating AI too quickly it'll turn into another you know woke game that everyone's gonna play so here's uh here's how the world Works regulate yourself behave yourself act in the interest of consumers or get regulated or smashed and I think we've we've gone over this we talked about it in fact last week whether the movie industry crypto AI regulate yourself behave properly don't push the boundaries too far you can bend the rules but you don't want to break them I think they regulate yourself that you use the MPAA I don't think that's the right example I think if you're going to regulate yourself look at the tobacco industry they tried to regulate themselves but what they did was just lie to maximize profit in an area that was much less benign than movies and content maybe you could have some lascivious content in a movie or a video game or an album but that was a lot less harmful than smoking which not just impacted the smoker but it turned out the secondhand smoker as well or the secondhand smoke so it touched everybody right you could be in a restaurant not smoke and yet have years of your life taken so I think that the self-regulation for areas that impact everybody independent of whether you participate in the system or not is where you have to look for good examples Jason and I'm not sure there are many good examples of separate allegations those kinds of systems I mean I like your workshopping it here I mean some restaurants would have a smoking section in a non-smoking section before there was regulation right and I think if crypto had just thought had been more thoughtful about hey which tokens nft projects were going to support which ones we're not going to that maybe they would have avoided a little bit of this I'm not sure you know it's it's hindsight's 2020 here but a little more regulation I don't think those smoking non-smoking sections work too well the smoke went all over the place can you woke up then you'd have to you'd have to take a shower when you went to a bar or a restaurant or a club you would have to come home take a shower because your hair and your clothes the smell of smoke you couldn't sleep in a bed then your bed had to get to change your sheets disgusting remember when you went on a space on a commercial flight they had a smoking section yeah it's a tube the Smoke Gets fine when they have the welded shut ash trays they used to have an ashtray in every seat in between in the armrest was a friend a friend of mine this is like such a throwback but a friend of mine well-known guy that you know I'll say the name you can bleep it out very important we don't want to he's a notorious smoker and so I've flown with him oh that's the worst and we get in there on his plane and then we he shuts the door and I'm like smells a little odd in here smells a little clovy stuff seven hours I'm gonna have to be in this job do the pilots get Hazard pay I mean how do you compensate I mean this is not a turbo prop he's on he can't crack the window no uh it's Global the huge Global it was it was at least it has three cabins you could go to the back cabin felt so sick I mean it's the worst it's just smoking's the worst worst smoking is the worst all right well we didn't uh so long to the uh Sultan of Silence as a science rather there polling update here sucks I don't mean to poke the bear I know it was a rough week with the Fox News News bring it up bring it up no go for it quick polling update between putting her on I'm sorry DeSantis and Trump not gonna happen the santis is not happening in late March news of Trump's indictment boosted him over to Santa's by 26 percentage points among Republicans and Republican Independence but earlier this week the same poll showed that Trump's lead shrunk by 10 points in the last two weeks to just a 16 point Advantage which is still significant but there's more University of New Hampshire Survey Center poll I don't know if any of these polls are reasonable or not it seems like call people on the phone I don't know who's got a landline released Wednesday showed a 20-point DeSantis this deficit what's going on here sex did your boy uh Peak too early no I don't think so if you if you look at the Republican primary field DeSantis is the only person who's got a shot other than Trump you look at Nikki Haley she's polling in the three four five percent range all the others are one or two percent there's not a candidate other than DeSantis that has over five percent so in my view this is a trump DeSantis race now what you saw is that when Alvin Bragg pressed charges and indicted trump it created a lot of sympathy for Trump among Republicans effectively what happened is Republicans registered their displeasure with Alvin Bragg by indicating support for Trump let's go and that's that's what you'd expect to happen and a lot of people speculated that might be the purpose of Brax prosecution is to make Trump the candidate so we knew that was happening but I think this this new poll that you just mentioned is really interesting because it shows that that Sugar High of Trump's poll ratings was a temporary bounce and it's coming down somewhat and so you know what you saw actually is that this huge uh pole bounce that Trump got is somewhat normalizing now there's no question that DeSantis is running behind Trump and he's got his work cut out for him if he's going to upset Trump as the nominee but this thing is just getting started I mean DeSantis isn't even formally announced yet and remember we're still very very early in this race the primary battle that this most reminds me of would be Obama versus Hillary in 2007 and at this time in 2007 Hillary had a huge advantage over Obama she was considered the favorite she was considered the the one who couldn't lose and it was Obama that pulled off a huge upset and he did it by out fundraising her out hustling her especially in building organization and some of those early primary States and then he eventually created a narrative that it was time to turn the page but he didn't do that until much later in the year much closer to the the primary the first Republican primary is not till February so there's plenty of time here and I you know we'll see what happens I think Nikki Haley is going to win the Republican nomination the more people here here's the things the number of people that have told me the most impressive moment with DeSantis was before they met him the second most impressive moment was their first meeting and then it just falls off a cliff where he becomes more and more unimpressive the more and more time to spend with this guy hey Nikki Haley come on the pond Nick Haley is the opposite Nikki Haley announced that in all of q1 in all of q1 she raised five million dollars extremely unimpressive you're probably 20 of that shamoth and Nikki Haley come on the Pod we'll double it how much should Nike at least five million was was you listen zero I can say definitively you said q1 zero yeah okay here we go zero but let me ask a question here because I I'm not informed on it but you you are a master strategist here uh 1600 rated chess player sax that's not that good well I mean it's double 800 but where I'm at you you're killing me in 27 moves on average DeSantis is fighting with Disney over and over again he's getting a little involved in the lgbtq everything and he just seems to be getting involved in the culture wars is that like a primary strategy and then he moves to the center when he comes to the general or and do you agree with this General fighting with Disney and the culture War stuff I was talking strategically not your personal opinion on these issues I know that you're a very tolerant person yeah so I think this is an issue that works for him certainly in the Republican primary but I also think it's going to work for him in the general and you have to remember that this bill that they're fighting over was a parental rights bill that basically it gave parents the right to know what their kids were being taught in schools and it basically prohibited the teaching of this sort of gender ideology in in schools and I think most parents are on board with that now yeah he didn't go yeah he didn't go looking to pick a fight with Disney Disney then got involved and took the side they're calling this a don't say gay bill which I think just factually is not true the bill doesn't mention you know gay or homosexuality or anything like that it was really about this trans issue and Disney got involved and this is Bob chapac and Bob chapek lost his job and Iger came in and Iger has said that he he had basically lectured the Disney employees saying that we need to stay out of politics and we need to respect our audience's views so I think that it was Disney who kind of interfered I think this is overall played to desensis benefit and and look the problem for Disney they may win the battle over this or that tax benefit that they're fighting over but they've lost the war over this issue because parents used to be able to trust that they could just pop their kid down in front of a Disney movie or a Disney show like Disney was like the babysitter and they just 100 absolutely trusted all Disney content and if you look at polling now Disney's brand it used to have like a NPS of like in the 50s is now in the single digits because let's call it half the country's parents the more Republican ones don't fully trust Disney's content and programming anymore implicitly well could they ever do that subjection line I've never seen anything objectionable a lot of parents are questioning what content Disney might be putting in their their recent programming obviously we're not talking about the stuff that we grew up on so look whether you believe that is a problem or not what I'm saying is this has been a Brand disaster for Disney getting involved with DeSantis this way they should really I think just try to patch this thing up I don't understand the benefits it's a bad look for both it's a bad look for both people yeah well I I think I understand the benefit for DeSantis I don't understand the benefit for Disney if I were them I'd be trying to patch this up I think there's a really valid discussion to be had about representation in movies and all that stuff and I'm very Pro that the the thing I think all parents agree is we should just at least know what's being taught to our kids and we can have a thoughtful discussion about it there seems to be some small group of people that thinks we should hide from parents what they're actually getting what's being taught and I find that's very strange um I think just a little bit of like transparency and what's being taught in schools is and obviously that nobody should be disagreeing on it to Sax's point I think it was Pew that put out a study recently it is the most polarizing issue amongst Americans where Democrats and Republicans are literally on opposite sides of the spectrum well this is going to be a big issue on the whole trans issue now despite the polarization in terms of the quantity of the number of people it's actually an important issue for a small percentage of both sides so it's a highly complicated political dynamic in America very so this is where DeSantis clearly has taken the approach that not only is this important to the base to win the nomination but it's going to scale into the general and it could very well be but it's a very divisive issue yeah I wish people were given a little bit more uh consideration and maybe they could have I feel like maybe we're covering this issue too much I you know I've heard some other folks in the community said like maybe people could be given a little bit of their privacy and to handle these things I think you're right Jake how in this sense I think this issue has become a lightning rod and um and whenever you have a lightning rod issue the amount of attention paid to it it seems disproportionate to the attention on that issue however I would say that this is a lightning rod for a larger issue which is the quality of Education in this country which I think is shockingly bad and it's bad because of the decline of Standards uh they're getting rid of advanced math they're getting rid of greens chest taking competition and and the schools are run by these unions who are managing it for their own benefit not for the benefit of the students and look there is a significant ideological component that's crept into these schools as well so look I think that overall I think that when you get into the general you have to uplevel the issue and talk about it in broader terms that every kid in our country deserves a high quality non-ideological education I think if you can do that you will get 70 80 percent of the public on your site on this issue yeah I feel like yeah it's I think that's right yeah I think we can all agree on that Democrats Republicans everybody in between if you're a parent you're not looking for an ideological battle at school you're looking for math science technology history creativity you know there's a whole bunch of other things that we should be really focused on all right listen it's been another amazing episode of the online podcast to people going to the episode 125 meetups you can type in all in meetups our team over there we have super fans are doing it in over 50 cities uh the day this comes out so you may miss it but you can sign up for the next one I'll be uh phoning in and zooming into them so for the fans you crazy lunatics getting together have a great time have a great time and tweet it and mention us on Twitter for the Sultan of science the Rain Man the dictator I am the world's greatest moderator and we'll see you next time bye-bye we'll let your winners ride Rain Man David's house we open source it to the fans and they've just gone crazy [Music] we need to get Mercies [Music]










I can't wait to talk about lob grow meat I have been trying to get people to please let's not get canceled but the four of us are functional again we like each other we enjoy we look forward to doing the show again everything styled in is your lab-grown meat does it use hormones my lab-grown meat was a little let me ask you this about your lab ground meat do you have sage no no no no no you know I was told that my lab grow meat was a little I've injected some flavors of tobacco black cherry some notes some notes persimmons [Music] [Music] so let's go to big Tech earnings Google stock is up five percent after beating on the top line and bottom line estimates some high level takeaways Google announced a 70 billion dollar stock buyback plan and that their Cloud unit was profitable for the first time in its history as we mentioned last week Sundar officially announced that deep mind was merging with brain this is kind of controversial because it's uh really hard According to some sources or Sundar to get all his lieutenants to work together and row in the right direction Google's Q on search Revenue up year over year two percent down five percent quarter of a quarter just kind of to be expected because of seasonality and because we're in a down market right now obviously with the recession YouTube down 2.5 year over year down 16 quarter of a quarter other bets which is like nest and some other products down 35 year over year net income 15 billion dollars any thoughts freeberg on what is a mixed quarter by Google and I guess the water macro environment what was so striking about the earnings call is not necessarily what was presented but what was not presented which was a stronger voice and a strategic plan going forward for dealing with two major issues that the company one is the operating cost model and the second is the AI strategy and the response to this Evolution and AI I've heard from a lot of folks that the AI strategy in particular it's almost like Google already has this in the bag but they just haven't kind of let it out of the bag it's like they've got a Tasmanian devil and they're they're ready to go with it and there's from from my read an incredible amount of confidence that there's something that's going to happen and a set of things that are going to happen that are going to be very profound and Powerful I even heard some anecdotal stories about hey you know we don't have this feature in this product but chat GPT does and then people basically showed up to this meeting and there was all this debate about well we can't let it out because we're not sure you know the classic kind of like we're scared of doing doing wrong versus leaning forward and taking risks don't be evil you're referencing no it was just more about regulatory concern and getting things wrong and making a mistake and so there's this total fear of like again you know Regulatory and fear so someone kind of slammed the table and said let's just put it out the next day they put it out so there's definitely a cultural change happening internally is what I've heard anecdotally but what was really missing which is what Wall Street needed to hear what investors and shareholders needed to hear is what's the strategy there how are you going to compete how are you going to resolve what's going to go forward and secondly what are you going to do about the cost structure of the company because everyone else you know in contrast to meta being up 11 12 after hours with their cost cutting model and demonstrating that they're going to start pulling cash out of this business Google's top you know kind of top story was Hey We're stopped serving at peanut M M's in the cafeteria or something ridiculous and you know that doesn't really address the real structural question so I think the stock buyback the 70 billion stock buyback is an authorization to repurchase it's not a plan to repurchase so it's unclear if when or how that Capital does actually get deployed in the market to buy back stock and so there is also this big kind of shareholder sentiment of being let down that there isn't an improvement in either cash coming out of the business or in cash being used in a smart way with the business and it was the The Silence in the earnings call that I think really stunned a lot of people which is why you didn't see a lot of stock movement despite the actual business numbers being better than expected and so there's a lot that Google I think still has to catch up to with respect to their peers both on a product and strategy point of view but also on a cost cutting and a communication of that cost cutting point of view to the market and to the street otherwise shareholders are going to start to lose faith if they're not already and are going to start to put their Capital with other folks who they feel are better leading and leaning into this new Evolution of Technology like Microsoft and Apple and meta which is really where those big Capital allocators end up picking stuff to go one final thing I'll say it's extraordinarily important to note that I think Google has such an incredible AI advantage over Microsoft and you know Microsoft is almost solely dependent on openai this small startup company and all of Bing chat is powered by it and Microsoft hasn't built out the the infrastructure the team the rigor the depth the models that Google has and Google made a few strategic blunders you know they shouldn't have been as open with the Transformer work that they did and shared that publicly it certainly enabled openai and others to compete but Google certainly has an incredible set of tools and capabilities that is leap years ahead of Microsoft they're in a position to really compete they just have to have the will and the leadership to do it slam the table say here's we're going to stop wasting money and we're going to start leading and driving this this industry forward and this this could be a quick turnaround story for the stock and for this company and and I I hope it'll happen chamath what are your thoughts on Google's leadership specifically is Sundar the right person to run the company going forward does he have the founder authority to get the ship and to get the lieutenants all kind of rowing in the same direction or does it need to be a leadership change which is the big discussion of Topic in Silicon Valley right now I think he's very capable that's an amorphous organization of so many different competing interests the thing that doesn't add up about the Google earnings release but then also what Freebird just mentioned is there was this article that kind of tried to paint sundara as sort of a caretaker CEO right where Larry was the actual Shadow CEO well if that's true you know Larry has more incentive than anybody else to kind of Force change and there was all these kind of like gripes and complaints that were articulated and I don't put much stock in all of this stuff I think that he is the right person for the job and I think what they have to do is just do the simple basic things like it doesn't take a CEO change for a board of directors to have the emotional wherewithal to authorize a 15 or 20 reduction in force for a company that is so profitable that clearly is not yet humming on all cylinders and so you don't need to go through all of this drastic change to do these simple obvious things my takeaway across all of these four big companies is we are in a really unique moment to observe something that may sound controversial or hurt people's feelings that like these companies but I think we're now well past Peak big Tech their valuations may still go up because they generate such an enormous amount of cash flow but these are exactly those kinds of businesses now they are X growth large cash flow businesses Blue Chip you might say while they were always Blue Chip but the way that they grow is not through Innovation if you look at Google Facebook Microsoft and Apple and ask yourself when was the last hugely disruptive thing that they've created you're hard-pressed to find something that was even done in the 2010s yeah actually that's a good thought I mean the iPhone for Apple iPhone was 2007. yep Microsoft was in the 1990s Google was in 1998 with course search maybe there was maps and Gmail in two in the 2000s Chrome Android they bought some of that Facebook it was the core service that we built in the 2000s and then they acquired brilliantly right so I'm not saying that they didn't acquire well yeah my point is that core organic Innovation hasn't been there for a long time so this is a moment to just be reflective of the fact that these are some incredible companies with ginormous cash flows but now you've had this foundational platform shift which exposes the fact that they really aren't good at innovating and at times when they've tried to organically innovate they've massively misallocated capital either TLS would be the example either through a bloated balance sheet so someone claim that Google overspends or through just pure misallocation by starting projects that just are not large but consume large amounts of cash that would be the Facebook VR example but in all of this I think when you cut staff and expenses as a way to meet and beat and Top Line growth is in the low single digits it's an important moment to recognize that these companies have now transitioned to being cash cows and if you look at sort of how financial markets value cash cows they're very valuable but it's not where you look for growth and so in a world where rates eventually get cut and we start to come out of a recession it tends to be that other people get rewarded so that's an idea that's getting to your point here they're not allowed to acquire things Microsoft's acquisition thing dead dead so they're not going to be allowed to buy stuff so then you're right what is the growth here they're not able to innovate I think these companies are X growth which is why they use their cash flows to do what borrow money cheaply to buy back stock to manipulate their Equity right you can manipulate and overcome dilution you can manipulate earnings per share you can manipulate the number of shares outstanding and so just by the nature of that whole game a bunch of passive investors will end up buying more which helps the active investors who own that stock so it's a game so if we're not in the world financial engineering would be the I mean the most charitable way to say it we're in the financial engineering phase which is fine and by the way you can make a lot of money Facebook's up 90 percent so there's a lot of there's a lot of meaning just this just this year oh yes so there's a lot of room for financial engineering but it's not where you need to look to figure out where these big improvements and uses of this next Generation platform technology are going to come from most likely saxon's is a fair assessment in your mind looking at you know the the major tech companies the fangs yeah I mean their growth is down to single digits so I think Microsoft had seven percent year-over-year Revenue growth Google was at three percent I think Facebook was for sales Rose three yeah three percent from a year earlier but at least that was an improvement because it's actually gone down for three straight quarters so yeah but you're down to you know single digit year-over-year growth rates nevertheless most these companies beat expectations so Microsoft shares wrote nine percent meta jump 12 might be up more now and I guess Google got a little bit of a bounce and they all gave a pretty upbeat forecast the only one that wasn't upbeat was Google where the CFO Ruth poorat said that the Outlook remains uncertain but all the other ones seem to indicate that things are going to get better so I think what's interesting about that is just the mismatch that we have between how well these companies did in this quarter versus how uncertain the rest of the economy is looking right now and maybe the fed's behavior yeah so maybe this is the flip side which moth is saying is they're not growing very fast but they are profitable machines generating a lot of earnings and they seem to be pretty immune from what's happening in the economy right now or at least that's what they're saying now you're right in a parallel track there was an interesting interview that Powell did so uh Jerome Powell gave an interview it was actually kind of like one of these hoax calls where a couple of people pretending to be zelinski engagement and interview oh my God that was crazy you want to explain that reference oh my God they've done this a number of times where they've gotten you know major leaders I think they did this to macron some other people or they pretend to be zelinski and they do an interview it's like Ali G yeah but they played it straight I don't care that he was fooled into giving the interview it's like who cares but some of the things he said were really interesting I mean number one Powell said that the economic outlook for the year was looking pretty uncertain and he said the most likely scenarios were either sub one percent growth so staying out of recession but just barely or he said going into recession so he thought that was roughly about equally likely he admitted that we had the worst inflation of 40 years and that's why interest rates weren't necessary and he said that it was necessary to slow the economy in order to combat inflation and he then even went further and said that it was necessary to cool off the labor market and even to cool off wages specifically because that's how you combat inflation that's the only thing we know how to do in a situation like this so I think this is certainly a political mistake for Powell to say that his objective here is to hurt the wages the American people and to basically cause a recession but that is his view apparently and I think that we are headed for it seems like a recession I'm a little surprised that the earnings reports of these tech companies are so good because or at least their forecasts are so good well they can cut spending and we talked about this last year when we were trying to reject what would happen I remember saying well I think jamath and I were talking about this and I said well they're saying hey earnings are going to go down and there's a PE and I said what if they just stop spending or they make a lot of cuts well here we are people are just saying you know what we're going to cut our way to and do stock BuyBacks and that's another way of financial engineering to Route Around the FED right and to and to make the stock go up worked incredible for Facebook I mean my Lord they were at 91 to share and now they're over 200. right but just to bring it back to the economy so look I think we agree that these tech companies seem to be pretty immune they've got a large cushion in terms of their ability to continue generating earnings because of all the bloat that actually gives them like a margin of error where they can just keep cutting to prop up earnings I'm a little surprised that they think their revenue forecasts are going to be so positive because again they were guiding upwards generally so they seem to think they're not going to be impacted by the recession and maybe they won't be again I think what was interesting from pal is the way that he seemed to think that the only thing we know how to do this is basically what he said the only thing we know how to do in this situation with inflation is to kill the economy is to slow the economy and specifically to kill jobs and wages and that was pretty remarkable to me because there are other things we could do such as okay well one thing is that you don't have to print so much money cut spending austerity so yes our fiscal policy remains completely out of whack we're running two trillion dollar annual deficits right now pass covid so he could have said listen we could get off this Reckless fiscal policy and be more restrained but he didn't want to go there the other thing he could have done was address the supply side one of the ways that you can reduce inflation it's not just to kill demand you could actually affect Supply chains so like cost of energy for example energy is a huge input into the economy and one of the things that happened at the beginning of this Administration is they made it much harder to drill for oil and gas and I think Biden sort of reversed course on that at the State of the Union remember he had that line where he said we can't get off oil and gas for 10 years and the audience started laughing but at any event the point is just that it's too little too late they could have done more on energy to keep costs low and then there's a whole bunch of other critical inputs into the economy besides labor and what you could do is I think you could go category by category and say how do we get the price of these key inputs into our economy down how do we resolve supply chain bottlenecks how do we make it you know easier to get access to whatever the key commodity is and I think there's things they could do if they're just willing to work at it maybe this isn't the fed's job this is more the administration but what you could do is say listen we're going to make it easier for people to produce and create Supply and if you have a higher supply of goods and services then you will start to bring inflation down because inflation is just the amount of money in the system divided by the amount of goods and services and when the amount of goods and services hasn't gone up but the money supply has gone up tremendously you're gonna have inflation and that's why I think it's a little bit misplaced to be killing demand the way they're killing it is because fundamentally the problem here is they flooded the economy with money both through government stimulus and through quantitative easing and then also they made it harder on the supply side to produce certainly with energy so it seems to me that the approach they're taking for us to get out of this it's like taking a meat cleaver to the economy or a sledgehammer really and it's the most violent possible way that they could solve the problem they previously created of too much inflation any other thing obviously is jobs we're still sitting here with close to 10 million job openings and the thing I'm hearing from the streets is that unemployment hacking is become a high art and so labor force participation remains low it's nowhere near the historic highs we have been very permissive during covet for good reasons to give people very extended benefits people have now learned is my understanding and this is a something that's happening on a regional level state by state level people are learning how to hack unemployment and not going to work and people are just not taking the jobs that are open which are service industry jobs Americans don't want to work them we don't want to let people into the country we've got record low people coming into the country it seems to me that would be a much more productive way to do this right yes I think it's an excellent point because exactly what you're doing there is addressing the supply side which is you're unlocking the supply of a keep input into the economy which is all this unused labor it's all these people aren't working you're right the labor force participation rate is still much lower than it could be so if you get more people into the economy then that helps alleviate the cost of Labor it helps fill these jobs but it doesn't kill the economy so it would be a much more positive way to address this so I just think it showed a lack of creativity for him to say that the only thing we can do in this situation is not just to raise rates you did say that but but to go further and cool off the job market increase unemployment and cool off wages I mean that's gonna be a very unpopular thing to say I think because what you're basically saying is you're going to hurt the wages of the American people who wants that here's the chart for job openings we thought this would collapse it went down certainly as we you know I don't want to obsess over macro stuff but it's still way up there and so the fact that we can't get people to take these jobs I don't know chamoth what do you think about the employment and participation situation and how that might unlock things I also wanted to know from YouTube off this concept of the FED is reacting to data just so slowly and then you have these companies that maybe are more Nimble and they have better data than the FED I think that that's a truism and I don't think anything about that is going to change I mean I think we talked about how these folks calculate non-farm payrolls or how they calculate CPI it's incredibly outdated right it's people with clipboards walking around talking to people and checking boxes and filling out forms can that change probably it could will it change it probably won't and so they're going to focus on the most simple but most powerful measure that they have which is controlling the money supply kind of what sax talked about so they're going to manipulate the money supply to either put more liquidity in the system in which case markets go up and asset prices go up but then inflation goes up or constrained liquidity which then causes markets to go down asset prices to go down and inflation eventually to go down the thing that we're facing today when you look at this labor market chart is a couple of things that I think we've talked about before and I just want to reiterate them which is you have to remember that we are in this new world order which is the ex-china World Order and in that there is no more unitary economy that can do things cheaper faster and better globally around the world right so we're going to near shore or onshore all kinds of things that used to be done by the Chinese they'll sit in Mexico or they'll sit in Central America maybe in some cases they'll sit in Canada and all of that will feed into the United States the problem with all of that is that that will keep costs higher because it'll be naturally more inefficient it will naturally take more money and that will naturally cause the prices of those things to be higher which means that terminal inflation I think is just roughly higher as a result I think that more power if you will goes to labor so in this constant tension that we have in an economy between labor and capital the people that own the factories or the businesses and the people that run them and work inside of them we've been in this position where the pendulum has swung so far towards capitals the owners the shareholders that all this financial engineering has tremendous upside right that's why companies engage in it but when you show that chart Jason what it means is it's just really hard to find people and so the only way you're going to get people off their butt to go into work to sit in a chair to do a job that you need them to do is to pay them more and in finding that wages will have to go up the counterbalance of that is what AI will do which I think I have to say that is the key yeah which is massively deflationary so that is going to be the tension that we're in now for a really long time as we explore this I don't know if you guys saw today but Sequoia led a 20 million dollar round in this thing called harvey.ai the legal uh yeah which is like a legal super wizard for law firms yeah we knew that was coming and my partners and I were debating it and what we thought of was well how much do you pay out of the 800 or thousand dollars an hour that you charge to harvey.i maybe you're willing to pay five percent or ten percent but then the reality is that one of the most powerful things it does is it's able to go into Westlaw find all these cases and say yeah this is germane to the thing that you're working on right now that's a very useful thing but the N plus First Law Firm will also use that tool and instead of charging 800 an hour they'll say well we'll charge 600 bucks an hour and we're still willing to give you five or ten percent so I just don't see a world where on the one hand physical labor will continue to be more expensive they'll demand more and more money to do the job that they're asked to do and then knowledge work will become increasingly more deflationary because so much of it will be automated by AI that those folks will charge less and less and there's going to be attention there and I don't exactly know what's going to happen I did a couple of experiments uh this week I've been rolling up my sleeves and playing with these tools it's pretty amazing and I've been trying to use them for actual tasks in our companies what have you learned what did you do and what have you learned so I got on the openai plugins Greg thank you I sent him my email and he got me on to that and you can connect it to zapier so I have two projects I'm working on currently one of them I was since I'm raised so raising launch Run 4 and I'm actually going out to people not just taking inbound I was like hey can I get the names of all the major LPS and start doing some research there put in a table stuff that sax did when he does blog posts but then I started connecting it with finding people's Twitter handles finding their LinkedIn profiles and then the next piece I'm working on is automatically following them dming them on Twitter let's say or following them on and doing an in message saying hey we haven't met here's the deal memo for my next fund would love to you know get together this is sent from Jason's AI script I was gonna like actually tell them but here's my real email if after you read the summary of the next fund you want to meet and then I was I'm going to pair that and then this is a piece I'm going to probably need a developer to do with our internal LP database to not email people who are already duplicates and then up inside with newsletters I have it building a database of every newsletter we've ever sent the writing style and that I'm having it go find in real time news stories that we should be including in the newsletters which I think will make the writers right now a third more productive but these are things that would cost 40 50 bucks an hour 30 bucks an hour for you know college-educated Americans and Canadians and I have already figured out and I'm not a developer anymore I had to script them and I'm actually thinking about learning to code again just so I can do this myself and so on Saturday I'm going to do a little coding with a friend of mine and get back up to speed on that I think about 30 percent of what knowledge workers do right now is possible so I put every single person at both companies on chatgpt4 and the San uh the playground about 30 percent of what knowledge workers at both firms can do currently is doable if you can figure out and this stuff is not perfectly scripted yet so I've been doing some stuff in travel as well playing with the kayak interface Expedia interface Etc to look at travel planning and it's pretty good as well so it's it it's this is the real deal folks I I think by the end of this year 30 of knowledge work could be done by this and then additionally on Monday I went back to work in person and I went to I hosted our accelerator in person and then I hosted founder University in person in the city the city was absolutely dead but we had a hundred people fly in from around the world for our founding University and a lot of them were working on AI projects and what's very interesting is like there's this big debate going on Friedberg between is this going to be built into chat gpt4 or Bard or you know Poe or whatever it is or should I even bother so should I bother building you know a verticalized app and it turns out like I think you should do the verticalized app and you're going to be able to put together multiple of these AIS that have different Specialties um so I'm super stoked about it but I do think if you're not using this if you hear my voice right now and you're a white collar worker a knowledge worker and you're not using this this year and getting up to speed on it I think you'll be out of a job within the next two jeez wow I just don't think you'll compete it would be like trying to compete without knowing how to use Microsoft Office 20 years ago right like could you work and not know email remember when we came into the workforce 30 years ago and some people knew office and email and web research and then other people didn't those other people retired they were phased out if you didn't know how to use a computer and type and use an Excel spreadsheet or do a PowerPoint you were done I think there's two possible ways you can interpret what you're saying so in terms of the economic impact so one is that you could say well AI is going to do 30 of the knowledge work therefore 30 of the knowledge workers are going to be put out of work I think that a different way to put it would be every knowledge worker can get 30 more work done correct so if that's the case then they're more productive and we're just talking about the problem of how do you increase real wages in the economy without having inflation well the way to do that is for every worker to be more productive so if every worker is 30 more productive in theory their wages should be able to go up by up to 30 percent that's how you get wage growth now maybe there will be some companies that don't need all those employees because now they're able to get you know whatever a third more done but there will be other companies who can hire them they can go off and do other jobs for other companies especially when you've got this backlog of like you said eight or ten million new you know jobs that are unfilled those jobs are all service though you know they're not you're actually you're gonna have this big group of knowledge workers there's just nothing for them to do oh no I just don't I agree with you but I think there's going to be a group of knowledge workers who do not Embrace this and do not make the transition because it is it's going to require an upskilling like I think you're actually going to need to know how to do some basic programming and coding to really take advantage of the at least like scripting levels up I don't know it's pretty easy to use I agree with you there have been writing blog posts but the date the example I gave of like taking the lp database sorting it you know it's not quite sure it will be this is like a chatbot but it is like I think it takes like level two programming skills no it doesn't no you don't have to know how to program you just have to know how to prompt it in natural language it's the opposite of need to learn how to code the thing about the thing that makes coding hard is that you have to learn the specific commands it's like its own language you have to learn a new language with this you don't in fact one of the cool things about some of these uh open AI apis is that you just tell it what you want it to do there's not even like a scripting language a lot of it's in natural language and that makes it incredibly easy to use even for Developers so I don't think this is a hard technology to use I agree with you there may be people are resistant to it because there's always people who are resistant to change and new technology and you're right if they don't adapt they're going to be dinosaurs but I don't think this is a hard technology to to rock how to use and get benefit from you might be right I mean I right now it's so new that the glue between systems is just not there yet and maybe you'll be able to talk to chat gpt4 and it'll connect your database on notion it will take a type form and a survey monkey and put it all together and figure that all out for you in the game right now is still connecting all these things and that and that's what I'm talking about and like it that's kind of not there yet but in the auto GPT stuff you need a developer right now but anyway I'm deep in it and I am more excited right now this feels to me like 2005 to 2012 period when you just saw Ajax and the web and speed just all coming together so quickly and the rapid iteration and is just unbelievable I I every day I find a new use for it I have made my default web page opening like when I open a new page on my PC it just opens chatgpt4 now just so I'm forcing myself to use it for every possible task and the people who work for me some of them are doing it's most of them are not and I'm just trying to drag everybody along and then you have at the same time that this um a remote work thing happening where salaries I'm finding are starting to normalize not across cities but across countries so you know hiring somebody in Canada Estonia Sao Paulo and then you add this AI to it the cost to do things is this is like I don't know I think everything's going to cost about 10 all this knowledge work is going to be 10 as expensive to do I don't think it's 10 less chamoth or the you know I think it's like 90 percent 10 cents on the dollar I agree I agree and I it's not this is not a five-year 10-year prediction this is like five quarter ten by the way we said that the first organizations to use this like the canary in the coal mine would be the Consulting organizations and today when Harvey got announced one of the things that that right on the heels of that pricewaterhousecoopers announced like a billion dollar investment into AI which makes sense because as a Consulting organization full of lawyers and accountants and I.T folks those are the services jobs that you get tremendous Leverage if you were to use these tools free to bring any thoughts I don't know I mean I think we kind of beat this horse to death right we've talked about it for a couple of months and I think we just keep repeating ourselves are you doing anything when you're first hand are you playing with it yourself yeah look tell us about that by the way one thing I will say we all talk about cost reduction and then oh you know knowledge work is dead and we're gonna save money and all this stuff what what that is always the first reaction to any new point of Leverage realized from some novel technology the second is suddenly people start doing things that use that leverage to do things that they couldn't have done before so it's not just about dropping costs it's about enabling new things that does a hundred times more or unimaginable things prior and I think the next phase of this AI shock wave that that kind of hit us and hit the world and you know kind of hit Enterprises is going to be the evolution of integrating those tools in a very unique way with other tools to drive very novel things forward to create new things new projects new progress that was unfathomable before so it's not just about cost savings it's going to be about new stuff I shared a link on Twitter yesterday there's some guy I want to quote him correctly his name is McKay Wrigley so shout out to McKay on his Twitter page it says that he didn't know how to code in 2019 he learned how to code for the first time he taught himself and he put together an object recognition tool with chat GPT I saw this video it's crazy with his webcam and basically he holds up like a Diet Coke and he's like you know tell me how many calories what is this and how many calories are in it and it's like oh there's no calories in it it's a Diet Coke and he does this three different times with three different objects and he hacked this thing together in a couple of hours that is a product that was like theoretically unfeasible or you know kind of very very difficult to kind of see how you would put that piece together quickly and easily with one person in a room in a few hours a year ago and here you see a demo of of this person who didn't know how to code not too long ago putting it together and creating this product that would have been such a profound startup imagine if you went to VCS 18 months ago and were like look I've got this thing and I hold stuff up in front of it it tells me all about it and it talks to me and I literally use my voice to talk to it and he basically strung together a text-to-speech chat GPT an object recognition tool all of this stuff completely open source and a a plug-in that does web browsing and the whole thing is basically like your own interactive visual robot it's it's an incredible product demo and I thought it was so amazing and profound I'm sure it's a prototype and it's kind of janky but it was done in a few hours on almost a no code basis it's incredible so what's going to come from that is a whole set of new products and ideas and things that we are certainly not thinking about today but in six months is going to become almost Mainstay and many new categories of products many new Industries many new businesses are going to emerge that we're not even thinking about so the Luddite argument of oh this is going to destroy jobs and destroy the economy and drop costs by 90 lawyers are going to get cheaper et cetera et cetera I think that doesn't even matter it's the tip of the iceberg what's more exciting is all the new evolutionary stuff that's going to hit the market that's really going to transform the things that we can do and that we didn't realize we could do there's gonna be incredible analogy for this because what you're really talking about is more people being able to use tools and be creators and what happened in the 80 is the 90s when the NBA started playing exhibition games around the world was more people around the world started playing basketball and then you started seeing people like Luca or before him Yao Ming Mutombo you start to have people from around the world who had never been exposed to basketball just incredible porzingis incredible talents emerged because you just had more people playing with the basketball I think you're going to have more people playing with code and Building Products so you're going to have incredible amounts of creativity from people who maybe you didn't expect because they didn't go to school for coding or have that opportunity hey um I mentioned I was in fidai and I was at fenwick's office and then Wilson cincini's offices to law firms being the law firms in the financial district in the Embarcadero it was an absolute ghost town and when I say ghost town I mean like serious ghost town like weird like this is uh still like being in some dystopian science fiction they were the last man on Earth and then we saw in the group chat today 350 California Street was worth 300 million dollars four years old it's a 20 two-story glass and Stone Tower it's a picture of it it's going up for sale and they believe according to the Wall Street Journal that bids will come in at 60 million dollars and 80 percent Decline and we talked about this commercial real estate uh would have this moment a lot of the banks uh the smaller Regional Banks own this debt Saks what do you think is going to happen here who is the person who would buy an office tower in downtown even at an 80 discount knowing that you have to pay all those carrying costs and there's so much fake in office space and it's only increasing right what's your who buys this it's called land banking okay explain so in other words okay what I mean is you're right there's 30 vacancy in San Francisco right now maybe going up even more in the next few years as Lisa's role and people take less space you may have a countervailing effect in terms of new companies moving back because of AI or expanding so it's possible you start to see some growth in the office market in San Francisco but the bottom line is 30 plus vacancy is going to take years and years of growth in order to absorb so you're right this building they can slash it to rent but they still probably can't fill it I mean there's just no there's just no demand so you're going to be sitting on that property for five years ten years before the market comes back the way that you need it to but there's no value right oh it's going to trade way below its replacement cost right if you were to build that building today it would cost you many times what they're going to pay for it the problem is you can't finance that purchase with debt because if Billy's not going to generate enough Revenue so that's what I mean by land banking it's going to have to be an equity investor who's willing to think long term and say I'm going to buy this at a super distressed price and I'm just going to sit there and hold it and wait carry it like you said bury the carrying costs until the market comes back but Jay Cal I want to say something I think it's a great analogy because public growth stocks have declined 70 plus percent right since the uh the market started to decline and we've talked a lot about the statistic that I've shared a bunch publicly on how 70 percent of publicly traded companies that have gone public since 2020 are trading below their total cash invested since since founding which should translate to an estimate that call it somewhere on the order of 70 of private companies are probably worth less than their preference stack and so they're not worthless companies they just have a capital structure that is upside down those companies are making products for customers those products those customers are paying money for those products there's value there there's real value there the value's just been reset and so it's interesting it's not just the asset class of growth stocks and the asset class of private companies or private Tech it's also you know in commercial real estate we we try and treat each of these as if they were in isolation but the problem is many of these assets were funded with some degree of Leverage preferred stock is leveraged and you know it is a form of death because it has a preference over the shareholders there the common shareholders the equity holders and the same is true with this commercial real estate market that there was a certain amount of debt so the availability of low-cost Capital um securitized against some asset in the form of debt or in the form of preferred stock in a private company has the same effect which it allowed the valuations to balloon on the equity and now that the market has re-rationalized the prices down 70 plus percent across all three of these connected but you know somewhat disparate asset classes you're kind of having this big reset moment and funny enough the other statistic is the cell phone traffic down 70 in downtown SF right so it's funny all four of these numbers are pretty much on track yeah there's this chart that's crazy it's literally like you have some cities that have more cell phone traffic than they did last year or a couple years ago and this is downtown by the way yeah and Sam I mean The Wider Bay Area is is I don't say booming but it's vibrant yeah I said on last week's show I was looking for a place to host the accelerator in San Mateo area I got dozens of people contacting me hundreds of locations and offers at 25 of what their carrying cost is or like not the carrying costs the the rent was and people offering the major companies offering me free space just because they would like to have Founders hanging around and there was one project that I really liked the person was like I'll give it to you for whatever just because I want to get more people to downtown San Mateo uh so that that does sort of prove the point that there is a what I and I saw this in New York City during the the 90s when things were so cheap people just got creative with space it inspired people to say I'm going to create an art gallery I'm going to create a performance space and I don't know when that happens in San Francisco with these spaces but feels like it's going to be a while I don't know what you when do you think there would be demand for this SpaceX if you had to pick a year over and give us an over under I mean five years plus I mean just to give you some numbers I think a healthy vacancy rate and a office Market is five to ten percent a high vacancy rate in a city was considered like 15 like you wouldn't want to be an office investor in a market that have 15 vacancy five to ten percent was sort of the normal range if you were under five percent it was a super hot market and then 10 to 15 was sort of a not great Market from an investor standpoint so they're at 30 plus and like I said it could get worse before it gets better because it's Lisa's role people are going to shed more space that that they might not already be subleasing so the real number might be like 40 percent I think it's like yeah it doesn't seem like a decade it's a decade assuming that San Francisco gets his house in order and companies come back speaking of that new companies are created and they don't completely wreck it it's not clear to me that like things will go in the right direction I mean speaking of that do we want to bring up this horrific uh bear spray attack now you want to cue that up sax I mean we're like in full-on Gotham City now now we have vigilantes there was a story of a fire commissioner named uh don carmignani who was beaten with a metal pipe by a gang of homeless addicts who were encamped in front of his mother's house and apparently they were harassing her and they were doing drugs smoking drugs or whatever right in front of not not pot it was like professional whatever fentanyl or meth or crack something like a hard drug and um so what we know is he went down there had words with them Boop you know and they bashed them upside the head with a pipe and uh now it turns out that he was accused by the defendant's lawyer the one who assaulted him so we don't really know what's true here of using bear spray on them first so the da dropped charges the lawyer for the defendant in that case is saying that he apparently was the perpetrator of these bear spray attacks on on homeless people going back a number of years I guess there's a like you said pretty gnarly video of of yeah but obviously the D.A thought something was kind of hinky because they dropped charges against the the guy who assaulted him we shouldn't the person who sprays the bear spray and the person who beat somebody with a pipe shouldn't both people yeah yeah yeah of course listen there's video of somebody bear spraying homeless people and that's clearly wrong however that was from a couple years ago the one that was released is from 2021 we have video from the night that carbignani was assaulted that they were chasing him down they're chasing him down yes with the metal pipe and even even if they were acting in self-defense you can't go chasing the guy dude that's not self-defense more damage on exactly that's Vengeance that's not self-defense yes so they took it out of that zone of self-defense and they were chasing after him and if you saw what he looked like after the attack but they were using deadly force he could have been killed and you know if Donna gotten killed by the metal pipe I don't think it'd be a defense that he bear sprayed them first it would have been an excessive use of force so yeah but in any event I mean where the D.A ended up on this it was just a drop charges from that night but you know that they're going to drop those charges I think that that's going to be untenable you know they already dropped the charges they have to I mean justice has to be blind correct I mean you're you're you're a trained lawyer here we have to apply the law equally to the sadistic insane person who wait a second they arrested the guy who hosed the person down didn't they arrest them as well I remember seeing a perp walk we talked about that on the future anyway it's Gotham City folks this has gone to Pure yeah this proves anything I mean again what they're trying to say now is that because of of the actions that Don took that San Francisco is safe and there's nothing to worry about and these addicts people who are encamped on the sidewalks doing drugs doing hard drugs there's nothing to worry about because somehow they were provoked by karmagnani and I just think I agree with you that this is part of an overall pattern of chaos and lawlessness in the city it is like Gotham City so you know it doesn't make me feel a lot better about what's happening on the streets it's nuts Shabbat you wanted to add something I want Freebird too oh Riff on lab meat uh yes well there was actually a story about this I guess there's two types of lab there's two types of mock Meats I've Had The Impossible Burger yeah I've never craved an impossible Burger there's so many great Burgers you can get out there Shake Shack Five Guys in and out why would I go to get this impossible Burger unless I was doing it like vegan stuff but then there was also supposed to be 3D printed meets and this stuff seems to be taking forever where is this at because there was a story in the Wall Street Journal about how poorly this is apparently going so there's three categories of these alternative proteins to traditional animal protein the first is these call it alternative proteins where you use things like soy protein or pea protein Beyond Burger is a good example they have a pea protein based burger and so that category was kind of hot for a minute where everyone was like oh it's an eco-conscious decision people will make the shift and you know beyond Mead had this massive IPO and the stock went crazy and I someone said it was the biggest return ever for Kleiner Perkins but it really was just taking plant protein processing it and trying to make it sort of mimic the texture and flavor and taste of animal protein and it's more expensive so I've generally been fairly negative on whether that really moves the needle right the the needle for me is can you replace animal proteins traditionally and stop using all this land and putting all this carbon into the atmosphere and all this water and all these resources that we use to make all these animal proteins which I think is both kind of ethically incorrect but also extraordinarily environmentally costly sorry can I ask a question qualifying question do you think it's also important for it to not just replace natural products despite all of those externalities you talked about with artificial products with chemicals and sugar so first of all everything is a chemical so that the you know I think the the categorization of you know all chemicals are bad and silly because everything is made of chemicals I think it's a question of are there bad things that are being put in there that's not good for your health to make it flavorful or whatever and that that may or may not be the case it's really product dependent I don't think it's a good generalization but do you so you think when I eat a salad I'm just eating chemicals it is chemicals yeah got it but coffee ones right healthy chemicals there's good in there or bad yeah for sure and then bad chemicals are in like sugary cereal yeah like refined sugar is bad for sure right that's a bad chemical and no I'm just I just want to understand how you just viewed as a spectrum of chemicals some good some bad yeah there's things that are good for you there's good fats there's bad fats there's there's you know and even in the category of sugar some people say all sugars are bad some people say some sugars are better than were others as measured by the glycemic index all you know there's a lot of ways to kind of look at this stuff is beyond meat and these P ones uh they're all processed highly processed they got a lot of salt they got a lot of fat right they're they're not good for you so the way that Beyond and impossible and others have tried to make it taste good for people is they've added a lot of you know saturated fats which is a way to drive the mouth feel and make it taste good but then a lot of doctors at the American Heart Association came out and said that those fats are really bad for your heart and you should meet them and also there's been a general kind of consumer sentiment shift so a couple years ago these were the hottest products it was like all the food ingredient companies were shifting to plant-based proteins and they were building plant-based protein business categories and it was this big hot thing and then they came out and they're like wait a second this isn't going as we thought what happens is people try them out and they're like yeah that's a cool thing I want to do good for the planet but would I rather pay five bucks for a do good for the Planet Burger that kind of doesn't taste that good or would I rather pay three bucks for a burger that tastes really good and what happens is B B I choose option b yeah and so do most people right and so almost all people and that's the point of view I've always shared I said it's just it's not going to win the hearts and minds of the world unless it's cheaper and it tastes better and healthier and it's identical yeah and doesn't damage your health doesn't make you worse exactly so the more challenging technical solution is the other two categories the second category is can you synthesize animal proteins using recombinant DNA so this is where you take the DNA that codes for the protein whether it's the milk protein or the egg protein or the cheese protein and you put it in a bacterial cell or a yeast cell that are used to ferment that we use to make wine that we use to make beer and they eat sugar and then they spit out a product and in the case of wine and beer they eat sugar from grapes or for from malt or whatever and they spit out alcohol ethanol and Genentech was the first company to really Pioneer recombinant DNA at a mass scale they basically use recombinant DNA to make insulin so they took the DNA from humans that that codes for insulin the gene for insulin they put in E coli bacteria and then they put the E coli bacteria in a big tank and the E coli start to duplicate and they make all this insulin and that's how we make all the world's insulin today it's using that biomanufacturing process and it's how we make all of biologic drugs all antibody drugs are made this way it's a 300 billion year Market just in biologic drugs so when crispr kind of came about in 2012 suddenly the toolkit to go in and do a much better job and a much cheaper job of editing the genomes of those little microbes to make them more efficient at making these proteins became standard and everyone said let's go use this new category of what's being called synthetic biology or synbio to make all these animal proteins that we use animals to get today so can I just ask a question is the idea that if you use recombinant DNA in this process it would taste better and be healthier in all this chemically identical so it's the exact same protein as you can get and just I understand it'd be the exact same under a microscope or whatever but would it taste the same tastes exact same totally exact same so that's the whole point do we know that or was that that was the guess no we know that it's the same protein shamat so whether you get the protein from the cow or you get the protein from the yeast cell so what's the issue it's too expensive to do this process because so the key metric in that second category is productivity grams per liter per day how well can you get that little microorganism to make that protein the more protein it makes per day the cheaper the price per protein and we're still a far ways off from getting this to be price competitive so that's a a challenged category right now there's a lot of I'm invested in a couple of companies in this space where we're trying to make it faster and cheaper to do that strain engineering to edit the genome up front and make them make those little cells more productive to bring the price per gram down and hopefully make it compete ultimately with the traditional market for eggs cheese milk Etc but what is the constraint is it an energy constraint or is it an actual biological incapability no so the great thing is our first principles basis the biophysics indicates that this should make proteins cheaper and that is good for the planet it's good for human health it's good for everything we should be able to make eggs cheese milk all this stuff exactly the same as what you get from an animal without the animal because the biophysics of a single cell making it is better than the biophysics of a whole animal think about a chicken it grows feathers it bucks it walks around it has energy it makes heat so the chicken as a system is not that energy efficient but a little cell that just eats sugar and it's programmed to do one thing and one thing only eat sugar make protein each sugar make protein and spit as much of it out you Theory officially can make it way more efficient exactly now we're making great progress but we're not there yet we're not a commodity price point why I'm trying to ask why where's the failure Point there's two failure points sorry I should I should say there's three the first is strain engineering which is you want to shuffle all the other genes in the organism to stop doing things like growing a bigger cell wall or you know taking your time to duplicate you want to change the Genome of the cell to get it to do stuff faster the second stage is process engineering when you put that cell in a tank you're changing the sugar the methanol the CO2 the oxygen the pH everything about that tank and the condition of the tank has to be adjusted so there's about 60 variables and those 60 variables all need to be tuned and tweaked before you optimize the performance of production the third category is the hardest which is scale Manufacturing there's about a hundred million liters of biomanufacturing capacity on Earth today 95 million liters it's owned and operated by companies that use and when I say buy a manufacturing capacity I'm talking about big stainless steel tanks you pour water you pour sugar you pour your cells in they make hobbies and they make your stuff of that 100 million liters 95 million is owned and operated by companies 5 million is available for rent of that 5 million liters 4 million is rented for its entire lifespan by some company usually a biologic Drug Company because very little of this is being done in food today so there's only a million liters left to rent and there's 200 syn bio startups trying to make animal proteins and they've all competed for this this capacity so the capacity cost has gone up by about fourfold but it sounds like the the latter two you can overcome with capital but the first one is really bounded by science it's more engineering because we're back is kind of What's called the tighter curve which is grams per liter and the more experiment you do the higher that number goes and so if you can increase your experimental rate and the few the few grams that it does produce today when when a normal person tastes it they're like Yep this tastes the same as a a wagyu rib eye no so remember I'm talking about proteins right now I'm not talking about cellular meat I want to talk about cellular meat last which is the hardest category which is what you're talking about I'm talking about taking that protein and then using it to make a product like a like a cheese or you know using it as an egg replacer that kind of stuff it's the same protein as what you would get from eggs or milk or what have you this all just sounds so hard well it's a big problem and it's a lot of money so is that a problem eggs alone or 200 billion dollars a year I mean the methane released from cows is one of the largest contributors to global warming it's a it's a real problem also we're going to need to solve this Jamaica there's a lot of resources we're going to colonize Uranus we're going to need to get food there I just asked the question like if you if you go after the high emission categories first do you give yourself room to leave these things because you're doing so much already just a question animal agriculture emissions are one of the largest and unfortunately one of the biggest drivers because it's people's GDP per capita increments the first thing they spend money on is probably no I get it I'm saying something different which is if we just invented better heat pumps you'd have industrial Heating and Cooling which represents like almost a third of all greenhouse gas emissions you get that off and you give yourself a lot of time and space and room and maybe you let the cows Roam and Belch and burp because the tape the meat just tastes better and you don't have to spend a bunch of time and effort I don't think it's an ore I think it's an antimoff I think we should be doing all these things and I think that I I'm a big believer as you guys know in markets so I'm not a believer in transition for the sake of you know Carbon saving because people aren't going to pay a premium as we've seen with the kind of alternative Meat Market fifteen dollars people want some cheaper hamburgers that's one cheaper cheaper cheaper so if you can make proteins cheaper it's also a great Roi you can make money doing this and the market will buy it because it's cheaper protein sorry I just want to I just want to hit on this because we keep sidetracked a little bit the third category is the one that the article was about which is cellular meat so cellular meat is where you're trying to make your wagyu or your shrimp or your fish you're trying to make cells not just proteins but entire cells and those cells stick together and they look and cook and feel and taste like cellular meat like like muscle like what you eat when you eat fish or beef or whatever and the problem there is you're trying to take a cell and cells normally grow on you know bones and on tissue and so there's scaffolding and all these systems that hold all the cells together and so to get cells to grow in a tank and stick together and replicate without other cells signaling them turns out to be really expensive there was an executive at Merck I spoke to a few months ago and he said we're going to sell fetal bovine serum which is basically like this liquid that they get from the fetuses of cows and this is how cellular meat started they took a cell from a cow and they put it in a tank with fetal bovine serum and the cell started to replicate and duplicate and then they could take those cells and try and turn them into a beef into a burger and sell it or try it that was the million dollar burger if you remember that a couple years ago and Fetal bovine serum Market has gone through the roof because so many companies are trying to make cellular meat and the Merc exact was like we're going to sell a billion dollars of fetal bovine serum and then we're going to sell zero because No One's Gonna Be able to make money doing this it's just impossible you're not gonna sell 500 Burgers so the technical challenge there is do you have to edit the cells to get them to duplicate you have to get them to grow in suspension meaning in a tank instead of growing on Bones and growing next to each other and Scaffolding and then you have to change the feedstock so that you're creating all these other proteins and signaling factors and hormones that you pour into the tank that trigger those cells to grow is there any chance that after all this it's it actually just tastes slightly different or better it may yeah it may but likely not I mean let's be honest these are you're taking a cow cell or a salmon cell now the reason I say this is that I don't know if you I mean you don't eat meat so maybe you don't know this but depending on where the water that they drink the actual grass that they eat the meat does taste different and that's part of the whether the cow is massage I mean look at the acorn fed cows the beef that we used to have at poker before austerity measures life was so good in 2021 well that's that no we can't get it anymore yeah I know we're on a budget I get it no not us we can't get it anymore because they sell it through one channel um but yeah like it's so good yeah the variation you're talking about is obviously at an Echelon and a class of eating chamoth it's probably not Mainstay like you know the thirty thousand dollar a year McDonald's burger and chicken nugget eater is probably happy to take no I disagree with you chicken nugget that tastes I disagree with you because if you go into Whole Foods and you actually buy like a USDA top sirloin there's a certain taste that it has that things that are not USDA don't have so even even at like the most basic layer of the food pyramid you can differentiate on taste based on the same this is why I'm saying I think it's just a very complicated long drawn-out process and I just wonder if the people that are in these businesses if they actually love food or not I understand why they love the science I get it and why they would love to save the planet I get that too but unless some of these people are are also food lovers they're gonna miss I think the thing where it all dies anyways I just want to restate again for the final time these are these are identical cells and identical proteins to what you're getting from the animal so they are not like what we talked about in that first category where you're trying to get other stuff to sort of taste like meat you're literally trying to create the meat and create the protein using these systems I'm just trying to tell you that salmon two pieces of salmon can taste totally different depending on where it swam right I and I guess what I could say is the same protein yeah you could probably adjust the conditions in the tank if needed to change the the characteristic this is my point like you don't even know where to start how is it the [ __ ] kelp in the Atlantic Ocean like what are you changing look I don't know what kelp effects on the salmon I don't know if salmon but this is my point Nobody Does the Atlantic Ocean this is why we pay so much for the acorn fed beef I get it but most beef is not uh kelp from the Atlantic Ocean fed salmon it's animals grown in very large feedlots fed corn and water that's it let me just say that again 90 95 of animal protein consumed is cows pigs and chickens grown in feedlots fed corn and soybeans and water and that's it right but if you if you go to different countries and taste the meat that's fed in that exact same way it tastes different so for example if you go to Argentina I appreciate what you're saying but the point I'm trying to imagine you can recreate whatever the system is that you're talking about so I want to just get back to the unit economics the cost per kilogram or the cost per gram of the protein we are still many orders of magnitude away on cellular meat so the problems you're laying out are really down the road problems of optimization right now we've got more fundamental problems on how do you actually get this stuff to be cost competitive now fortunately the tools of crispr and since crispr cast 9 came out 10 years ago there are now hundreds of variants that are open source IP free royalty free and used very broadly and generally and DNA sequencing costs continue to decline those are the two basic tools that are being used by biochemists and Engineers to do rapid evolutionary iteration needed to produce the recombinant production of proteins to produce the new cells to produce the feedstock for those tanks and there's a cost curve that we're trying to get over it's not happening overnight hundreds of millions of dollars and in several cases billions of dollars have gone into these systems and it's very likely that these companies may need several more years and several billion dollars we are going to get there the technology is progressing the rate of progress is a little slower and it's a little more challenged I think than the first round of investors had hoped but I do think that scientifically in first principles it is absolutely feasible it's a function of engineering our way there to giving to moth and everyone else that eats burgers and chicken nuggets everything that they want hopefully at a lower price if you put it on the curve of uh self-driving cars you know we have Crews doing some automated taxis in like a very constrained area in San Francisco but we don't have it everywhere where do you put this on the curve it's a great question so so what's happened by the way as we've gotten down the cost curve we are unlocking new markets so new products are being produced existing proteins that are come from animals there's a good example of a product called pepsin it's uh it's extracted from pigs today it's very expensive similar to how we used to make insulin and we're replacing the sourcing of that product we replaced insulin which we used to get from pigsplains we now make it recombinantly we're now replacing pepsin we're replacing the the rennet that's used to make cheese so as we move down the cost curve these Hive what are called high value proteins are the first to fall those markets collapse because we now make them recombinantly they were sorry they collapse in price because they're now cheaper using recombinant systems instead of taking them from animals and eventually we'll get to that cost curve where they're ubiquitous for all proteins or for all types of cells in the meantime they're pretty sizable markets to go after these are multi-billion dollar markets that are getting knocked down we don't talk about it every day it doesn't show up in the news but it's really profound and interesting to see that this technology is working it's overturning multi-billion dollar markets it's making progress and you know hopefully it'll it'll get to the point that you know everything from the chicken nugget to the kelp fed salmon can have you guys tried a Beyond Burger or an impossible Burger I've had it I've tried them a long time ago but I've not tried them recently they're like it's like eating something mushy that's 60 percent of average hamburger it's not worth paying double for certainly for somebody who's a hamburger eater so while we were talking by the way Amazon's results came out they crushed it earnings per share of 31 cents versus 11. and uh stock is about 10 10 off hours and it was up four percent today for The Insider Traders exactly how do you feel about your recession prediction I'm sticking by it I think we're still going to have a recession but it is an interesting Paradox here so I think there's only a couple possibilities either Tech is sort of immune or they forecast down so much they were so conservative in their forecast thinking we're going to be in a recession that it was easy to beat or look I could be wrong about the recession but Powell is saying it and pal is saying if it's not a recession it's gonna be less than one percent growth it's gonna be a thousand year to recession so it's not credible so I'm not revising my forecast well I I think pal is credible when he's giving us bad news because their incentive is always to fluff it up and make it sound better than it is so when he's telling you things look bad maybe they're looking really bad I don't know man but look it's A Tale of Two Cities right now I mean the big tech companies seem to be doing really well so it's it's definitely a paradox yeah all right everybody well the whole RFK thing okay that's a good topic yeah great topic go ahead I think we should tell people like what he's about where are all ears I think he gave a terrific announcement speech okay and just give you some background for the younger viewers who may not know so Robert F Kennedy his father ran for the Democratic nomination in 1968 after his brother John F Kennedy had been president as assassinated as we know in the early 1960s what happened is at this time before the 1968 election Lyndon B Johnson was the incumbent Democratic president and everyone thought that he'd be the party's nominee and he was going to get reelected and he was brought down by an extremely unpopular War the Vietnam War and it was RFK Jr's father who was a great critic of the Vietnam War and he ran for the Democratic nomination and I think that he very likely would have gotten it on the night that he won the California primary he was assassinated by Sirhan Sir Henry yeah if you go back and look at the things that he was saying in that campaign he really was saying a lot of beautiful things that are in his son's add that I think would be worth playing here but I I think you have maybe the setup for a similar situation here you've got an incumbent Democratic president who is sort of not that popular he's sort of old and out of it and incoherent he's presiding over a war that is rapidly becoming a debacle you don't hear so much about the spring counter offensive anymore these new Pentagon papers that were leaks show that the Ukrainian casualties are at least five times greater than have been publicly admitting it looks like Russia is certainly not losing the war the way they used to be they've captured 90 of Bak mud which has been the most violent bloody Battle of the war and Biden at this point has no strategy to bring that to an end in fact he's rejected multiple attempts at a peace deal and so now it looks like it's the Chinese who are in the driver's seat potentially putting together some sort of diplomatic settlement so I think listen if the economy ends up going into recession and this war ends up becoming the Fiasco that's increasingly looking like you could have a setup like 1968 where people are wondering why the hell is this guy our nominee and let me tell you RFK Juniors already pulling at 19 which I think is pretty good considering he just came out of the gate and people don't even know the substance of his campaign yet Marion Williamson's at nine percent so if she dropped out you'd be at 28 for the alternative and I think he could go up from here and I think if you if you watch the speech he gave I thought there was a lot of really beautiful sentiments in there it's very good he said that Biden has made Ukraine a pawn and a geopolitical battle that has put the flower of Ukraine's youth into an avatar of death in order to exhaust Russia he channeled America's anti-war Traditions he quoted John Quincy Adams that America should not go abroad in search of monsters to destroy he quoted Martin Luther King Jr there's a direct link between poverty and violence and oppression at home and War abroad he talked about the role of the CIA during his uncle's Administration where he said that John F Kennedy eventually realized that the purpose the CIA had become to create a steady pipeline of Wars to feed the military-industrial complex and he talks about how JFK came to distrust the CIA and realized that it was lying to him and the biggest Applause of his speech was when he quoted JFK approvingly saying that he wanted to take the CIA and shatter it into a thousand pieces and Scattered to the winds and this very same week that he gave the speech we found out that five former CIA directors have participated in a giant hoax on the American people by claiming that this Hunter Biden's story was Russian disinformation they knew it was not they knew it was not the information on the hard drive was real it showed that Hunter Biden received multi-million dollar payments from foreign governments including China and Ukraine okay and regardless of what you think of that story it should not have been suppressed by social media and it certainly should not have been suppressed in a psyop by 51 former intelligence officials including five former directors of the CIA and if that's the way they're going to behave if they're going to meddle in American politics that way I think we do need to start over we do need to ask what's going on with the security state they're not supposed to be meddling in American politics that way so I think if this is the way they're going to act I say shatter away scatter that thing into a thousand pieces hey it's Catholic I'll vote for him and he's called out the insanity of covid lockdowns and man that's the thing that he's I guess that's the big controversy is he's anti he's an anti-vaxxer I guess that's the one thing they're trying to position him as and he does conspiracy theories so so listen if you go back and look at his record he was an environmental activist for most of his people here he did the worship Project New York where they basically bought the land along the Hudson I remember I was at some events for it they wanted to clean the Hudson up and they just bought the land and didn't people donated the land and they bought it they raised money and uh the Hudson today has like you know it's it's flourishing amazingly and he's directly responsible for that he was a big critic of the way that corporate greed could lead certain big companies to engage in environmental pollution and at certain point he realized that big Pharma had a similar incentive now I don't know if he was right about those vaccines but I do know that he's right in the case of covid they had an incentive to push this dubious RNA shot on us so they would get boosted a zillion times and he's right about that he was right about the fact that this should never have been mandated we should not have the lockdowns and you know what in his nomination speech or his declaration the word vaccine was only mentioned once so this is not what his campaign is about I look forward to having him on yeah and to be honest I mean look at all the other things that were deemed to be conspiracy theories that ended up being true oh yeah Monster not that you go either way or it could be embarrassing let me ask you this ax if it was him versus Trump who do you vote for well I'm gonna I'm gonna Reserve okay versus Trump sex I'm not going to take a position on the General yet but but in in the Democratic primary I'm definitely endorsing RFK Jr in the narcotic primary all right everybody uh to all the amazing people who got together for the episode unbelievable over 40 or 50 of them Ray great job shout out to Ray shout out to Ray I dialed into a bunch of them in I think oh that's great Europe and I don't know all over the place no one got robbed or mugged or bearish but hopefully I don't know if they did any in San Francisco there's no bear spray incense so that's good all right four of the Sultan of science the dictator himself and the mouth feel and Rain Man I am the world's greatest moderator we'll see you next time everybody love you boys let your winners ride Rain Man Davidson we open source it to the fans and they've just gone crazy [Music] it's like this like sexual tension that they just need to release [Music] where did you get Mercies [Music]








sex you're ready you got your quick time going oh uh let me do that real quick and just a quick note sax Mr Kennedy doesn't have earpieces in so he we just have to be careful the crosstalk we're talking over each other I'll direct uh questions to each person and then follow up so you can obviously just use your judgment of when to insert yourself but be uh be gentle on the insertion there because we don't want that came out wrong um just be uh be gentle when you interrupt God pressure called open at least if you did it incorrectly it'll be quick okay here we go in three two we'll let your winners ride [Music] [Music] all right everybody Welcome to the all in podcast as many of you know this podcast has gotten quite popular the last two years typically in the top 10 or 20 each week and we talk about politics we've got a big following in DC and why are you calling me self-absorbed Shabbat I mean listen to how your co-host opens his show calm down everybody okay yeah yeah okay and as part of that our ongoing discussions about politics and presidential candidates has resonated in particular communities and today we are lucky enough to have one of the top presidential hopefuls in the 2024 election joining us uh Robert Kennedy Jr and we will be inviting all presidential candidates to come on to the all-in podcast and have candid uh discussions that are unfiltered the way the audience would expect them we're going to play with different formats but we decided for this first one we've got a series of topics we'd like to cover and we're going to treat it like any other all-in podcast with that I'll have David sacks who has is the most conservative of our panel who has been also the most enthusiastic I think of everybody here and one of the most enthusiastic supporters of Robert Kennedy Junior's pursuit of the presidency of the United States so with that David would you like to introduce Our Guest yeah let me give Bobby a proper introduction here so Robert Francis Kennedy Jr is entering the political Arena as a candidate for the first time at the age of 69 but it's perhaps no exaggeration to say that he was destined for the mission he is now pursuing he is the nephew of President John F Kennedy and the son of attorney general and Senator Robert F Kennedy when Bobby was 14 his dad was running for president on a platform of civil rights civil liberties lifting Americans out of poverty and opposing the Vietnam War he had just won the California primary when he was tragically assassinated RFK Jr graduated from Harvard and the University of Virginia law school and became an environmental lawyer who aggressively litigated against corporate polluters and government agencies that were failing to regulate them he has always put the health and safety of the American people at the Forefront of his activism and this has made him controversial at times as he has questioned the safety of some pharmaceutical products and also criticize coveted restrictions during the pandemic for this the mainstream media has tried to pay them as a quote conspiracy theorist but given that so many conspiracy theories about covet have been Vindicated tablet magazine wrote quote at this point the fact that Robert F Kennedy is the country's leading conspiracy theorist alone qualifies him to be president but the biggest reason why I think his candidacy is so interesting and relevant is that it Harkens back to a Democratic party that believed in peace instead of War free speech and civil liberties instead of censorship building up the middle class instead of the donor class and opposing corporate greed especially in the military-industrial complex which is a message you just don't hear much anymore coming from the Democratic side of the aisle so with that Bobby Kennedy welcome to the program thank you so much for having me so maybe we could start with foreign policy something we've discussed here specifically the Ukraine and Russia's invasion of Ukraine and our support of that war sax would you like to tee up a question for Mr Kennedy I think Bobby's tweets on the subject show that he has a really deep understanding of it he's been saying a lot of things that I've been saying since the beginning of the war which it not just the fact that we're risking war or three over you know getting involved in a in a country that isn't a treaty United States has never been a vital interest in the United States but I think your critique goes deeper because you actually understand the causes of how this war started so maybe you know Bobby you could speak to that how did we end up in this proxy war with with Russia from from your standpoint well you know for first of all I would let me start by saying this I supported the humanitarian Aid to the to the Ukraine which is what we were told initially was was the mission although I had uh I was suspicious of it and you know my son as as I've mentioned actually went over or left law school did not tell us where he was going and went over and joined the Foreign Legion um and fought in the car cave um uh offensive with a Special Forces Group he was served as a machine gunner he was an engagements with the Russians and but he feels good the same way essentially that I did this is no longer a humanitarian Mission at all the decisions the United States have made has made since since the start has been about have been about prolonging the war about maximizing the the violence of the war um and being absolutely intransigent against the many opportunities to actually set up the war if he and and at my understanding of the war is that not that zielinsky is pushing this or as hard as he can but that the neocons in the White House want this or they want it regime change with the Russians they want to exhaust the Russian armies as what uh this defense secretary Lloyd Austin said in 2022 our objective is to exhaust and degrade Russian forces so they cannot fight anywhere else in the world um and President Biden acknowledged that one of his objectives or his regime change in Russia removing Vladimir Putin well if those are the objectives that is the opposite of a humanitarian mission that is a measure and to maximize casualties to prolong the war is essentially a war of attrition and that's what we're seeing and the brunt of this is being paid by the flower of Ukrainian youth there have been over three hundred thousand this is something that the U.S government and the Ukrainian government have worked hard to hide a number of casualties which has been catastrophic this is the most violent conflict since World War II that's taken place probably anywhere in the world and the casualties are enormous all over 300 000 Ukrainian dead the Russians are killing Ukraine and depending on who you believe at a ratio of five to one to eight to one which is the seven to one in the in the recently recently leaked whistle or leaked um Pentagon documents and the Russians cannot lose this war we're being told they're losing they cannot afford to lose this war this is existential for them and they have been building up their forces they've attended one artillery advantage on us and this is an artillery War so it's simply and we do not have the artility to replace what we've lost up there this is a war that is preceding in a very cataclysmic trajectory and the the answer to your question about how we got in this war uh goes back a long way but I would say that the real story starts in 2014. when the U.S government and particularly the neocons in the White House and elsewhere participated and supported the overthrow of island of coup d'etat against the democratically elected government of the Ukraine and put in a very very anti-russian government is prompted Russians who then believe that that the U.S Navy was now going to be invited into the Black Sea and to have reported Crimea it prompted the Russians to preemptively invade Crimea at the same time the government that went came into the Ukraine began enacting a series of laws that turned the Russian populations of the dambas region into second-class citizens they they illegalized essentially their culture their language and they began ultimately killing them they killed 14 000 of them and it was it prompted a civil war in the country and the Russian uh response which it was illegal I have no sympathy or towards Vladimir Putin Vladimir Putin is a gangster and he's a thug but his uh his response in the dumbass was not irrational so I guess the question becomes if you were elected president would you stop sending armaments to the Ukraine I would immediately I I have a ceasefire and I would settle the war and I think it can be a saddle I don't even know I mean listen as settlement this war was outlined in the Minsk Accords in 2014. in the minska chords which all the European uh countries agreed upon was when they when Russian said and the Russian people in US voted to leave Russia and Russia did not want them Russia said no let's develop an accord an agreement which would make dumbaz a an autonomous region within the Ukraine which would agree to not put missile systems in Ukraine NATO missile systems which would agree that Ukraine would not join NATO if zelinski says no I want to keep fighting would you stop sending us weapons I would settle this I would settle this war the Ukraine cannot fight without you as support so then at some point you would tell us zielinski if I'm reading into what you're saying correctly hey settle it you're on your route no yeah I would settle the war yeah do you think that we somehow allowed zielinski to believe that we would allow him into NATO meaning do you think that U.S foreign policies somehow almost induced this thing to happen I just want to try to understand the boundaries we have been doing integrative military exercises with the Ukrainian military so we were actively integrating them into NATO forces there was no question that you know the one thing that Putin said from the outset this is a red line you know when my uncle was President one of the things that he's added he said a couple of things he said number one the principal job of a president United States is to keep the nation out of war and he succeeded doing that during his term in office he he said 16 000 military advisors to Vietnam who are not not authorized to participate in comment that didn't mean that some of them didn't but they were not authorized and in fact that was fewer federal troops than he sent at James Meredith into the University of Mississippi so he's infused of Vietnam and two weeks before he died he signed a national security order ordering all of those troops home by 1965 with the first thousand to come home that month by November and he died two weeks later so and then of course Johnson came in and remanded the war and sent 250 000 troops over there which is what all of my uncles military advisors wanted him to do and he stood up to them one of the other things my uncle said and you know the anniversary of his speech in American University which is an extraordinary speech probably one of the best in American history Jeff's access called the most important speech in American history um it was a speech to the American people and it was it's an extraordinary speech because if you read it is asking them to put their their themselves into the shoes of the Russians and understand that the Russians bore the purana of World War II they lost one out of every 13 Russians died in that war a third in their country was occupied and leveled to the ground it's like he said it's as if the entire east coast of the United States to Chicago was put into Rubble and he described this in detail for the American people to say you know we're all people we're all on an ark and we need to we need to understand each other's motives and not just vilify each other and what we're seeing now is this formulate vilification this narrative that we saw with Saddam Hussein was you know Putin with every little war that we want to get into those guys are pure evil we're pure good and we're gonna go rescue you know the Damsel in Distress just on that could you contrast and compare just maybe the last three or four presidents on this very narrow dimension of that of JFK's promise of what a president should be doing Bush Obama Trump and now Biden how do you see the things that these guys have gotten right and or very wrong here on that Dimension just on that Dimension you know I've been friends with Shelby for many many years a Joe Biden is uh you know he's a go to war guy he he was one of the strongest supporters of the Iraq War he's been supportive every war that's come along and that you know I think that's one of the reasons that you know some of those uh that portion of the democratic party which is a very very powerful kind of King Pickers was very happy with him getting an office is that he never says no to a war I think Trump you know I liked a lot of what Trump said about foreign policy about disentangling us from this knee-jerk reaction of you know of constant Wars and that the cause that that imposed on our country what it's doing it's hollowing out our middle class but then Trump did a lot of things including walking away from the you know from uh um uh the uh intermediate nuclear missile treaty which is it was another provocation for Russia because that treaty you know we're we're putting these intermediate missile systems all along the Russian border and Romania and Poland and you know and in in uh Ukraine and uh and that those missiles can hit Cuba I mean can hit Moscow in a few minutes so there was a very destabilizing system we all signed it and he walked away from it and now I don't think that was a I think that was another provocation we should be de-escalating these provocations though you know why did NATO this is what George Cannon said after after you know that the Soviet Union collapsed why do we even have NATO anymore why do we have it why do we have it unless we're gonna involve the Russian Senate why don't we do a Marshall Plan for Russia we won the war they are the losers they admit they're the losers but they want to join the European community let's make that easy for them let's not continue to treat them as if they're the enemy because that is a self-fulfilling prophecy and that unfortunately is what we did let's pivot then you want to contain and you would force everybody to the table to a resolution if I'm understanding correctly you weren't explicit in terms of would you remove support but I think we can infer from it you would have a point at which you would stop sending armaments to Ukraine we have tremendous moral pressure and economic pressure and everything else on Ukraine how about this Jason I mean would you be willing to take NATO expansion off the table if it helps resolve this conflict yeah well Biden won't right yeah no no it's absolutely why are we trying to expand we gave our word and we would not expand Nato one inch to the East and now we've gone into 13 countries you know I it's a it is a provocation let's talk about Taiwan so we got to stay out of Wars if Xi Jinping decides Taiwan is strategic and he invades Taiwan what would your response be if you were elected president well my response would be to de-escalate that conflict there's essentially a war party in Washington um that is is encouraging that conflict that is drumming of that conflict what I would do is I would I would de-escalate it I would stop looking at it as a threat I now and and uh and allow the Chinese and the Taiwanese to come to their own solution about what kind of relationship they have and I think that that that if we stop our provocations toward the Chinese that that would naturally de-escalate and if China decided it's strategic and we're going in anyway would you if you were president defend Taiwan that's a question that I would not answer I'm curious why not why don't presidential candidates just answer that question because you're committing the country to a war in the future that would be probably the bloodiest war ever fought and it's not something that strategically it's not good strategy to protect project your your intentions you want to leave room for negotiation you want to leave room for all kinds of movements and you want to have a debate with the American people and with Congress because Biden's been clear that he would defend it right so that's an it's an interesting Insight right there Freeburg do you want to talk maybe a little bit about the economy and the spending that we're seeing yeah so Robert I think my biggest question I've referenced this on the show a number of times um is this extraordinary concern I have about the fiscal deficit and the debt level of the US running deficits north of a trillion dollars a year 33 trillion in total debt some people use the debt to GDP metric which you know at this point is approaching or has exceeded 130 percent and 52 Nations that have reached that level of debt to GDP only one of them has not had to restructure their currency or restructure their debt payments obviously with the debt ceiling approaching and some fiscal conservatives using this moment as a point to try and generate leverage I guess my biggest question for the country now and going forward is you know do we actually have the ability to pursue all of these interests on a social a geopolitical a security agenda and and do so without having either a balanced budget or a plan that says here are the boundaries and here are the boundary conditions because in the last couple of years and particularly in the last five years we've seen almost like a bipartisan unmitigated spending spree that you know is largely driven to you know to do what the electorate wants which is to give people stuff and giving people stuff costs money and that money has to be paid back at some point I guess how do you think about the importance of this and how do you think about the boundary conditions that you would you know look to articulate and impose as you you know think about this role with respect to the the deficit spending and the debt levels for this country in terms of a boundary I I you know I would love to hear arguments about that but I um you know I we as you say I think the debt is now 32 trillion uh the GDP or gdps are on 25 uh trillion so that is that's just a really alarming ratio I if you look at why you know the the primary cause of our military expenditures is we're spending eight uh this year I think uh eight uh 8.4 trillion dollars on the military budget this year but if you throw in the homeland security and all the surveillance and security expenditures at home it's 1.1 trillion a year that's 1.1 trillion a year that is attributable to to essentially to our our you know warmongery and I don't think we can afford to be policemen of the world anymore we have 800 bases around the world we need to start rebuilding our middle class at home we need to be responsible with our debt and we need my grandfather always said we should make America too expensive to conquer we should make Fortress America we should arm America to the teeth at a home so that no so we're too expensive to conquer and then we should concentrate on building up our economic power and a robust middle class that's what's going to make America strong and instead of projecting military strength abroad well you ought to be projecting our economic strengths and a Marketplace of ideas and economic power I I you know right now we're borrowing six uh six billion dollars a day mainly from the Chinese and Japanese just to serve the interest on that that's not a healthy thing for America to be and we got to figure out you know a way to impose fiscal discipline but I can't tell you exactly what my boundaries would be that's something I need to think about but how do you how do you think about that like I think non-d of discretionary spending you know defense is is about 800 billion non-defense is about 900 billion and then obviously there's Social Security benefits Medicare Medicaid in order to get the budget balanced you think cutting defense would be kind of the first priority and you could kind of get there through you know that approach but I I there still seems to be a big gap to me on you know given how much we're spending on how do we actually get there are we ultimately going to have to kind of change retirement benefits restructure Medicare Medicaid or are we going to raise taxes or are we going to do all three to get to this point otherwise we have this obviously kind of never-ending debt spiral that that's that's going to cause a massive crisis uh whether it's not this year or maybe it's in five years or ten years right now it's projected Social Security will go bankrupt in 2035 2034 around that range so this is coming up fast what are we going to be cutting besides defense and or are we going to be raising taxes to 70 do you think to kind of bridge this hole I can't answer that question any better than I already have you know I think there are there's there are targets for opportunity and the uh in the homeland security I think once we stop fighting these words all over the world there's a lot less than aid for us to have the surveillance State at home so the real cost in the military is 1.1 trillion a year uh not just the 800 trillion that shows up on the book and I think those are targets for opportunity and I I can't you know I have to I need to study more the issue about how to how to get back into a balanced budget I you know one of the things I'd say just herbs Maybe is that I don't think we should be planting Chicken in Congress about raising the debt ceiling um because I think I don't think we should mess around with the full failing credit of the United States particularly at this point in time one of the things that's happened in the world Bobby is that there's been a couple of countries France is probably the best example that had to raise the retirement age and irrespective of The View that one has on whether that was right or wrong the Practical reality of doing it is just that when these initial social safety nets were passed the average life expectancy of folks was 10 15 years less than what they are today and presumably as we keep inventing Technologies folks are going to live to 80 90 100 years on average which may seem implausible but is likely if you look at the trend I'm just curious how you think about the state of our social safety net and what has to change what would you keep the same and what has to be totally reimagined for what the world will look like in 30 or 40 years I would say it's a red line for me to touch Social Security um or Medicare Medicare I think we need to take care of people particularly people who have spent their whole life paying into a system with a promise at the end and have worked hard and uh um and saved and done what they were supposed to do I don't think they you know it's right to pull the rug out from under them but again I this is an issue that I need to spend more time looking at uh and studying maybe the next time I come back here on better answer for you guys I think this is my concern is uh sorry but Robert the the comment you just made is the same comment I hear from both sides of the aisle that we can't touch Social Security Medicare Medicaid because it would be so unpopular we wouldn't get elected and that's ultimately kind of what a democracy like ours may lead to is that folks vote and elect representatives that are going to create these systems that benefit them but in aggregate we may not be able to support those benefits over time and at scale and we may be facing that moment sooner than any of us want to and I think it's one of the more pressing issues and concerns not just for the United States but for the global economy that if the U.S doesn't resolve this massive hole talking about social security for example going bankrupt in the next 12 years as one acute example of that problem set you know we may not be able to turn it around and I mean do you think that politics is set up to solve these structural economic problems that the U.S is now facing because so much of politics ends up leading towards what additional benefits can I provide to my uh the folks that kept me elected here's the thing is we spend eight trillion dollars in the war in Iraq eight trillion dollars and we got nothing for it yeah that's pretty nuts that's nuts in fact we got worse than nothing we killed more Iraqis than Sodom must say we cannot really in Iraq he's probably uh we created Isis we turned Iraq into a proxy for Iran which is exactly what we've been not trying to do for 40 years um and we drove 2 million refugees with the Iraq War and its aftermath Syria and Yemen and you know Pakistan and Afghanistan two million refugees in Europe destabilize democracy in Europe and we go ahead so eight trillion dollars there we spend 16 trillion dollars on the pandemic on the lockdown and again got nothing in return um so that's 24 trillion dollars and now we're doing bank bailouts every you know couple of months uh so look on Valley Bank the FED said that it was uh printing 300 billion dollars for that made up for all of the you know deflationary uh uh steps that the Biden administration had previously taken so you go to uh you know you go to a an American who's been working their whole life that has been promised at the end of the life that they're going to get a few bucks every month and you know I have a friend I brought to my speech with me who's um during the same month that we committed another 750 million during March 750 million dollars extra up to the Ukraine we uh we got 15 million Americans from Medicare my friend got a call from I from the from the government on his cell phone a recorded call saying that your food stamps have just been cut by 90 he went from 283 dollars a month to 25 a month so you try to feed yourself on 25 a month there are 30 million Americans who are starving right now and that to me is unacceptable and it's hard to go to people like that people who have been honest who played by the rules who have done everything that they were supposed to do with the promise that they would be taken care of that their health care would be taken care of an old age you go to those people and say okay now we're going to cut your food stamps and try to feed yourself on 25 a month try to feed yourself for 25 a week we're telling them that and then uh and then spending 800 billion to make a plane are you going to cut the federal budget when you're sending over 100 billion to Ukraine there's you can't you have no more authority to do it I want to finish up by saying you know you're like tinkering in the end the engine room when the ship is sinking you know because the you know or switching Tech teachers on the Titanic let's deal with the real problem let's figure out how to make this nation a nation that is really focused on taking care of our people inside rather than saying okay well in order to pay for the Ukraine war we gotta screw every American on Social Security and Medicare we've had by the way the inflation that we've created from you know from from just printing money is making my friend Keith's food twice expensive so the cost of stables in this country is raised by 76 in two years and now they're cutting his food stamps and bailing out the same month 300 million dollars the Silicon Valley Bank we gotta I mean it doesn't make any sense and having this kind of conversation how do we screw the poor to make sure that we can you know we can milk them while we're doing all of this great this country is acting like the alcoholic who is behind on his mortgage and who takes the milk money and goes into the bar and buys rounds for strangers you know that's what you're dealing with that's a pretty good analogy shots everybody so let me let me ask a follow-up question on this debt ceiling fight which is which is a game of chicken and the the country's economy might go off a cliff in the next month because Republicans Democrats can't agree so Biden's position is I want a clean debt ceiling increase no terms on it the House Republicans have passed a debt ceiling increase but it contains things like a one percent cap on spending growth it claws back unspent covid-19 relief funds and it would halt Biden's student debt forgiveness plan so Robert I guess the question to you would be would you negotiate like what would your posture to House Republicans be would you be willing to negotiate because Biden is basically saying I will not negotiate at all so negotiate or not negotiate I guess that's my question to you yeah you have to negotiate I'm not sure if he's posturing you know or what they have to negotiate they have to you know they have to work out something that's good for our country and that you know and they're getting at both sides you're gonna have to give up something we have to you know we have to put our country first and it's it's insane to play this game of chicken with a you know with this when the stakes are so alive there's been a lot of talk Robert about the Deep State the FBI doj CIA your family obviously having dealt with two tragic assassinations your father and your uncle has dealt with this firsthand in terms of just having the CIA information about these assassinations released I'm curious your position on some of the most radical proposals people have this election cycle of dismantling the FBI CIA doj AKA The Deep state do you believe there's a deep State and how would you as president deal with this intelligence operation we have and then also personally what are your personal feelings on it well um on the you know I have I you know I've I have a pretty clear idea about how I would handle um the intelligence agencies and in fact my father was thinking very deeply about that at the time my father who believed his his you know first reaction when his brother was killed was that the CIA had killed him in fact the first three calls he made on that day and you know I was home uh at the time and John mccom the CIA was right across the street from my house and so John McComb who's the CIA director you would come to our house and swim every day after work during the spring and summer time and my father called the CIA desk and talked to a desk officer and said did your people do this that was his first call and he called Harry Ruiz who was a Cuban uh who was one of the Cubans who had remained friendly with my family my you know while we were surrounded by humans growing up because of who were Bay of pig's refugees my father had got some freed after a year and you know in the uh Castro's prisons and um and my father and mother spent a lot of time finding houses for them schools integrating them to the U.S military finding jobs and so we were all raised very very closely with the Cuban Community but gradually they turned away from my family but this one Cuban who had been an engineer had fought with Castro and then turned against him when he can't became communist was very close friends with my father the second call that he made was to a Harry Ruiz and he said did uh did our people meaning that CIA people do this and um and that was uh and so my father was thinking very uh very very carefully about how to handle this yeah he had been you know he had been essentially managing the CIA since he came into office and he recognized that the problem and you know as I I talked about in my speech and I think David on this show mentioned is that during the day of Pigs invasion my uncle realized that it had been lied to by uh I Charles Bell and uh Alan Dulles and Richard Bizzle the heads of this as well as the Joint Chiefs and he came out in the middle of the invasion when it turned against them and he realized these these men were being killed on the beach and he said I want to take the CIA and shattered into a thousand pieces and Scattered it to the wind so he recognized the function of the intelligence agencies had devolved and that they were they had become captive of the military-industrial complex and the military contractors and their uh their function was essentially to provide our nation with a constant pipeline of new Wars defeated military industrial complex and the growth of the surveillance state and my father when he ran for president Pete Hamel was one of his favorite uh newsmen asked him on the bus during two weeks before he died I asked him what he what he was going to do about the CIA and he said what we need to do is to we we need to remove the Espionage division it has to be an ash Branch from the plans division Appliance division the CIA is essentially the dirty tricks provision that's the division the action uh division they do the assassinations they fix elections they do paramilitary operations Black Ops torture black sites all of that stuff the Espionage Division and CIA was originally set up by Cuba by Truman as an Espionage agency Espionage means information gathering and Analysis is not violence it's about information acquisition and unfortunately the the uh the clandestine action division was wagging the Espionage dog so that function the Espionage division was to to provide new actions things to do for the Clinton sign division uh and then covering up their mistakes so there was never any accountability and what my father understood is that the Espionage division should not be working for the for the clandenstein services they should be overseeing them and particularly doing accountability uh oh you know what if the CIA looks the way that the CIA looks at the war in Iraq is it was a success because we've accomplished a measure of deposing Saddam Hussein but and you know the CIA it was George Kennett who lied to President Bush and said it's a slam dunk so they got us to go in there that weapons so as president would you rethink it and then just as a final question let's find a follow-up to that do you believe they murdered or were involved in the murder of your uncle what have you come to personally yes they were definitely involved in the murder and you know and the six-year cover-up they're still not releasing the you know the papers that legally they have to release um but I don't think there's any doubt if you look at this huge you know Mountain Monumental mountain of evidence and confessions and you know so many people have confessed to their involvement and you know we understand the um if you look I mean for anybody who has doubts about that I would recommend a book by Jim Douglas called the Unspeakable because I think he's done a better job uh than anybody else that kind of assembling and Distilling all of the millions and millions of documents that uh have been released over the past 50 years and these things these Revelations are released incrementally and so nobody really takes notice of when you put them all together the story is very close so you you would definitely rethink the CIA the FBI doj you know the whole intelligence I think what you're saying as well as maybe you would also release the documents that maybe would at least provide some more transparency I just wanted to build on that because you had a very provocative tweet part of what you're talking about is accountability and we need data and transparency to have that there are people that have whistleblown there are people that have leaked and I think it's fair to say that they've all been treated by the security apparatus and largely the exact same way but you tweeted recently about your desire to see some of those folks forgiven and pardoned do you want to just take a few minutes just to talk about some of those folks that you think has allowed us to actually see the truth if we want to see it and why you think that and what you think should be done with folks like that I mean Julian Assange is an example Julian is a newspaper publisher he published leaked documents you know why are we I mean I if I was any newspaper publisher in this country I would be worried about that then now he can go to jail for life because he published leaked documents of great import to the American people of things that should not have been secret that we should have known about um Revelations that affect our civil rights affect our foreign policy affect things that we have a right to know about and you know it's it's really it's strange that there's any support for his imprisonment among the press and I think the Press is beginning to figure this out finally the most controversial of those figures is Edwin Snowden but Edward Snowden um released documents that showed us that we were all being spied upon yeah and that's important for Americans to know and in fact it was so important that Congress passed laws based upon his Revelations to protect the American people so why are we punishing the whistle or rather than punishing the people who were you know who were illegally spying on us that's what we should be doing we shouldn't be jailing dissenters in our country we shouldn't be jailing whistleblowers we should be jailing the people who break the law to keep this bipartisan do you believe the Deep state is acting to subvert the Trump presidency and that they are framing him on these three or four indictments that they are working on some that have dropped some that haven't do you believe there's a deep state conspiracy against Trump because you might be facing him I don't use the word Deep saying I mean I you know I you know I've described how these uh bureaucracies function and it's not it's not so much a group of people that kind of deep State implies that there's a group of people and it's kind of you know black coats in a smoky room uh pulling strings but the corruption is systemic the these uh you know they all of these agencies are captive agencies the CIA is ultimately working for a for industry like the oil industry the coal industry and the military contractors and that they've always had that tie since the very beginning you know Alan Dallas who would work for Sullivan Cromwell and ended up doing coup d'etats on behalf of his former clients like Texaco and United Fruit Texaco and BP and in uh Iran in my 1953 his former client United Fruit when when uh Jacob R bands in Guatemala tried to nationalize United Fruit you know the CIA under dollars when overthrew the government to protect the entrance of his former clients so there's always been these tides to Industry and the ties now and particularly the oil industry and the ties to uh to the military industrial contractors really Drive CIA action and CIA intelligence and we have to you know you have to stop and this is systemic and all these agencies I mean USDA is run by Cargill Smithfield um on Santo um oh Pilgrim John Tyson EPA is right when we sued EPA uh we got Discovery documents that showed that the head of the pesticide division Jess Roland had been secretly working for Monsanto for a decade and you know sending memos back and forth on Santa directing them you need to kill this study you need to kill that study and this unfortunately is not the exception it is the rule most of the people who work for those agencies are good citizens they're good Americans they're honest and they're Patriots that the people who tend to rise in those agencies and occupy these very very powerful key positions for decades or years like Anthony fauci 50 years are people who are in the tank with industry and what we need to do is unravel that across the government and that's really what people say that's the Deep state that really is what it's a systemic corruption within our agencies that is that's driven by agency capture can we actually just talk about the coronavirus maybe pandemic for a second and I just want to tie in two concepts sometimes again there's a lot of mainstream misinformation about it there is a lot that came out about you particularly as it relates to vaccines I just want to give you an opportunity to set the record straight just on what you think happened covid all that corruption your thought on vaccines the efficacy of our programs how we should change what we keep the same just maybe a chance to clear the year so that we can get some of the gobbledygook on the internet set straight I mean it's hard to I you know I wrote a 250 000 paid book about it and I've written a couple of books and so it's hard to summarize you know what went wrong in in a uh in a second but it's but essentially we had instead of a Public Health response to what Public Health crisis we had a militarized and monetized response that was the inverse of what of everything that you would want to do if you actually wanted to protect Public Health we've known you know if you look at who protocols or CDC protocols the EU the NHS in Britain all those they all had protocols for how to manage the pandemic they all said unanimously you do not use lockdowns Mass lockdowns you quarantine the sick you protect the vulnerable but you keep Society moving because the consequence of not of shutting down Society will be cataclysmic beyond anything that the disease is going to impose everybody knew that and so you know we had these these agencies that that had drilled for years and years this alternative you know militarized response and instead of you know doing what you want to do which is to get early treatment to people to have I mean you know we live in the age of the internet we should have had a a grid that connected all 15 million front-line doctors every country around the world and figured out what are you doing that works in your country you know and try and then distilling that information and processing it and getting it to other doctors well we knew what was working we knew Ivermectin and hydroxyl chloric and we knew that since 2004 because NIH did the study that said hydroxyl we're going to obliterates Coronavirus we knew what would work at that time and what was the response they the response was they could not allow early treatment to occur why because there's a little-known federal law that says if there is a drug that is shown effective against the target disease it is ill a drug that is proof for any purpose it is illegal to the issue an a emergency use authorization for a vaccine so if they had admitted that hydroxycline or Ivermectin worked against on a virus it would have destroyed their whole 100 billion dollar vaccine you know Enterprise so they had to kill early treatments and they went after stuff that they knew worked they this were the first respiratory virus in history where people would go to the hospital and they would test positive for Coronavirus and be symptomatic they were sick hey that's why they went to the hospital and the hospital would say to them there is no treatment go home till your lips turn blue and you can't breathe and come back and we will give you two things that are going to kill you I'm deserver and hydroxide and and uh and uh ventilation so people still look at in this country and and if algae is a hero and we were doing things a couple of miles from May in Malibu there were Police pulling Surfers out of the surf and giving them thousand dollar tickets and telling them to go home getting them out of the sunshine where where coronavirus doesn't spread and lock him in their home where it does and every time they said some one of these people home from the hospital sick it was a super spreader event oh you look at our record a coronavirus and this is when nobody can explain who is you know defending fauci Etc we had the highest body count in the world by far from Coronavirus oh there are we have 4.2 percent of the world's population we had 16 percent of the covet deaths how does anybody explain that and you go to Nations that didn't do what we told them Nigeria Nigeria has the highest malaria burden in the world so it everybody everybody gets hydroxychloroquine once a week they call it Sunday Sunday everybody in the country takes it on Sunday they had the highest uh River clients burden so half the countries on Ivermectin Nigeria never had an epidemic it had a death rate in Nigeria of 14 people per million population our death rate 3 000 per million population blacks in our countries were dying at 3.6 times the rate of whites a why were American blacks dying at Nigerian blacks weren't and uh and then you go to Haiti Haiti had a and by the way Nigeria had 1.3 vaccination rate 80 at 1.4 percent vaccination rate and they had a death rate of 15 people per million population these are the countries that Tony fauci and Bill Gates said we got to get them vaccinated we got to do it every because they're going to get totally wiped out because they're popped and guess what they never had a pandemic across Africa that was a 10 vaccination rate and guess what they had a death rate of about 340. some people uh think that the death rate here was overstated because of incentives to do that do you believe that as well yeah so maybe part of that death rate is it was over incentive but you believe looking back on this that fauci as well as the Pharma companies Bill Gates investments in those areas that led us down a path we'll call it the medical industrial the farm industrial complex you believe the farmer industrial complex dictated our response to coronavirus and then Freeburg I'll let you jump in yeah but you believe that that that's the I don't have any questions I believe this was a you know it was as I said it was a military response I mean look at who was running the look at who was running the coronavirus response wouldn't you think it would be HHS well when they have when warp speed had to present it's Declassified its organizational charts to show to the FDA committee called verbac when they demanded it and warp speed went in and showed me organizational charts the the the the the agency running warp speed and pandemic response was not HHS it was NSA National Security Agency Haverhill Haynes is the director of natural intelligence so she was running operation warp speed and who was manufacturing it wasn't Pfizer moderna it was 140 military contractors who you know with lines ready and you say you know and then you know all of this clamped down on on civil rights that we saw the the censorship on the closing the churches the you know the the closing of the right to assemble the Banning of jury trials against pharmaceutical companies they crushed the Seventh Amendment the First Amendment they closed down 3.3 million businesses with no due process no just compensation they they obliterated the Fourth Amendment right to you know uh to uh against warrantless searches and seizures with all these intrusive uh you know you you have to show your medical records to go and get out of your house in order to get into a public building Freeburg what what is correct here do you believe in what is incorrect about Roberts what's Robert saying if anything well look I mean there's obviously a lot of things I could say by the way I was on the executive team at Monsanto for a couple years so you know I one thing I will say is I sat on it at the table facing the EPA and the USDA and certainly didn't feel like a very cozy relationship in at least what I saw in the few years I was there it was it did feel like a very kind of Independent Regulatory and challenging frankly regulatory process that Monsanto had to manage and deal with and go through and releasing new products you know I I don't think that this notion that there were kind of embedded parties that did our whims and wishes really plays true at least for my experience sitting there and I'm not a long time on Santo executive I built a software company sold it to Monsanto and sat on the exact team for a few years after the acquisition but I guess the the more kind of I think bigger framing question for you Robert is really around vaccines in general I think your your commentary around the the covid response and uh you know the influencing forces there didn't start with covid right I mean you've you've been a kind of you know outspoken voice on vaccines in general for some time is that a fair statement because I think that that's part of the media narrative around your history and Legacy is that you have been kind of outspoken on vaccines and the you know the the risks and the and the effects that you that you consider to be kind of I don't know if it's implied or explicit with respect to the use and and wide adoption of vaccines over time maybe you could share a little bit about your broader perspective in the Years leading up to kovid and how that then kind of informed your point of view specifically on covid you know my objective is not to vaccines I'm not anti-vaxxas I I'm fully vaccinated my kids were fully vaccinated um I wish at this point that I had not done that because I know enough about them now but my principle objective is that vaccines um in this the childhood vaccines are immune from pre-licensing safety testing oh if the 72 when I was a kid I got three vaccines my children got 72 does is of 16 vaccines and the vaccines are the one medical product that does not have to go through uh placebo-controlled trials where you test exposures unexposed population prior to licensure and that there's a number of historical reasons for that that come out of the kind of the military [Music] regarded as um as National Security defense against uh biological attacks on our country so they wanted to make sure of the Russians attacked us with Anthrax or some other biological agent they could quickly formulate and deploy vaccinated 200 million Americans with no regulatory impediments so they they call them biological medicines and Exempted bodyologics from pre-licensing safety I've litigated on the issue not one of them has ever been tested pre-licensed air again so nobody knows what the you know you can say that the vaccine is effective against the target disease but you can't say that it's not causing worse problems now I'll just summarize this story in the the vaccine schedule exploded in 1986 the vaccine industry succeeded in getting Ronald Reagan and to sign a law and my uncle was also you know a group that was pressured by Wyeth which was losing twenty dollars in Downstream liabilities on every vaccine it made because of lawsuits for every dollar that it made and they and and probably they went to Oregon and said we're going to get out of the vaccine business and you're going to be left without a vaccine Supply unless you give us full immunity from liability and Reagan you know reluctantly signed that and so today no matter how negligent the company no matter how Grievous you're injury no matter how Reckless or conduct you cannot sue them that caused a gold rush because now you've got a product that there's no Downstream liability you're immune from that there's no Upstream safety testing so that's a 250 million dollars saving and there's no marketing or advertising costs so because the federal government is going to mandate this product to 76 million American children whether they like it or not and there's no better product in the world and so there was a gold rush and instead of three vaccines we quickly ended up with 72 an hour gone to you know toward 80 right now and there's no end in sight and a lot of those vaccines were unnecessary they're not even for casual disease caused diseases here's what happened in night beginning in 1989 we experienced that chronic disease epidemic in this country it is unlike anything in human history we went from having six percent of Americans affected by chronic disease to 54 by 2006 and what do I mean by chronic disease I mean neurological disease that I never saw when I was a kid 80d ADHD special a language like text Tourette's syndrome on ASD autism narcolepsy all of these suddenly Imperial autism rates went from one in ten thousand to one in every 34. 1989 was the year this began allergic to these peanut allergies suddenly appeared um food allergies eczema suddenly appeared uh anaphylaxis and Asthma you know which had been around but it exploded and then autoimmune disease is like rheumatoid arthritis and juvenile diabetes um I never knew it I had 11 disabled things about 70 cousins uh I never knew anybody with any of these diseases and son why do five my kids have allergies so uh so then if you look at the manufacturer's inserts for those 72 vaccines there's 420 diseases that have been associated with the vaccines that are listed including every one of those diseases that went epidemic in 1989. and this is the country which is the most happily vaccinated and this was happening here unlike any other country in the world and so we have this you know and and you know it's good for the Pharma this farmer now makes 60 billion on the vaccines when I was a kid they were making 250 million now they make 60 billion a year plus 100 billion from covet vaccine Freeburg do you believe that these vaccines are over prescribed and are part of the rise in ADHD and and all this Litany of diseases I'm just asking Friedberg who's our resident scientist here do you believe this you know explicitly as a scientist I'm curious I don't think there's direct evidence supporting that relationship I think that there's a lot of environmental factors that have been driving changes in you know the rate of problems with autoimmunity it relates to our food product products our food system it relates to environmental chemistry like Robert has talked about generally I think there's a lot of environmental conditioning that's caused this rise in in problems in humans and I interrupt for a second because I I don't think it's solely the vaccines our children today are swimming around in a toxic Zoo but there's a timeline and actually a toxicologist that I've used in many of my laws it's probably the most famous in the country Phil landrigan looked at the timeline of the explosion of all these chronic diseases and he said uh there's only a finite number of things that have caused it you know one is glyphosate things that went became ubiquitous against in every demographic beginning and around 1993 or 1989 um one of Ms glyphosis size pfoa's cell phone's ultrasound and he made the whole list and so it's a finite number and the question is and vaccines are part of that and you know it is suspicious because the vaccines list all of these as side effects now I've I've put together books you know one of my books on this subject on connecting these as 1400 references and 400 studies digested so the the science out there is pretty clear but we the NIH refused to study these things because it knows that whatever wherever they follow the dots it's going to end up with a big shot and so they simply have stopped studying them and they've turned themselves into an incubator for pharmaceutical products and they don't do this kind of basic research I want to just give you guys one example the most common vaccine in the world is called the dtp vaccine diphtheria tetanism does it we gave it in this country and beginning around 79. it was killing or causing severe brain injury in one out of every 300 kids who got it UCLA study funded by NIH that found it so they got rid of it that's what caused all the lawsuits and it eventually precipitated the passage of the vaccine we stopped it here they stopped in Europe but Bill Gates and who are still giving it to 161 million African children every year it's the most popular vaccine on Earth Bill Gates says publicly and saved 30 Million Lives he went to the Danish government and said we've saved 30 Million Lives will you support this program in 2017 the Danish said show me the study that shows that it saved all those lives he couldn't do it so they went down and they conducted and decided you know West Africa with a dance to operate all these health clinics and they looked at 30 years of data and as it turned out in a nation called Kenny bissau half the kids that country at the age two months and received the vaccine and half had not it was a perfect natural experiment and they looked at 30 years of data and what they found was that the kids who received the vaccine were not dying of diphtheria tetanus and pertussis but girls who received the vaccine were dying at 10 times the rate of unvaccinated girls and they were not dying of anything ever anybody ever associated with a vaccine they were dying of Bill herzia malaria anemia minor cuts and scrapes and mainly pulmonary respiratory disease and pneumonia and what the researchers concluded and this was a study funded by the Danish government and another is it a vaccine company and the scientists were all pro-vaccine they said is this vaccine is killing more people than the disease everywhere nobody knew it because nobody Associated the people who were dying because they were dying of all these different things that were only the unvaccinated kids so the vaccine had saved them from diphtheria tetanus and pertussis but it had ruined their immune system so that they could not defend themselves against other diseases and that's the danger of not having placebo-controlled trials prior to introducing the product particularly when you had a mandate a product for healthy people Let's uh with our remaining time here move on to energy you and the environment you've got an incredible track record I remember growing up in New York the amazing work you did for the Watershed project and I'll let you expand upon that in a moment but the only confounding thing I found in your position and I'm curious if it's changed or not is that you spend decades trying to close the Indian Point Nuclear Power Plant in a time when clearly nuclear power has gotten safer and is clearly I think we're the world believes and certainly everybody who's on this panel believes nuclear is a key Point uh in the transition to Renewables so what is your actual position explain it to us as basically as you can on nuclear power and do you regret or have you rethought your position on Indian Point uh no I mean and the important is the leaking tritium and the odds every every day so I don't see how you can say it safe and you know they still haven't figured out what to do with the ways they're now storing it you know it's it's 18 miles from Midtown Manhattan um if a you know the the shack where they were storing uh the fuel rods at the structural Integrity of a Kmart a terrorist attack against it with you know would uh basically render New York and have uninhabited for you know the next 5 000 years or so so to have to put it to put something that risky so close to you know 10 million people doesn't make any sense now nuclear power I'm all for it if they can ever make it safe or if they ever make it economical and it's not me saying it's not safe it's the insurance industry they can't get an insurance policy if they can't get an insurance policy and I would say I don't want it the nuclear American nuclear I mean you go look at what Fukushima they're poisoning the Pacific every day with huge amounts of really deadly radiation and they and out their only solution to it is to suck the water out of the groundwater and stored in these big big tanks and if you just go on the internet and look at a picture of the Fukushima water tanks and they go on to the Horizon and there's no end to it Robert can I just make a point the thing with nuclear that's worth separating is it's not the fundamental technology there that's broken in either example that you use but it's the profit and motive that caused both the industrial engineering of both plants to be subpar because Fukushima for example was engineered not to the seismic levels that you really needed or elevation even conceding all that here's what I would say is that you know in our country there's no the nuclear is regarded as so dangerous that they can't get insurance so the industry had to go to Congress in a sleazy legislative maneuver in the middle of the night and get the price Anderson Act passed so that there so that to shift their accident or onto the American public so if their plant goes up I am I and I was 10 miles from that plant then I'm gonna have to pay for it so I don't think that's free market capitalism I believe in free markets and I can tell you this there is no public utility on the face of the Earth I will build one of those plants without massive public subsidies not one nobody will ever do it and then they have to store the waste for the next 30 000 years which is five times the length of recorded human history and if you tell me how that you know if they had to amortize that rate up front there's no way anybody do it number number two or three or four or whatever I've gotten to it caused now between nine and 16 billion dollars to build a nuclear power plant just the construction cost and then you got to get the technicians and then you've got to get you know the waste disposal the regular outages and all of this there's no way that it could compete in a free market I believe in free market capitalism I am a radical free marketeer I believe that our Energy System should reflect the marketplace and the right now you can build a solar plant for a billion dollars a gigawatt you can build a wind plant for 1.2 billion dollars a gigawatt a coal plant will cost you about three and a half billion dollars a gigawatt and then you have to pay for the fuel by cutting down the mountains of West Virginia uh poisoning 22 000 miles of streams burning you know putting Mercury that gets into every freshwater fish in America sterilizing the lakes of the Appalachians if they had to internalize that cause coal which says is that you know it's for nuke which says it's too cheap to meter it turns out it's the most expensive way to boil a pot of water that's ever been divided I'm just trying to make the point that if you look at the levelized cost of energy now what you're saying is exactly why solar and wind are winning it's just so much cleaner it makes so much more sense there's no fuel costs and if the impediment is distribution is that we don't have a grid system that can effectively you know orchestrate uh variable power and that's really let me provide a counter that maybe it's not about distribution but it's about scaling production capacity so you know if you look over nearly any historical time scale since we've had industrial energy production on Earth for every one percent increase in GDP per capita you see a roughly 1.2 percent increase in energy consumption per capita and so if you forecast out by the end of the century the GDP per capita estimates in the U.S and around the world we need to increase Global energy production by roughly you know anywhere from 5 to 10x and you know the current system of pulling carbon out of the ground and burning it up and pulling heat energy out of it doesn't scale doesn't make sense obviously put aside the carbon effect problem and there appears to be you know a reasonable chance of a pretty serious material shortage for renewable sources by the middle of next decade so what do you think is the right answer to long-range energy security and what sort of Technology should we be embracing and do you think that they scale fast enough to kind of allow us to have our economy grow in the way that it needs to to support the the population demands over the next Century I mean I'm agnostic about the energy source and I think you need it you know you have to be eclectic about it and a lot of them are are you know make sense locally but we I mean we have enough energy we have enough wind energy in North Dakota North Dakota is the windiest place on Earth outside of the Arctic North Dakota Montana and Texas we have enough wind energy to produce five times the amount of uh our entire grid um the the problem is the North Dakota wind farmer cannot get his product to Market because it dissipates in a you know we have an anticipated grid system that simply will not efficiently move electrons across country and we need a DC grid system that you know is off-ramps in the big cities Etc that can do that in North Dakota if you have an acre of Farmland it's worth about 300 bucks if you put a wind turbine on it it's worth about 3 200 bucks so every farmer in North Dakota wants to put wind turbines in their corn fields and the problem is they cannot get that energy to Market that is the only choke point and if we and the same is true you know in in uh and you know we have great solar power in this country um we we have you know we have an abundance of of renewable energy in this country and the power the problem is the incumbents were were were operating on rules under rules that were written by the incumbents to reward the dirtiest filthiest most poisonous most toxic fuels from Hell rather than cheap clean green wholesome feels from heaven and we ought to reverse that and and make it make them all competitive it seems like technology and economics have reversed that in a way yeah yeah one last question on this so as president would you support initiatives that could advance and allow approval of safe nuclear fission production systems to be built here in the U.S well I will like I say I support nuke and new technologies of nope that are safe you know were they but but as long as they can compete in the marketplace you show me and by by the way I think we should be doing science even when there's no you know economic end so we should be looking at this stuff that I would not promote new if it's not competitive in the marketplace and it's you know and and that means you know cleaning up your mess after yourself which you know is the lesson we were all supposed to learn in kindergarten they have to show us what they're going to do with the ways how they're going to internalize their cause rather than what they're doing now which is to externalize their cause and internalize their profits okay we have covered a lot of territory and I hate to get to uh controversial ones like culture wars but it's going to come up in the presidential election I personally don't think this is what's important in the presidential election I think the fiscal stuff the energy stuff the the wars and political stuff we've discussed today are much more important but I'm curious your take on the issues around Disney DeSantis trans uh and this cohort of issues which have become an obsession it seems between certain members or certain political parties or both parties the media and certainly it's taken over a lot of discussions amongst the generation on social media what's your take on all this and when you get caught up in these debates in the presidential debates about trans athletes as but one example do you think a trans woman who was a biological male should be able to be put in a female prison do you think they should be able to play on a female basketball team and change with a bunch of 15 year old girls in a high school locker room I've already at first I want to say this I think that people I believe in bodily autonomy and that people's choices about what they want to do with their body should be respected and people should not be shamed I do not believe that uh as somebody who was born a biological man should be able to compete later on in life whatever choices they made on a woman's team I mean I have a a niece who is uh playing softball at at BC she has worked uh she has devoted her entire life to getting that scholarship and it's it's consumed her and I've watched you know during my lifetime women's sports from essentially non-existent to to Equitable mainly with men's sports and I think that's important and I don't think that you know women should lose ground um in in any way so I would you know I said on I I don't believe that that's the right thing but I think everybody should be respected let me ask a question then about parents who are struggling with this issue at what age should a doctor be allowed to perform gender reassignment surgery on a individual you believe adults so at what age should you be able to have gender surgery because this is going to come up multiple times in this debate I think I'll just ought to have that choice I don't think a child should have that choice um except with you know certainly not without apparent parental permission and I really don't you know I I know that the um you know it's and let's start by saying this this is a difficult issue and it's an issue that we should not be judging people on and we should not be hating people about we should watch be trying to solve people's problems and give people as much leeway as possible to and as much respect as much leeway to exercise their choice isn't much respect for those choices we possibly can within that framework I don't believe that it's uh that a child without their parental permission should be allowed to choose that kind of surgery because what if their parents agree to it should a 15 year old be able to be uh if that that's a very difficult question and I and I don't feel like I'm equipped to answer it I'm not gonna you know interfere there's yeah I think this panel agrees with this is a very difficult issue and you know people should be yeah what do you think about things like critical race Theory and maybe we can just use that as a way to just talk about the state of U.S education in general are we preparing our children for the task at hand and what is the task at hand maybe in your eyes and how does it need to change if at all uh you know I think critical race Theory as much as I understand it um is you know listen we should not be hiding from people we should be honest people about the history in this country of genocide of racism and those things you know we need to be honest about that with each other not to shame people not to make people people feel badly not to make people feel guilty but to understand the Milestones that we never want to go near again and to move forward with those things I you know internal I don't really understand the battle over a critical race theory in in schools but you know to the extent as somebody would say that this has to that that theme has to dominate all historical um teaching I would be against that I think it's very very important you know America our country has has done wonderful things in the world we have a history of idealism we have a history of moral Authority and Leadership and we have a history of doing bad things too but I think for children for the sake of our national Unity for the sake of you know we need to instill children listen it sounds optimism and hope and love and also a love of history I mean I grew up learning history and learning you know kind of the heroic aspects of History which I Now understand are not the only parts of History um but it's really important for children to have have role models to look up to and have an optimistic view of our country and to have understand what the shared values are and by values I mean aspirational values you know the things that our country is supposed to stand for when we are at our past for example Robert in the in San Francisco we canceled advanced placement classes because it made people feel bad do you think that was a good decision in the name of equity no we should be inspiring our children towards excellence and we should be able to as adults give them measures of what me we mean by excellence and you know that inspires kids and inspires the best out of them and you know we need to we need to have those kind of metrics so that doesn't make any sense to me but then what's your view on for example just educational diversity in charter schools and you're just positioned on the teachers unions yeah I mean my view is that we ought to be putting huge resources into public schools and making them the best schools in the world and I think if we uh you know right now we're making stealth bombers for a billion dollars that cannot fly in the rain and I think if we just cut production of a couple of those we can make all our schools the best schools in the world do they need competition do you believe in vouchers and parents getting to choose which school they go to because it does seem like there's not a lot of competition and that these teachers unions have a Stranglehold on these schools I have to look at that issue more I mean my inclination is that we should be putting resources into making our Public Schools the best schools in the world but you said you believed in free markets with regard to energy why not free markets in regard to education uh it's a it's it has an appeal I I need to look okay fair enough yeah let's talk about censorship let's talk about the media one of the things that happened during the covet pandemic is that a lot of people grew suspicious of the mainstream media even more suspicious than they already had been it seemed like the media was curing water on certain issues it was almost impossible for the media to take seriously the idea that the virus might have come from the Wuhan lab for example people who put forward that I think reasonable explanation were called conspiracy theorists the media didn't want to look into why for example just as an example fauci lifted Obama's moratorium on gain of function research couldn't get the media to really cover whether you know masking toddlers in schools did anything positive and then you know when we found out that the MRNA shots didn't prevent covet the way they said they never even really asked the CEOs of Pfizer and these other companies when did you know this when did you know that the vaccines didn't do what you said they're going to do I remember at Davos you had Rebel news it was this Guerrilla media outfit that Acosta berla the the CEO of Pfizer out in the street and they were just asking him questions that the media is supposed to ask like you know when did you know what did you know and when did you know it with respect to whether the the vaccines prevented the spread and you couldn't get the New York Times or any of the mainstream allies to cover this at all so it fell to this gorilla media outfit so anyway that's a long wind up but you know Robert what's your take on the media why why can't we get what seems to be honest media coverage how does this fit into your theory of regulatory capture who are they sort of carrying water for and why you know I in 2015 I wrote a book on Simon aerosol and there was a documentary that came out at that time called Trace Amounts it was a really good um documentary on the Mercury based um uh preservative that was in a lot of vaccines at that time and it's been removed from most except for the flu vaccine now um but I took that I had a very close relationship with Roger Ailes who is the founder of Fox News I had this weird relationship just because when I was 19 years old I spent three months in a tent with them in East Africa and um we you know he would like when he started Fox News he became like Darth Vader to me and we were anesthetical and every issue but we always was a very funny guy and very clever and he was also very loyal to his friends and he would make all of the hosts of Fox News put me on so I was the only environmentalist who was going on Hannity and Bill O'Reilly and Neil Cavuto it said it regularly like weekly and he made them do that but I went to him with this with this um this movie and showed it to him and he found it compelling and he had a relative who he believed was vaccine injured a very very close relative and he bought he believed what was going on and what the documentary you know the throws of the documentary was but he said I cannot let you talk about this on Fox News I'm sorry it's the first time he ever saw me this and he said um if I let you if any of my hosts LED you on to talk about this I would have to fire them and he said um and if I didn't Farm I'd get a call from Rupert within 10 minutes and he said to me at that time that 70 of revenues for his not on network news on um on prime time were pharmaceutical ads and that um that he said of 22 ad spaces that we sell on the network news on the Evening News 17 of those are pharmaceutical the we cannot afford to offend our biggest um our our biggest uh funder is advertisers and you know I had this interesting experience with Jake Tapper where when I worked on my Rolling Stone article deadly immunity which was about this secret meeting that took place in Simpson with Georgia by CDC and all of the vaccine companies FDA Etc where they decided to hide the autism effect from the American people and we I got the transcripts from him published in Rolling Stone and um and Jake Tapper worked for 21 days with me on a on a doc on a exclusive story and he was going to add simultaneously it was with rolling stone publishing it and topper the night before it went on he called me in total distress and he said it's been pulled by corporate the whole thing is gone he said never in my career as corporate killed one of my stories and I'm really angry and then I called him back the next day he's never spoken to me again but you know there are consequences for these newscasters who depart from the Orthodoxy and they know it you know if you look at Anderson Cooper He's got a now probably a 13 million dollar a year salary but if you actually do the math probably around 10 million of that comes from Pfizer which sponsors his show so you know that's he's working for them he's not working for us and you know they know who they're working for explosive stuff uh and I can't disagree with you as having been a publisher of my whole career here why why even why even have pharmaceutical ads on TV I mean only doctors can prescribe them yeah it was illegal oh prior to 1997. so there's only two nations in the world that allow pharmaceutical advertising on TV one is uh New Zealand and the other is the United States we both have you know these huge pharmaceutical sales so we take three to four times the amount of pharmaceutical drugs as a European takes and we have the worst health results we're 79th in terms of you know Health impacts uh you know Health outcomes among all nations and so you know and also pharmaceutical drugs the third biggest killer of Americans after cancer and heart attack so it is not helping me when when they when FDA changed that rule um the AMA was against it unlike all the medical institutions said you can't do this it is going to destroy Health in America and but you know they did it and the problem is that these uh that the pharmaceutical companies now know not not only can you know have this platform for broadcasting their product but they also control content as far as I can tell I think the left just to be blunt hates you more than the right and so do you want to just comment on your ability to get the mainstream media to pay attention particularly folks on the left and give you the air time so that you can get your message up and how much the party matters in this process for you I don't know they're gonna I mean it was kind of dramatic what happened this week to them not to me because I'm used to it that ABC you know one of their the a person who describes herself as the journalist journalist and gave me a long talk when I got to ABC um that uh when I got to The Green Room that she was not somebody who would ever censor or cut and they're not working a cherry bit because I said well I don't I'm very uncomfortable doing a taped interview with him because I know what you guys do when I tape an interview you cut it up you cherry pick it you Dice it and you do and you then you play things out of context and she said you won't do see that from me I'm a journalist journalist I don't take orders from anybody I do it and then she asked me she says you know in the interview I didn't want to talk about vaccine I'm not going around the country talking about vaccines if you see my speeches I'm I don't mention vaccines I but if somebody asked me about vaccines I'm going to tell the truth I'm not looking to talk about I don't know I know a lot about him but I'm not leaving with that because I I'm interested in a lot of other issues oh she says um everything you've said about vaccine about vaccines and autism has been debunked and um you know vaccines it's clear do not cause autism what do you have to say by that and then I said by who and then I went into a long time where I cited the cases the dates the Publications and the studies that show that yeah obviously it caused autism and she cut out that whole section and then and then so she had her question which stayed at the industry talking point and then she brackets the uh the the news report on me with something at the beginning that says you know he's known to be a chronic liar and a disinformation spreader and in the end she said we had to remove things he said because they were false the whole thing was so weird that she has gotten criticism even from the left because you know I mean what is the newscaster supposed to do are they supposed to manipulate public information is their job to protect Americans from dangerous thoughts are they audiences do they have such contempt their audiences that do you think that the audiences can't make up their own minds and what is their whole vision about the traditional role of the American Media as the Guardians of free speech in the First Amendment on this country you can be sure our commitment to you is to not take out one sentence of anything you said there's some stuff I'd like you to take out I mean I also found that a crazy decision for them to make if you're if they actually believe that what you're saying about vaccines which they put on the table is incorrect or what you said about autism or covet is incorrect they should be trained enough to rebut it to push back and have a thoughtful debate about you I'll be even more blunted my my short takeaway about you Robert is that you are this odd person which is Born and Raised by the establishment but raising a lot of very uncomfortable questions about the establishment and I think that that's very complicated for people to deal with and I don't think that folks will be very supportive you in the mainstream and I think the reason is because it'll cause them to question all these systems that they put a lot of trust into that they work within and so I I'm not even sure whether they're trying to play gotcha journalism about vaccines or which is a much bigger thing which is here is a guy that I do think it's very similar to Trump that says he came out of the house and told us what was happening in the house and it actually turned out that was happening the Dave Chappelle quote from Saturday Night Live I think you're a very different person than him but that comment is very much the same I think people are attracted to the truth and the confirmatory evidence about when they think that there's frankly corruption and when it's laid bare in plain English I think it's validating for those on the outside because we're like we knew it and then for folks on the inside they're like we need to bury it and I think that that's what you're going to be up against this entire election cycle so whether it's us whether it's Rogan folks that will give you the chance for you to just lay your case out for millions of people who can smartly and intelligently make up their decision I think that's what it comes down to so I really just want to say thank you for giving us so much time and just being as honest as you were and transparent as you were sax closing thoughts here with yeah I mean I think I think that's a great reference chamoth to to the Chappelle quote I think that the ABC news interview was really telling because I think it's one thing if they had edited the interview for time and just cut certain things but they didn't do that they cut out your side of the conversation and then declared you guilty of misinformation but not letting the audience hear what it is that you said they simply declared you guilty of it and I think in that case I think this is an example of how dissenting views are labeled as misinformation as really a suppression tactic you know they can't prove that it was misinformation they didn't give you the chance to to say your your side of it and I think this is a tactic now of the elite to declare certain inconvenient truths or viewpoints out of bounds they don't want them being considered and I think what's very interesting about your campaign is you are in a force I think Elites and you know of various kinds foreign policy Elites Henderson Cooper political Elites media Elites Financial consider abuse yeah that you know whether you agree with them or not I think you've made them in a very articulate way and I know enough about certain of your views like uh with respect to the origins of the Ukraine war to say yeah I agree with that I believe that's true so I don't think they can dismiss you today's conspiracy theories sex as we've talked about are tomorrow's pulitzers today's conspiracy theories are tomorrow's pulitzers go ahead Jamal I really think that this is what's going to be scary is if you're as a selection kind of rolls forward the contrasting compare on the Democratic side is going to be very Troublesome to The Establishment and I just encourage you to just just keep sticking to it and telling people what you think Freiburg any final thoughts as we wrap can I say one last thing yes uh and I I wanted because it's such a great platform what I've always said to people you know if I'm if I'm promoting misinformation which I'm constantly accused of show me what it is identify don't just say I'm an misinformation promoter show me the piece that you don't agree with or that you know I I made a false statement I would say that I have not promoted any misinformation if unless misinformation is just a euphemism for anything that departs from government orthodoxies every pose I have probably the most robust fact checking operation in North America because I know these attacks are coming so we have 300 and over 320 MD Physicians PhD scientists on my Advisory Board who see everything that goes out and everything that I posted on Instagram was citadosaurus for to a government paid database or peer-reviewed publication I don't want anything and by the way that doesn't mean I won't make a mistake at some point but guess what if I made a mistake people would point it out and you know what I would do I'd change it and apologize your opinion in the face of new facts exactly right that's the only thing that'll change my opinion show me facts and I will change it so fast but you know you need to show me facts so just on on the competition between you and Biden for this nomination I want to say that the Kennedy family has been involved in public life for for decades and many Kennedys has served in public life and I honestly don't remember one time with any candidate you served in public life where they've been accused of receiving money from a foreign government not once and we're now up to 12 bidens I think who've received a payment you know from foreign governments potentially in this larger Hunter buying Scandal Do you have a point of view on that I mean the fact that it appears that under Biden and other members of the buying family receive payments from foreign governments is that how do you interpret that is that something that you think is fair game in this campaign to talk about uh I you know I don't know enough about it render judgment on it I don't know the intricacies of those relationships I I think the Optics are are unfortunate um but uh you know I would leave I think it is fair game for people who are looking into it to criticize and question it I don't know enough I'm not in the position to be able to do that all right on that I would just like to say I grew up in a Catholic household Irish Catholic in Brooklyn on the wall in my grandmother and grandfather's dining room were three people Bobby Kennedy Robert Kennedy and Jesus Christ it's been an honor to have you on the program and thank you for giving us two hours of vibrant debate we wish you well and we'd like to have you on again and perhaps if this platform allows September debates and they will not host you on the debates we will here on the all-in podcast I'll let you go and uh on behalf of all the besties thank you for giving us two hours and deeply engaging on these topics fantastic thank you I really enjoyed it all right this I think went spectacularly well let's go around the horn here and get immediate reactions Friedberg I want to start with you because I think you on the science issues may be held back a little bit and let him speak yeah we didn't have much of a dialogue with him I'd say we we all kind of had a few opening statements but let him kind of speak his mind I don't know we'll see how the episode plays with listeners it was really him having a platform to speak his mind for the past you know two hours and you know it's interesting I mean obviously he's a candidate that's challenging the the current sitting president for his own party's nomination so you know really kind of you know interesting moment to participate in and you know but we did kind of give him the platform to kind of speak his mind I think my observation is this guy Robert clearly has a very deep rooted anti-establishment energy and that plays through in many of his Points of View anti-establishment kind of energy I think manifests as both conspiracy theories where you know as people have kind of classified some of his claims which typically you know involves looking at call it correlation or circumstance but not necessarily having the causality or the tie to demonstrate or have proof of of point or evidence of point and I think that that's really where he trips me up on a couple of points personally which ones would you say are the points that trip you out most where were you like uh I think the general statement that there are kind of you know embedded interests in government is a good general statement that you start to try and tie together different kind of correlations or circumstances and say that's evidence it's not really it it doesn't resonate true with me as someone who who likes to kind of see empirical truth kind of be demonstrated I mean some of these points around we know that pfoas one you know one of these products one of these chemistries you talked about that's in the environment they're very damaging to the environment they're very damaging the human health and there are others that he makes claims around that don't have that same level of evidence but they all get kind of bucketed together that all this stuff is bad that all nuclear is bad because there you know is a facility that was built in the 1950s and 1960s that had some degree of bad engineering and what some might argue isn't necessarily a major major hazardous radioactive leak but has above kind of standards of radiation leak and therefore all nuclear is threatening those are the sorts of things that kind of trick me up with him a little bit yeah as well the nuclear issue the thing that matters to me this is all just [ __ ] talking rambling about social issues and you know like what the [ __ ] are we going to do with education and Wars none of it [ __ ] matters if we cannot solve the debt and budget crisis problem in this country we are running into the ground the United States is I know you do and I think the US is let's go back that then your key issue so for me this is the thing that I told you guys I'm focused on with every candidate is how much do you think about the prioritization of the fiscal the federal budget how do you think about the debt level and how do you think about the boundary conditions and it's clear that that's not really a concrete part of his platform nor is it by the way for any other candidate that I've seen so far that's kind of where I sit and it's very unpopular chamoth let's have your response here too I think it's good to have you the interview I just think that your opinion is an opinion and you present it as this canonical fact and that's what I have an issue with I just think that's intellectually not accurate so I respect the fact that you think that that's an issue but I think there's a lot of smart people that would say that's not the issue that you think it is and there are other issues where did you find yourself tremath in this process agreeing with him or disagreeing with him all political candidates at some point have a fork in the road which is that they're going to be a truth teller of their own truth or they're going to be conformist to talking points to try to offend the least amount of people okay and the first path is much riskier but it actually has much larger discontinuous outcomes I.E Trump the other path is a good antidote to the first path when the first path is what's in power and you saw Biden take that path so for me I don't agree with some of the things that he said in fact there are things like nuclear which I just think he's wrong about sure but what do I appreciate is that there is a version of his truth that is researched and reasoned from his own lived experience as well as history and facts and then he's also willing to say I just don't know enough about it so let me rethink it and then come back to you I thought the comment about you know school choice was an example right and I think that that's healthy so on balance I would rather have candidates in that first bucket which are truth tellers that have the potential to cause disagreement versus the placators who say nothing and this is where I do agree with Freeburg whatever the issues are that may be important the point is placating doesn't work anymore and you need some kind of confrontation on hard topics for there to be any progress now and so I prefer those kinds of people that are able to draw a hard line agitators non-uh conforms and I personally am so I've always been and I have been very anti-establishment the idea of tearing down all these institutions of power gives me Glee I find it gleeful when we look at this this incredible you know almost two hour conversation we had here I think we did hold him and force him on certain issues more than you would normally get in an interview without being Sensational we didn't lead with vaccines we didn't lead with culture wars we talked about really important issues where did you find yourself in most agreement with him and where did you find yourself in least agreement with him well I want to make sure we see the forest for the trees here because I think you can disagree with this or that tree or you can get lost down the rabbit hole of some of these very technical scientific debates but here's the forest is you've got this Scion of wealth and privilege who comes from the most prominent famous Democratic family and he was set in his life to go become an environmental lawyer who go fight against big corporate environmental polluters and somewhere along the way he realized it wasn't just big corporations was the problem it was a the agencies the government agencies that were supposed to be regulating them and he realized that there was a revolving door going on between industry and these agencies and so he ended up litigating not just against big companies but against government agencies I think that's a really interesting place for a candidate to come from and what you heard him say or what what I took away from it is that he is a very sophisticated critique of regulatory capture and it goes beyond just the environmental area it goes also to Big Pharma and it goes to the military-industrial complex when he's talking about all these unnecessary Wars that the United States has gotten into and who can doubt that after we spent 20 years and eight trillion dollars bogged down in Forever Wars the Middle East who can doubt that the military are just for complex just played a malign role in our foreign policy and we've got you know all these generals when they retire from the Pentagon they go right onto the boards of these defense contractors so there's enough right about his critique that I think you can't dismiss it you can't just say this guy's a conspiracy theorist or a nut he's saying too many things that I know to be true and there's a lot of other areas where I don't know what the truth is but he is making I'd say sensible arguments and he's presenting data and he's asking you to challenge him on the data so in any event I think he's got this very interesting critique of regulatory capture what he's basically saying is that we have a ruling Elite in this country that is managing the country for its own benefit and that is screwing the middle class and that critique actually is very similar to what Trump and DeSantis and people on the right are saying the only difference is that I think people on the right are blaming ideology they're saying that the ruling Elite is following this woke ideology what Kennedy is saying that is following the money but you know what they could both be right I think these critiques are very compatible so look you might disagree with this or that part of it but I think that this overall critique the forest you know forget about the trees I think this Forest could find purchase with the electorate because I think people just feel like there's something true about this what I will say is this is exactly how Trump got elected and there was a great piece I think it was in the Atlantic when he was running the first time around that talked a lot about the psychology of his appeal that he comes from wealth he comes from the system but he is the anti-system system product that he came out of this machine of wealth this machine of Industry this machine of influence and he said this entire system needs to be torn down and if by the way the psychology that they highlighted and and it speaks to Trump not necessarily to Robert but what they highlighted was if you look historically at the rise of authoritarian regimes coming out of democracies it's typically the folks that come from an influence of from a point of influence and from the point of privilege and power and they then decided they wanted to tear down the system that produced them and you trust the bully that comes out of the machine versus The Outsider who doesn't really know the machine and doesn't really have access and that's partially why I think maybe he has a shot at being the anti-biden alternative more so perhaps in this go around than Trump is look he's not a bully and he's he's not going to say or anything down yeah listen I and I've heard him on other interviews and what he said is we need a peaceful Revolution we need to reorganize these government agencies so he's not saying like maybe that's why he does win over Trump right maybe he becomes the less extreme he's not the bully but he's like I know how to dismantle and you know his ability systems quite they're incredible Free Speech supporting the rule of law burgeoning the middle class I mean these are not things that are really controversial in the end and they're good morals right they're good vowels he's very morally grounded I think my concern is just the framework for how you kind of rationalize and and make decisions if you're allowing kind of influence innuendo and correlation be kind of the driving force instead of having you know make sure you just at least gather and and sort the empirical evidence to make those decisions that's what he's doing he just reached a different conclusion than you yeah he's just exactly because he's saying that the other conclusion is just the Orthodox conclusion which is nothing to see here yeah by the way I'm not an orthodox guy and I'm not like following folks have said you're pushing RFK because you think he's a weaker candidate against the Republicans your response no I don't honestly think you'd be a weaker candidate for all the reasons we're talking about I think he'd be preferable to to Biden in a lot of people's views so so look for me this is not like partisan I just think he's really interesting I think he is a breath of fresh air I think there are many aspects of his critique of our system and the corruption of our ruling class that hit home I think regulatory capture is a huge issue I think a lot of these agencies do need to be reorganized well it is the invisible hand that we don't know how to quantify well in all these other discussions that we have and he does put his finger on this really ugly uncomfortable truth which is there's a cloistered set of insiders for which there's a revolving door between power and money and it's going to be very awkward for a small number of people to hear that message as he gets more attention which is probably why the media industrial complex will not you know will do his best to prevent that message from getting out there the media is going to block this guy at every angle because when you know what podcast could play a huge role just like in 2016 social media broke through and played a huge role yeah I think in 2024 I think that podcast could break the way that unorthos candidates get their message out let's get their message out because if after two hours of this you don't want to learn more about him or you're not going to consider him more fully I think it's impossible because he's so well spoken as you said he's got a moral compass he's got a track record what he isn't saying is he's not just throwing bombs and there may be things that you can debate with him about his interpretation of what he looks at you know and that's very fair criticism I think but his critique is well reasoned and so you have to unpack the nuances of it to understand why he got to it and also to try to prove him wrong that is very powerful because it's not just him randomly screaming about how things aren't working now and I the moments I thought were very important here and especially for the listeners who are listening who are making important decisions and want to maybe change the political system there were multiple times on the issue of trans surgery and I'm going to be very nuanced here with the permission of the parents he said I need to do more research on it on Freeburg challenging him about spending spending he said I need to I need to give that some more thought but broadly speaking you know I think we can take money out of the military budget and billion dollar planes that don't fly in the rain there were many moments where he he conceded I need to give that some more thought I need to be thoughtful about that that's not something that you typically hear but in a platform like this with you know the Nuance that we've created on this platform having discussions and the audience also being nuanced and having depth we know the fans of this podcast are in a lot of positions of power I'm sure 100 or very high percentage of the people who listen to this podcast actually vote and are very influential within their own circles I think this kind of platform we have a very deep discussion and somebody could say you know what I need to go deeper on that and think about it when I asked him about weapons in Taiwan and then I said hey why wouldn't you give an answer that you defend Taiwan Biden gave it so I don't want to check my card you wouldn't want to do that that's a really good answer by the way the official the official policy of the United States towards Taiwan is strategic ambiguity which means we don't say whether we'll defended it depends on the circumstances yeah and and Biden when he he's now said multiple times that he would defend it and his own staff walked it back because they said we're not changing strategic ambiguity so yeah I mean the policy he said in that case actually is the United States policy so let me ask you guys a question if he won the Democratic nomination and he's up against Trump who do you vote for obviously that's RFK yeah of course on Earth okay and I think sax would have a hard time he won't say who he's voted for previously I think Sox would vote he's not going to say are you are you gonna say or no sax doesn't like to say he's just a Machiavellian I'm reserving judgment on the general until I know who both candidates are okay he won't even sax won't even tell us who who he voted for I would love for RFK Jr to be on the ballot and have that choice for sure and and it's possible I would it's possible I would vote for him it depends who the other person is it really because you wouldn't even tell us who you voted for or if you voted in the last election well that's my right Jason I don't have to tell you I just think it's it's intellectually dishonest since you talk about politics so much that I do I think you should tell us who you voted I talk about issues now I decide to balance those issues because every candidate is a complex mix of issues that's ultimately my decision yeah but for somebody inject it I'm not the one injecting it so to follow up on the question I asked I would love to see Donald Trump come on the show and give him an opportunity to have a conversation and see if folks can have a different point of view coming out of that as well as Joe Biden and maybe some of the other candidates running for the Republican nomination and I want to see if the the points of Focus for us can you know maybe uh match up with one or more of these candidates so far they will come on right yeah so Nikki how he's in and then Trump will do it and then Biden will not truffle to it I think she would do it because he somebody would I mean he had he had he did something with Barstool right Jason do you want to do you want me to do the announcement on the The Summit oh please okay we are confirmed and signed on our venue and so we are confirmed for all in Summit 2023 in Los Angeles September 10th through 12th cure the best we'll put out the um and I think it's gonna be really exciting because we'll have an opportunity to at this point in the year we have a lot of time to put together a really high quality agenda for conversations we each want to have with really amazing people so I'm excited about that we've kind of started to put together some ideas on what we want to talk about who we want to invite to have those conversations with us put out some invites so very good job by the way and you'll be leading your lead this is your AI Summit so I'm I'm handing everything off to you I'm helping with the parties basically but you're driving congratulations your team is exceptional I just want to let the audience know we're doing we're doing it together and yeah I'm I'm stepping back and letting you drive I consider this like your I care very deeply about content and I want to you know make sure they want to experience that yeah and the experience and have a chance to have the conversations we want to have with the folks we want to talk with so nothing could be better than you building on top of the first one and then we just keep going from there to moth and sax if they want to build on it from there there'll be three this is what everybody wants to know as tickets there's going to be three ticket tiers there'll still be a VIP one for 7 500 that gets you into the dinners oh sorry yeah that that's that's an important point the VIP experiences here we got some feedback on the last go-around um that we needed to make sure there was a degree of differentiation so the VIP experience will include special VIP dinners early access to the theater gift bags special sections during the parties so hopefully it elevates the experience a bit for folks that are able to pay the higher ticket fee which actually helps no bottle service I mean bottle service you can bring your card but hopefully as a way to kind of support the overall program and keep the cost down for everyone else and then it's a 1500 general admission pass which includes access to the parties and then we'll still have the scholarship clock I'll tell you guys a funny story yeah when I joined the ownership group that bought the Warriors I heard a rumor which was that when we were competing it was us versus Ellison to buy the Warriors and Ellison had an idea I don't know if this is true or not this is what I heard that he had a he had an idea for a new stadium and he's like he wanted to make it an ultra VIP stadium and so there's only 5 000 seats and that's all we're like Singapore Airlines first class seats so you go to the stadium but it'd be like everybody would be like up close and you could touch and outside they also had a thousand guillotines so you could just yeah I mean it's hard enough for a family to go see I don't know if that's true or not but I thought it was very funny are crazy expensive now it's like crazy hundreds of dollars for nosebleed seats for the dictator tremath polyhapatia for David sax who set up this episode and Friedberg the Sultan of science uh we hope you enjoy this it's the first of many to come we will still be doing regular dockets we might have to go to two episodes a week on weeks like this who knows but give us your feedback share the show and we'll see you all at the all in Summit we'll let your winners ride [Music] release [Music] we need to get Mercies [Music]