dude sax i love that look look at that shirt look at that man is it too noisy for a podcast you look very relatable you're like you're like a an american man like just like at home doing stuff is he trying to go full tucker on us it is a really really horrendous shirt that you're that is a i mean i that was the same shirt tucker was wearing last week oh my god sax is going to be so appealing to middle america right now he's like absolutely look he's going for the every man he doesn't have a blazer on he's trying to get the purple pills are you going to go chop wood with tucker yeah i may not be a man of the people but i do try to be a man for the people [Music] [Music] hey everybody welcome to another episode of the all-in podcast it's obviously been an intense week and there is a topic there's really only one topic to talk about this week and that's the russian invasion of the ukraine with me to break all this down i'm going to take it from a couple of different angles the rain man david sacks with his power flannel on today he's going to go chop some wood after this trying to appeal to the everyman power flannel it's a power flannel it's a power flannel i think that was gifted by tucker and the sultan of science hot off the you know how do you know it's uh flannel instead of uh cashmere how do you know it didn't come from one of tomas little um if you sent that shirt to chamathi burn it that would go right in his pizza i'm gonna burn it but i would wipe my butt with it geez here we go folks uh and hot off the launch of the hannah beveridge printer replicator the sultan of science himself david freeburg and back from a little holiday the dictator himself jamal palihapita with a a jedi robe tell us about the jedi robe that you elected for this week darth palpita well this is darth palpatine hapatia well i i mean this is look this is yes it is cashmere we're running out of time i have to wear through the rest of my few garments my new garments before it's springtime and then i have to go to the you know the linen and the cotton got it so you're enjoying the final days of cashmere well i do i did find some baby cashmere light thin you know you can wear them probably until april maybe even may so we have that going for us all right well there you go and is there a specific date that you uh shift over from to the linens and to to be honest with you i have a i have a team i consult with the team's working on that right they're working on that they're working on a recommendation all right so we can still laugh uh it's kind of hard to talk about other topics when a war has broken out uh i don't know if i have to go too deep into recapping what's happening because it is a static situation but there's been massive uh fallout from the war both economically lives lost and it's escalated pretty dramatically we had a pretty crazy moment last night we're taping this on friday march 4th last night a nuclear facility the largest one in europe uh was involved in a firefight it seems to have been secured and the russians have taken control of it but there were people bombing it where to begin here i think maybe saks we can start us off with a little bit of your assessment of the situation as it stands in week two yeah i mean when we broke up last week this war was just breaking out and we were still talking about ways that we might defuse it obviously that was too late and i think everybody probably putin first and foremost thought this would be a cakewalk and it has turned out not to be the resistance by the ukrainians has been fierce and it's been sort of uh galvanized by their leader zielinski you know at the very beginning of the hostilities he made the decision to stay and fight he had that video that came out with his cabinet standing behind him that galvanized all the people of ukraine stand behind them and then the west now wants to stand behind the whole country of ukraine so it's really been you know amazing leadership by zilinski and um you know it's too bad in a way we didn't have that kind of leadership among our allies and say afghanistan you know we had this guy ghani who got in the first helicopter out of there when when the trouble started um so uh you know his leadership has been strong and admirable and it's basically galvanized the west and i think that putin i think must have underestimated the level of resistance he would face and also the unity of the west in terms of sanctioning him uh and providing support for the ukrainians all that being said i think we're now at a very dangerous sort of crossroads because the situation is is very volatile uh and you've got so much variance in the outcomes that can occur now um i think you're seeing people prognosticate everything from you know uh kiev gets turned to rubble in the next week and the russians basically power through and win two this turns into a long-term insurgency to you know there's gonna be some sort of uprising in moscow and and you know regime change there and i think because the variance is so high because all the sort you know because the two sides are playing for all the marbles so to speak and you've even got i think intemperate and insane remarks by lindsey graham basically calling for uh you know calling for putin's ouster you know which i think is going to give i mean yeah it's going to give the kremlin i think a propaganda tool but for for rallying people internally but the the the point is just where it seems like we're playing for all the marbles right now and um i think that's a very dangerous place to be and i'm seeing you know insane rhetoric and commentary by people trying to push us into war and so just the other day you know one of the one of the things i tweeted about is one of the craziest things you hear is we're already in war three well and you know kasparov said this i mean he's kind of a known to be a little bit of a hothead but you also had fiona hill who's supposed to be a russia expert from the state department who frequently is the go-to source for cnn and other publications also saying we're already in world war three well no we're not i mean if we were in war three you'd see the mushroom clouds assuming you were still alive and not vaporized so it is incredibly reckless for people to be saying things like this and there is just you know this drumbeat of war that is being pushed by cable news and by the twitter sphere and just today uh thankfully this morning nato announced that it would not be uh imposing a no-fly zone over ukraine that was why is that important explain well because because there's all these people who are saying well we shouldn't send boots on the ground to ukraine we don't need to get militarily involved but let's let's do a no-fly zone to basically help the ukrainians how do you enforce that what a no-fly zone means is that you're going to shoot down russian planes yes that's what it means you are going to war it may not be boots on the ground it's boots in the sky so had we done that had we given in to the emotional appeals and i think we all feel the tug on our heartstrings but had we given into that we would be potentially in a shooting war with russia and that would be the most serious we're already in i think the most serious foreign policy situation in my lifetime and you know i'm almost half a century old so you know it's um it's very dangerous and um you know i've been saying for the last month on this podcast i've been actually advocating for the cause of not getting militarily involved and a month ago it seemed like an argument i didn't need to make but now it really does because uh both sides are are sort of and this is there's almost a unanimity in washington that we need to continue escalating the situation sex my concern is less about the washington um intent to put boots on the ground or boots in the sky and i'm much more concerned about nato allies there's 30 member nations in nato and um if any one of them does something stupid if there's any action by any even rogue element within the military or um some statement even by some politician at some nato member um you know you could see a reaction potentially from putin and then article five kicks in which is this collective defense article in nato and then the united states has an obligation to enter the conflict uh and and that's the one scenario you didn't mention which is the scenario i am most concerned about most frightened by is we don't know when the when or if a franz ferdinand moment could occur here that someone does something stupid some polish tank rolls across the border and shoots down some shoots at some russian you know tank and then the russian tank crosses over and then all of a sudden we've got to go to the rescue and we've got to go defend that that nato member and then all of a sudden this whole thing sparks into a wildfire it felt like last night could have been that when you look at the fog of war you know it was basically this nuclear reactor if it explodes if it has uh you know an episode would do just tremendous damage to the whole continent i mean if you're living in a nato country or in moscow if that thing had gone up which i know is a very um uh would be a rare occurrence and they were shutting it down et cetera so but there was that last night it felt like there could be a tipping point nuclear material is like a whole nother level it's like um it has nothing to do with war at that point it has to do with uh extinction you know a nuclear reactor is almost like a temple on earth to god it's like this holiest of holies no one can should or ever could consider that to be a point in conflict ever it's nothing should be touched let the wars of humans continue on the rest of the earth surface but nuclear weapons nuclear reactors that's unleashing the fury of the gods on olympus and when they come down they scorch the earth and nuclear material you know is an extinction kind of or is you know kind of a cataclysmic event for this planet and so you know that that goes well beyond this idea of like is it nato or did someone shoot at someone let's all go fight it becomes like almost existential to the to the condition of humans well so what does that say about putin then i mean putin targeted that facility no hold on a second hold on i think that's fake news at this point you see the tweet by michael shellenberger so hold on a second you said this is false nice tweet i did see last night's tweet okay so i don't necessarily think this is fog of war i think this might be disinformation so here's what happened is it and it wasn't just misreporting zielinski tweeted out a video where he basically was saying this plant has been attacked it's on fire it's going to be chernobyl times 10 for all of europe and then the foreign minister of ukraine came out with another statement just like that simultaneously so this was coordinated and then i saw on all the cable news networks all of them there's no difference between fox and cnn msnbc same reporting they were all in a panic about this and then you know and that now then we find out very quickly the truth which was confirmed by the white house which is no radiation no explosion um the fire was sort of tangential it wasn't core to the plant so i think we have to be very careful now to guard ourselves against disinformation that is designed frankly to escalate the situation and pull us to draw us into a war simultaneous with this there was a new york times op-ed by zielinski and and one of his aides who was standing next to him sort of transcribing and the headline was something like i'm fighting to the last breath look that that is heroic i mean i think we can all recognize zilunsky's bravery and courage in in in doing that however the point of that article was to tug on our heartstrings to get us to involved in the war and what he said in that that article was you don't need to send boots on the ground but impose the no-fly zone which we just talked about is a declaration of war yeah but no what i was talking about with the nuclear power plant is not that it wasn't being hyped up by the media certainly like this was becoming like their ratings bonanza and they were definitely hyping it up and maybe zolinsky was giving a warning hey this could escalate but the russians did target that they were bombing around it they were firefighting sort of freeberg's point like this is i think crazy behavior by russian troops by putin to actually you know try to seize a nuclear power plant it seems pretty crazy chamath you've been silent thus far let's get your moth involved here there's a 17th century phrase that says adversity makes for strange bedfellows and i think what happens when you are in the middle of enormous adversity um you know you need to do whatever it takes to win right that's i think why silence is so patriotic and viewed so heroically around the world now um he's trying to defend his country and his people um i want to take the counter of david what you said i actually think we are at war but it's the most positive form of it in the sense that we are learning a different kind of warfare now if you think about how we used to fight up until basically the persian gulf war it was armaments and tanks and then that evolved in the middle east because we had to fight insurgents and you know urban terrorism in many ways right i think this is a way in which we are learning that there's a different kind of warfare as well which is fundamentally economic and so you know it may not take the same shape as drones and missiles and fire and guns and bullets but i think you would be foolish to make the mistake that we are now not at economic war with russia and at the end of the day the outcome is the same which is either they survive or they don't survive and everything we've done points to that we are willing to fight um and we are willing to put a lot of economic collateral um and chips on the field in order to win this battle so i think in that respect we are kind of at a war did we are we on it is this a nuclear level economic uh decoupling everybody has a historical framework where they want to go back to how the natural path of escalation works and i think this is a very different form of escalation that we need to consider and i think that this is the kind of warfare that may actually um you know be the the way in which wars are fought in the future you seize assets you shut off access to supply routes you make it impossible for anything to work so you know i'll give you a simple example form of warfare is what's happening right now in the sense that you know for example the russian skies are completely clear not just because that you know no uh external airlines will necessarily fly there but because boeing and rolls-royce and ge and airbus basically pulled all of their support all of their parts right um we've gone to war with respect to their petroleum and lng supplies how not necessarily because we won't still stop payments which we are still enabling but because the actual refiners won't take the oil on the lng because they then would be subject to sanctions the people who would ship that are no longer taking those uh payments or those those barrels of oil into the marketplace because they can't get insured by international banks so in all of these various ways we are actually at war and i think you know maybe this is the way war should be fought in the future because it'll save thousands of lives in in the more classic way of describing how lives are sacrificed for i want to make a counterpoint my concern to mock is that we've rushed into a reactive response with respect to sanctions and seizing assets in a way that maybe not be calculated over the long run meaning like are we setting ourselves up for another iraq afghanistan situation where we rush into a war and we don't have an exit strategy and the issue is that a lot of the assets that we've effectively wiped the value down to zero have a repercussive effect on global businesses and the global economy as a as an example you know this company that we were texting about called luke oil they were worth 60 billion dollars a few days ago we effectively wiped them out to zero and um 65 to 70 percent of the shares in that company were held and owned by public uh um retirement funds pension funds mutual funds that are used for retirees in europe and the united states and um and so you know a significant amount this is a complete red herring i i've told you this in the private chat i think this is a complete complete red herring and the reason it's a red herring is that the global total market cap of all of these businesses is meaningfully different than the amount of total capex that these guys represent and inasmuch as you are gonna take the equity values of certain of these companies to zero it's in the grand scheme of things not that much equity value we can absorb it we're not talking trillions of dollars forget about the equity value just think about the economic repercussions where there is leveraged uh positions and swaps and derivatives in place counterparty swaps in place with a lot of these companies that are now going to default and we're not going to know that till the end of this month when everything has to settle and no one's going to be able to make their payments a small price to pay freedberg if well hold on one sec this applies both to russian companies that are suppliers and buyers of assets um products and services from international businesses and all of a sudden that line item just zeros out i don't believe the economic value of all of that oil exceeds the market cap of luke oil i don't believe it and i don't believe further that the economic value that's held by uh non-russian actors is meaningfully more than a few tens of billions of dollars we're going to find out pretty quick for sanctions by the way russia and the ukraine combined account for roughly 25 of global wheat exports let me let me say differently that wheat goes to egypt and from egypt it goes throughout africa and there's a lot of nations and a lot of people that depend on that food supply and that food supply is now cut off okay i understand but now we were talking about something different you want to talk about wheat we can talk about wheat generally i'm talking about zeroing all this stuff out and cutting them off completely hold on a second one of the things you have to realize freeburg is that the purpose of sanctions is to create massive pain that stops a madman dictator 100 from invading other countries and causing a world war so while it is tragic that's some pension hold on let me finish while it is tragic that people will suffer and people maybe can't get their netflix or can't get their facebook or some wheat will get disrupted all of this is the the is the better choice than going to war with putin and it's meant to create pain and suffering it does not create pain and suffering then russia will not change i understand the point of sanctions jkl i totally get it i totally understand the intent and i totally understand the point my point is have we really done the calculus because when you make this much of an impact this fast when you rush into what we might call an economic war with such significant abrasion in such a significantly short period of time i don't know do we really have a sense of where the calculus is because i don't know where the wheat imports are going to come from for egypt now and i don't know where the millions of people that depend on that wheat supply are now going to get fed from and i don't think we have an answer if we had a strategy that said here's the solution here's the solution from an energy perspective from a food perspective from a capital perspective to fill all these holes otherwise we may all end up sharing that cost over the long run and it's going to be a big cost to bear i think you're wrong and the reason why i think you're wrong is we've already seen how this has played out before so in the last two years we learned what governments are willing to do when you have supply shots in demand shocks and what they do is they turn on the money printer and they create enormous amounts of stimulus okay and what we have now is a point where if these shocks are really really really meaningful globally i think you're going to see the federal reserve and the ecb and the bank of canada and the bank of japan step in in a very coordinated way to provide liquidity to these markets and i think what that has the byproduct of doing is blunting the economic consequences to everybody but the person who is sanctioned do you think that's inflationary as well no and the other thing in fact it's the opposite i look david and i have been the ones that said the risk is to a recession we are now teetering towards a recession nick you should throw this thing that i sent to you guys before if you look back over the last 30 or 40 or 50 years and you look at every single period of when there has been a recession what's interesting to note is that it's not always been the case that the price of energy has risen by 50 percent in a recession but it is always the case that when energy prices spike by 50 we enter a recession we will contract as an economy the government will have to become more accommodating that is the price of this economic war that we have started and i think it's a just price because what's happening is not supportable so tamath you are sure that we're or you you feel strongly that we're not entering into a condition of significant stagflation where we're not able to restimulate the economy and we inflate everything with all this money printing i don't even know what stagflation is to be completely honest with you i don't think i've ever seen it i know how it's classically described i think it's like pseudo-intellectual kind of gobbledygook speak what i can tell you is i think that prices are too high in certain core commodities and goods i think what's going to happen is we are going to find a way to subsidize those prices coming down and i think the simplest way to do it is for the government to step in and become a buffer and it will drive massive deficits it'll drive increasing amounts of debt but i think that is a simple way for us to make sure we put and ratchet the pressure and just to speak on this other point we have only just begun meaning just today as we started the pod uh biden came out with an incremental new set of sanctions on russian crude so we're not at the even in the beginning we're at the beginning of the beginning i'm just worried this is a new kind of nuclear war i mean it's just well it's right now if this is if this is the new nuclear war then it's a blessing because we're not going to have millions of people die sacks is are the sanctions just right too strong too little i think like versus going to war i think what free we're saying is that we're on an escalatory path here that starts with sanctions then leads to more and more sanctions that includes arming the ukrainians and i don't know that's not that's a big that's a big leap and i think i think already the germans gave the gave the ukrainians javelin missiles last week yeah i mean i know absolutely right and there's there's a lot more coming so you know what i would say is back to something said which is we're already at war i you know call me a call me non-binary call me a non-binary thinker but i don't i don't like dividing our options in that simply into war and peace i think there's like a spectrum here and there and and you could call that spectrum an escalatory path so there's sanctions there's arming them and and so on down the line and i don't like characterizing what we're in or what we're doing is war because once you're in war then it justifies anything and for the other side too so you're such a pacifist sacks it's awesome keep going look we have to remember wait no let me just clarify what i'm saying yeah let me just wait i didn't say we're at war i said we're at a form of a war it's an economic war it's just a difference i hope it stays economic then you know i don't i don't like using that metaphor but let's not debate semantics but to jason's point am i pacifist what i would say is you know during the cold war we have to remember that this philosophy of containment that we had the goal was to prevent the spread of communism while conceding that the countries that were already communist that were behind the iron curtain we would not challenge we would not seek to roll that back why because we did not want hot war with the soviet union and everything was calibrated to make sure that we did not blunder ourselves into nuclear wars mutually assured destruction and yet it almost happened anyway most notably with the cuban missile crisis but rules of the game evolved right and so we did things like arm the mujahideen you know rebels in afghanistan with stinger missiles so that would be sort of the equivalent of the javelins but we sure as hell didn't put the american flag or a nato flag on the boxes and on the trucks delivering those weapons we delivered them through pakistan through intermediaries there are rules of the game that we all understood now i hope we are following some of the rules but it feels to me like we are and i think one good thing is that both biden and certainly putin remember the cold war they were very involved in the cold war they're old enough to remember it and hopefully we remember those rules the most encouraging thing i've heard bin say this entire time was when he reiterated at the state of the union that we would not get militarily involved it's very important that he keeps saying that because you know the russians are looking at these statements so we just have to remember that again we're on this escalatory path and and one of the things that's going on here is is is a purity spiral so there's a social media version of this and there's like a partisan version of this so the social media version of this is that the way that you show that you're on the the side of the good of ukraine is you advocate for the no-fly zone you advocate for the escalation but if you advocate for slowing down or de-escalating or just taking a breath you're called a putin bootlicker you're called neville chamberlain i've already gotten about a thousand reply tweets coming at me saying that so the purity spiral on twitter that we've seen in so many other contexts now pushes everybody into the into world war three similarly there's a partisan dynamic where no matter what biden says or does no matter what new sanctions he imposes the republicans will always announce him for weakness and the media and fox news will always announce him for weakness it's a one-way ratchet how much more do you want him to do is the question and i think freeburg asks you know a great question which is what is the end game here what are we trying to accomplish and what i'm worried about is that the dynamic this this um frenzy that you know what what biology is called the chimp frenzy of social media right with cable news and now social media and partisan rhetoric it all pushes us towards continual escalation and war three and who are going to be the grown-ups who say listen this is foolish stand down take a breath by the way we might want to keep some of these cards in reserve we don't have to play every single thing right to your point um i saw lady g trending i guess this is his nickname but lindsey graham literally explicitly said somebody in russia needs to assassinate putin i mean this is a crazy escalation and then on the other side inside the you have people saying you know putin's a genius and so we are going to continue to ratchet up these economic sanctions guys we are this is the beginning of the beginning of the economic sanctions we're not even in the middle of them what do you think he's going to do like what is the exit ramp for putin if we keep doing this and he's in a corner i have no idea but i think that it's clear it's pretty it's pretty plain as day if you're going to be unemotional and just look at this from our from the american and european perspective which is the only end game now uh is regime change right and one step before regime change is a complete sort of detent and somehow you know um [Music] surrender by putin in the sense that he pulls back from ukraine not if seventy percent of his people support him which is what a poll pulling figure showed this morning right and and you're careful with those polls i mean people in russia are not exactly gonna say i'm anti-putin in a survey well j cal i mean look you can say that to to kind of defend what you believe about i know i'm not saying it to defend whatever i'm saying like i'm saying just just suspend it and assume for a moment that maybe that is the position of those people maybe they do believe in pride of nation like the united states would believe in pride of nation if we were attacked if everyone took economic sanctions against our country would we not stand up and defend our president and our nation and say that our country is the prime country and our way of living and our life and we should be left alone you know this is um this is not an issue for the world to get involved in okay let's play this out and so how do you end up assume that is the case how do you end up having a regime change where you don't have a country that's actually in revolt but you have a country yeah but let's play this out like look people are rallying for what this guy is doing if that is the case right let's move our conversation to exit ramps from where we are there's there's two options right there's two options option one is ukraine successfully defends itself right and option two is russia quote-unquote wins okay let's just go down that branch for one second or they settle there's a third one jamaa they come to a peace treaty which is what's happened previously oh there's a third and then there's like i guess what you're saying jason is like everybody just kind of stops where they're they are in place yes they do a peace treaty they give them the east of the ukraine of ukraine got it well let's let's play so then what happens to all of these economic sanctions are they undone that would be part of the negotiation right yeah maybe undone based on conditions the question is are their reparations paid one way or the other and how do those get funded well those should be imf get involved and say hey we're going to fund your 300 billion dollar war damage bill to the ukraine and you know there's a big confiscate the 650 billion dollars sitting in foreign bank accounts that's owned by the central bank of russia again like how do you go back and lead a nation and how does a nation accept that how do they accept that um their sovereignty has now been challenged when a few months ago so they were the aggressor right they don't already look at what happened to japan by the way you know i mean you know it's it's a very similar kind of um psychological shock that that may not be as easy to swallow with modern russians don't all roads then lead to this is going to take a really long time to figure out a long it's either going to take a long time or it's going to catch on fire i thought georgia took like 11 days so i mean i there's a sun tzu quote uh which i don't want to butcher but uh it was build your opponent a golden bridge to recruit retreat across there needs to be a golden bridge here that's what we talked about we we did talk about it two episodes ago where we said well we're not what if we're people running the country i'm talking about like where's biden and where's the rest of the state department and saying here's an exit path for putin and clearly stated over and over again and give him something to win right like i think we gave a suggestion david correct but i'm wrong if you suggested or i did two weeks ago when we started talking about this which was hey why don't we just say hey we're not going to allow the to allow ukraine to join nato for a decade if you leave now you know we're so past that we're so passionate are we that has nothing to do with i think what's going on now you had countries you had countries like that came off the sidelines and have done things they've they haven't done 30 40 50 years and in some cases ever i mean their industry just got gutted this week house so like we should understand that there's there's a there's a hundred million people worried about there's a hundred million people worried about food if we had done it preemptively i think i think it made a huge difference like look at germany as an example germany under 40 years of policy you know they had consistently been under investing relative to their gdp in the military and they made an explicit commitment to basically just ramp that up back above two percent you know they've also made commitments around their energy independence you know switzerland is freezing bank accounts something that they've really never done and they've always stayed neutral sweden sending uh uh military support so there's a lot of countries in europe in continental europe that have found a voice well it's terrifying right chamoth i mean to live with this threat just east of you this would be like us living with this threat in you know central america or something this is like two steps away and i think that's what people forget is the geography here of you know france germany uh paul and ukraine i think this nato commitment doesn't necessarily get it done at this point yeah i agree with that i mean i didn't have to be part of anything what's the actual ramp in my opinion is that you ratchet these economic sanctions up so severely that then you know look the thing is hopefully in the aperture of war memories are short in the sense that you know if you ratchet these things up very aggressively now all of a sudden something from even two weeks ago seems like a much much better place to be right and so that could be an off-ramp which is like you basically find a way to take a lot of pressure off these economic sanctions in return for it to taunt i mean i don't know but i'm making this up i have no idea i mean it feels like there's no exit here because putin has a lot of pride and nuclear weapons is this an a no exit situation saks i think there's always an exit we have to be willing to to contemplate what that is i think to your question let's go back for a second up to your question would it make a difference if we had taken nato expansion off the table say last year i think this year was probably already too late but i think the answer is yes regardless of whether you believe that nato expansion is a real issue for the russians or whether you think that's a pretext because you know people are in one of those two camps putin has been saying since 2008 in 2008 there was a nato summit in bucharest in which they basically declared they proposed that ukraine and georgia could eventually be eligible for membership that basically started this whole thing the russians at the time said this is an absolute non-starter for us it's a red line no way will we allow this to happen and in fact later that year they rolled the tanks into georgia to put a stop to that idea in georgia in ukraine the conversation was deferred they had this basically pro-russian democratically elected prime minister president yukanovic who was deposed in a coup in 2014 a coup that was supported by our state department and probably the cia okay in reaction to that putin sees crimea not a year later not months later days later the reason why he was able to seize it so quickly is the russians actually have a naval base there at sevastopol okay it's it's at least the area is leased from ukraine but they have a naval base there it allows them to control the black sea so the the russian thinking on this if you believe it goes that listen we're about to have a pro-western ruler come into ukraine installed by what an american-backed coup and now we're going to lose our main naval base in the black sea and it could be replaced with a nato base there's no way that's happening so they moved to seize crimea and then after that they started backing russian separatists in the donbass and the civil war began okay so that basically is what's been leading up to this and then last year they started getting very exercise about the possibility of this nato proposal which again goes all the way back 2008 becoming formally recognized and ukraine joining nato and for again this is from the russian perspective okay and we could talk about whether there's a pretext in a second but from the russian perspective they said that listen and putin gave a speech like this if ukraine joins nato because of article 5 the next time we have a border dispute which is all the time right we could end up getting drawn into a war three with you guys and so there is no way we're going to allow ukraine to be part of nato and so they propose they basically by december had given an ultimatum to the state department now what was the response to that lincoln came out at the critical moment and said nato's door is open and will remain open basically said you guys can you know take a hike um now obviously that was an extremely provocative thing and the russians invaded ukraine days later now i think it's pretty obvious that if you take the russians at their word that they believe forget about whether you think it's true or not but if you believe take them at the word that the same word they've been saying since 2008 that this is a red line for them and they have a serious vital national interest there then you should have diplomatically tried to resolve this issue but even if you believe it was a pretext and putin is making up this whole red line thing and his real goal is the expansion of mother russia and all that reunification or reunification let's say that's his real goal it still would have been a good idea for blinken to basically declare that we were going to take nato expansion off the table which is simply an affirmation the status quo it's not appeasement you're not giving anything up you're reaffirming the status quo why would they blocking something from happening in the future right why why would that have been a good idea because the polling on this showed that the russian people by two to one were in favor of basically taking this kind of military action against ukraine to prevent nato expansion but they were not in favor of doing it purely for reunification so you would have if this was a pretext by putin for his expansions dreams you could have taken away that card and it would have changed his calculus would have prevented the war we can't say but in his calculus he's got to think well wait a second maybe the people won't be behind here's the good news too if you had given him that chip and said we're not going to let them in tornado and then he does invade now you've proven that this person is in reunification mode and he's deranged and he's a warmonger and that this could go to other places and finland and poland and other people have no real reason yes you would have so it would have been a much better chess move right so there was a failure to listen and um and this is what concerns me so i want to you know uh george herbert walker bush who i think was a great foreign policy president only wasn't so good on domestic only got re-elected didn't get reelected but everyone recognized him as a great foreign policy president and um he has a quote about this style of foreign diplomacy that we that his son practiced dick cheney and rumsfeld and the same people now in the binding administration it's all the sort of neocon foreign policy he said though he he called this iron ass foreign diplomacy he called cheney and iron ass and he called sold arrogant and um you know what he basically said is that these guys he's talking about cheney and rumsfeld they don't listen they just want to kick ass and take names they never want to listen to the other guy's point of view and um you know he thought this was tragic he thought it ruined bush 43's presidency and i gotta wonder i mean are we practicing the same style of iron ass diplomacy here you know um well now it's too late we're already at war i mean i think if we had practiced i i i think if herbert walker bush and james baker had been president last year and and james baker was secretary of state do you think we'd be in this mess i don't think so i think james baker would have figured out a way to defuse it who is the political who's the political scientist that you shared that uh link from in the group chat uh from the university of chicago who have yeah this guy john mearsheimer who's sort of king i watched the video from him it's quite convincing that we should have an approach that was hey we we don't need to incite ukraine to break off we could let them make their own decisions and that we're kind of taunting the russians that i don't think you know he makes a pretty convincing argument there and i don't think you need to be a putin apologist you can keep in your head this person's a dictator this is a communist country he's a murdering sociopath and at the same time we should not provoke him and let the ukraine make their own decisions but not encourage them to come into nato and we should have taken nato off the table it's pretty clear that that would have been a better uh decision here but we we still can't think of an exit ramp here which and i don't hear what's talking about putin has never said i want x well no i think you know there there have been times where he well i mean look i think his demands have been a non-starter with us i think at this point he wants crimea he wants the don bass to be independent maybe uh under the suzerainty of russia some protectorate basically uh and he's talked about this uh denosification demilitarization of ukraine i mean so now i think the demands are escalated because they're at war and he's lost too much he needs to get more right i mean part of the the problem is you're saying he's stuck he needs to no i think once you've you know once you've invested 100 you've got to make 150 back whereas before he had invested 10 he would have been happy taking 50 out you know and i think at this point he's put too much in to walk out with the same sort of deal you know he was like what are the chances he's overplayed his hand like the economic cost at this point to him the loss of jobs the loss of customers the loss of the value of his currency i mean you add all this stuff up uh so much has been taken away it's very hard to see him coming feeling like he can come out of this thing ahead and so he's only going to keep plowing forward does he face the risk of ruin chamoth i mean is this like at this point here in 2020 russian gdp was 1.483 trillion dollars now what percentage of that do you think is actually exports versus a domestic economy let's say half let's be just take a guess right so you're talking about 750 billion dollars of exports so let's just say that you know between the boj bank of canada ecb and the federal reserve we all just collectively printed five trillion dollars you can absorb many many years of russia's export loss now it does have some gnarly implications you know you probably have to work more closely for example with iran you have to get an iran nuclear deal done why so that we can get access to their oil right so it blunts the loss of the of the russian reserves as an example you know we'd have to do um some clever things on sustainability and farming my point is though that i think the economic calculus of this decision is not as grandiose as it once may have seemed post a covet scenario where we were printing you know hundreds of billions of dollars a month i think there's a the only good news i can take from this acts is you know the the free world has now learned about what a dependency like we've literally woken up from the delusion that we can intertwine hold on let me just finish this once a minute i want to get your feedback on it we have woken up from a delusion that we can intertwine our economies with rich nuclear-powered dictators in communist countries both china and russia and now i think the great decoupling and the great independence is upon us with us moving semiconductors back on shore going nuclear maybe fracking seems i think even any environmentalist will take fracking in europe fracking in the united states over a dependency over a dictator so is that a silver lining here yeah i mean look i think it's so obvious now to everybody that we need to be energy independent that it was insane for us to throw away that energy independence we've restricted it i think that if there was a bill introduced i think it's being talked about to uh repeal all the restrictions on fracking it would pass the senate 75 25 meaning all the republicans would vote for it half the democrats would vote for it so i think everybody's on board now and there was some remarkable uh you see the tweets from michael shellenberger about it it has come out that you know who is backing all these anti-fracking environmental movement in russia in europe exactly and they fell for exactly the germans fell for it and turned off nuclear and now all of a sudden they're dependent on russia and he has the pretext to now invade right these environmental groups in in europe have been useful idiots for putin and the kremlin yeah that's that's what's so sad i think i saw a tweet it was something uh to the effect that 25 years ago or 30 years ago europe actually produced more liquefied natural gas for europe than russia did and the whole thing flipped because all these environmentalists forced the outsourcing they outsourced their guilt but it turned out that all a lot of those organizations may have been funded by russia to basically affect that change i wanted to say something jason before you know there's a common thing that you hear right now which is oh economic sanctions don't work and i just wanted to talk about that for one second which is i think i think there's a lot of people there's a lot of chatter that historically economic sanctions aren't enough which is why you can't draw a very clear bright line between that and military intervention as well and i thought and i as i thought about it this is why i think you can actually fight an economic battle and an economic conflict without it pulling you into a military one and the reason is actually because of what's happened in the last 40 or 50 years you know you have like the the most critical infrastructure in the world i think is the financial infrastructure whether we like it or not right because you know energy infrastructure tends to be more localized other forms of infrastructure are localized but the one real asset that is absolutely global and universal is the financial payments infrastructure and you know what has really happened is that you can really [ __ ] a country or an entity when you blacklist them from these organizations and these networks and so this is why i actually think people underestimate the severity of um [Music] of economic sanctions if done correctly and i think before you've never really other than you know venezuela and a couple of other you know north korea north korea cuba venezuela cuba you've never really explored the totality and the impact of this kind of sanctions on a large global actor which this is almost greater than sanctions you're being you're not allowed to participate it's not even like you're saying you can't export this you can't import this it's you're now not allowed you have no seat at the table i think the crude oil example and the airline industry example are two incredible examples of the ripple effects of these sanctions right so again just to reiterate like if you're a european-based refiner in order for you to go and buy that oil you may have you know a working capital line from a german bank well that would violate the terms of that bank now and so you can't go and get that right if you actually have that oil on hand and you refine it into gasoline and you want to put it into the open market and you call flexport as an example and say help me get this stuff to xyz location or mersk or somebody else they won't do it i mean you look at the tech sanctions that have started it sounds minor but you have netflix is pulled out of the country apple is not selling products in the country google is starting to restrict services in the company and this is going to have a massive impact on their ability to just participate in society they just turned off proactively this morning if you saw that it was right as we were getting on air facebook's been bad instagram is still on twitter still on but the russians now are are turning off information into the country while every other country every other company is turning off their services there i think the global economy or not even the global economy i think japan europe canada america can collectively support five six seven trillion dollars of subsidies to blunt the economic impact of these sanctions that's effectively shutting russian exports off for eight nine ten years think about the the so you know this this is that is the damage any thoughts here as we kind of come to no way out here and just well i think economy so so i i think that if we're going to figure out a way out we need to assess what our objectives you know what our objectives are and we talked earlier on on on the show about this idea of regime change and that there wouldn't be an answer without regime change i disagree with that um i you know just those two words regime change to make everybody cringe because regime change was the justification for the iraq war for afghanistan for libya for syria and every single one of those things been a disaster when has the united states of america successfully achieved regime change in the last 20 years without creating enormous blowback there's an assumption that somehow if putin gets toppled by an internal coup that we end up with gorbachev 2.0 well maybe we do maybe we end up with a hardliner who's even worse i don't you know i don't know so what should the goal be uh obviously regime change would be wonderful if the russian people chose that but what is this ceasefire right yeah i agree ceasefire um so i think putin miscalculated the resolve of zelensky and the west you know zolensky was like this tv actor became president he was very before this he was like 25 popularity now he's at 90 something percent i think putin underestimated his resolve would you say information more i mean that that's pretty staggering i mean it's pretty clear that putin thought he could win this information warren this is the first night i don't even see the first meme yeah i agree it isn't me more i think we're being heavily propagandized but the west is winning the propaganda war but it's not just the west yeah but i mean look at where you're sitting right ukraine is engaged in that effort too right i mean you had you had the whole snake island thing where basically the um you know that wind up being confirmed as fake news that was fake okay you had snake island where the 13 ukrainian soldiers said we're going to bring us death rather than surrender it turns out they actually surrendered you had the old woman walking up to the russian soldiers with time to get the hell out of it yeah exactly that was a fake um what else i mean i think this everything's fake this chernobyl 2.0 was fake oh the um well that was the fighter pilot the fighter pilot was the the ghost of kiev yeah exactly that turned out to be a fake so look we are being heavily propagandized now i don't blame zielinski or the ukrainians for trying to propagandize us because they're a small country fighting for their lives and if they can pull us into the war it would help them it might also cause world war three or just win hearts and minds and you know flip russian sentiments there's something else that's really interesting i just went to uh the world bank site just to check um whether the gdp number that i just gave you was right and it is right but what's even more interesting is that russian gdp has actually decayed 35 in the last decade it what it peaked in 2013 at 2.292 trillion dollars and so and all the way down to now 1.483 so i think the point is with you know all of these other things that they've been having to deal with because of their foreign adventurism um you've seen a contraction of their economy already freeburg did we over did the west and everybody overestimate uh russia's capabilities here i mean is that a possibility because they seem like they're getting beaten pretty uh or they're they're being fought back at a way people didn't think they would be able to first of all i have no freaking clue second of all i don't know like what people think that they thought they knew or do or don't know but i think importantly we don't really know what's going on over there you know we are hearing stories every day that we feel is conclusive and factual and on the ground reporting and then a few hours later we find out may or may not actually be true you know this is the fog of war and i wouldn't take anything that i'm reading on twitter or seeing on cnn or hearing some commentator from the united states making some comment about nor would i feel the same about any commentator in the ukraine or russia or anywhere else for that matter facts are going to be facts i'm not sure facts are necessarily going to get to us and so i don't know what's going on the ground with russia there's a convoy supposedly that we know we can see from satellite imagery that's moving towards kiev it's stopped we don't know why it stopped there's claims by one group of people that says they're out of food and they're defecting there's claims by another group of people that say they're waiting to encircle the city and then command pressure and use this as leverage effectively to try and get a good negotiated deal to exit we don't know and so you know for us to be like you know four guys commentating at starbucks i think is a bit of a mistake because there's very few facts that we can't actually say is objectively true at this point now um what we do know is russia has a lot of nukes and so regardless of what's going on the ground with tactical stuff you know any sort of assumption that leads to our belief that an alternative intervention or or some other force can ultimately win against russia uh is is completely false because russia has thousands of nuclear warheads and um you know if russia wanted to exert its military authority over anyone in the world they can and um and so i wouldn't kind of take any of this stuff um that russia is going to lose a war uh you know a a war on the ground in the ukraine i mean at the end of the day they've got the ultimate trump card well and also they haven't brought out the heavy the heavy argument they have earth i mean yes rubble okay bunker buster bombs they've got stuff that yeah what is the strategy here to just listen they can pull a grozny they can pull a fallujah i mean look you know we they we can a dresden let's not pretend like we haven't done it too they can bomb these cities into rubble from the sky and they're not they're because it would be too bad you know their back would be too bad from the west we don't know we don't know but there's certainly there's certainly a strategy these guys aren't a bunch of idiots scrambling around trying to figure out what to do they've got the second most powerful military on planet earth that can literally destroy every human on planet earth they are they are pretty smart and they are going to figure something out to get themselves some sort of an advantage ultimately what that is we don't know you know we're sitting here trying to figure out how to play chess when we've never played it before i mean sax that might be something worth discussing there is a contingent that say listen putin isn't thinking about this strictly logically yeah i understand that point of view uh you hear it a lot on on the press what do you think here's why well here's what i think is i think putin underestimated uh zielinski's resolve ukrainian resolve and i'd say the west resolve i think it would be a mistake however for us to underestimate his resolve yeah and uh that's what i'm afraid of next is that he doesn't want to give up um and listen to go back to you know the mirsheimer point so there's a school of realism and what mirzheimer says and he predicted a lot of this so you have that's amazing yeah he gave a great talk in 2015 and i watched it um right before we got on air right one of the ways yeah one of the ways i i assess who i want to listen to and learn more from is when i see someone making far sighted predictions that come true i'm like okay one yeah yeah exactly you're like okay this guy has a mental model that seems to predict the world right i mean like carl popper said famously that the difference between science religion is that science makes predictions that are falsifiable if you make predictions one prediction after another that ends up becoming true maybe you have a way of thinking about the world that is predictive so this guy i would just say i can't summarize all this thinking here but i would just say i mean i went down kind of a rabbit hole on youtube just watching his stuff obviously not all of it is right okay but and but you know the media has been demonizing this guy because for the few things he's gotten wrong about the situation instead of all the things he's gotten right and you know if you were to do the washington establishment by the same standard they've gotten far more wrong than he has especially over you know since the iraq war over the last 20 years but anyway the point he makes is simply this or one of the points is listen this situation in ukraine is to the russians what the cuban missile crisis was to us meaning it is not a pretext for putin to go in and expand his empire what is really going on here is they have defined this as a red line they see as a vital national security interest and so we should be thinking about them and their resolve the way that we thought about the cuban missile crisis so in other words the russians are acting like the americans did in the cuban missile crisis remember fidel castro thought he had the sovereignty he thought he had the the right to go make a treaty and a deal with whoever he wanted and he went to the freely went to the to the soviet union to try and make a deal and the americans said no way and you know not in our backyard and we imposed a blockade and we were flying the bombers and kennedy had advisors and generals who were willing to go to nuclear war to win that standoff in that confrontation and ultimately the way that they solve the problem is jfk sent bobby kennedy to go secretly cut a deal with the russians to pull the jupiter missiles the warheads out of turkey so there's a quid pro quo they kept it secret for six months kennedy got to declare a victory but the the russians the soviets got something out of it too they were able to defuse the situation so if there's any way to make a deal like that i think it would be a good idea yeah i mean the reason don't you think the reason he's don't you think the reason facts that he is misunderstood is because we are propagating democracy and when we do something well it has the shine of hey we want people to be free we want individual freedom we want individual human rights we want individual expression these things are the height of human existence and when communist countries do it well they're trying to spread communism and authoritarianism and reduce humans uh individualism and freedoms and and that is a valid argument but he says in his talks like listen you can put that aside and just say you know missiles in your backyard not good yeah exactly so this is the the fundamental dichotomy and sort of the in foreign policy thinking or international relations between idealism and realism idealism says it's all about values and so we're going around the world we're promoting democracy we're supporting allies who we think will spread democracy there's good guys and bad guys we're on the sides of the good guys and that's who we support and we change the regimes that are the bad guys but the realists just think of this as great power rivalry and we have to understand the way that great powers have always reacted and behaved and great powers whether it's russia or the soviet union or us will behave viciously and ruthlessly towards anything they perceive as a threat to their national security their vital now security interests what are your thoughts on this being the moment we we make the next big transition we were in a bipolar world order we've been in unipolar for the majority of our lifetimes where we only experienced the united states and now is this the moment we move to multipolar sacs where we're gonna or have we moved there already it's uh it's it's it's a transition that's happening mainly because of china so we're and i you know it seems like what we're doing is pushing russia irrevocably into into g's arms because he's a huge mistake he's part of that well i'm i'm surprised to hear you say that jacob well i said it two weeks ago i mean i said this sounds crazy but if we could get putin to be you know in talks with us then he's not in talks with xi jinping and when you saw him with you know taking pictures with xi jinping that should have been a red alarm bell to everybody that our foreign policy is not working because if he's talking to xi jinping supposedly and who knows if this is true again fog of war to freeburg's point you know maybe xi jinping told him can you wait till after the olympics to do this invasion if they're coordinating at that level that's really problematic for the us we need him on our side we need to get pakistan on our side india south korea we need to build an alliance to deal with the eventuality of china going into the south china sea and taking over taiwan so chamath what are your thoughts on does this give xi jinping a window or not and is there any path to getting russia back in uh talks with the west maybe he can help get them uh restarted in a way that could normalize relations is this uh well the real question is like if you're g do you look at this and say uh it emboldens me or i have to be even more strategic and crafty what do you think i say the latter yeah yeah it's the latter right if russia had rolled right he'd be this is one good this is one good thing i'll sort of contradict what i said a little bit before look i i i don't i'm not passionately attached to either the realist or the idealist school of thinking i think they're interesting we need to consider both perspectives what i would say is that the resilience the ferocity of the ukrainians the resistance defending themselves giving putin a punch in the nose we can all support that because we know that she is watching and if he sees wow the russians really got a tough time with ukrainians what you know am i going to be facing a similar situation with taiwan and what's interesting is that the way the ukrainians they basically were willing to arm every man woman and i don't know child but every man and woman there they were handing out the ak-47s basically they israelized right you wonder how israel has survived in a neighborhood where everyone wants to kill them every single adult serves in the army and they get guns it's like you know they're in the second amendment over there yeah exactly so yeah so i think that the ukrainians have shown a model that's really based on the israel model which is listen if taiwan really wants to be independent every adult there needs to learn how to fight and they need to have weapons and that's gonna be the best guarantee we can be their ally but that's gonna be the best guarantor is creating a credible deterrent to she moving on them i mean do we transition to another story here i mean this is this is one of the problems when we're living in these kind of times is that if you talk about anything other than when the decision trees can i saw a tweet when all the decision trees can go to zero meaning that like there's a one percent chance of or 0.1 or 0.01 chance of of war 3 the nuclear war then yeah it's hard to talk about anything else hard to think about anything else so yeah um i watched ozarks this week amazing ozark is that good oh great jason bateman amazing great perfect is so freaking good on it breaking bad 2. that series twice and i've fallen asleep in episode one both times no no no you you got to keep going it rolls it's it's it's basically breaking bad 2.0 yeah phenomenal yeah i started season two of euphoria oh my lord don't ever let your kids watch it oh my god it's either that or it's like the best deterrent so like you make them sit and watch it and they'll not only will they never not do drugs but like they'll they just won't do anything they'll just like stay in the house it's scarring it's basically requiem for a dream meets like disney plus afternoons like these are disney stars living in requiem for a dream i need to decompress after i watch it if you have kids it's terrorizing it's terrifying it's terrifying it's absolutely terrible it's scarring it's very artistic too i have to say i give them a lot can we talk about markets i mean you know i i feel like there's let's go to markets important discussion because the markets are so volatile during these kind of volatile information times times with you know information that's changing day to day intraday you know where do you guys think about kind of spending your time right now are you kind of just putting your head in the sand and saying we'll pull it out afterwards i mean how do you i mean guys what's funny is like sax is curled up in a ball you know in times of in times of uncertainty you actually want to be deploying so you know uh i announced what was it last week i think it was a solar deal the solar deal you know i put 228 million dollars into this thing and then i did another deal i put 45 million bucks into this thing you guys know about which we haven't announced yet yep so um but other than that i've been literally uh white-knuckled uh i don't like to open the stock app there's no point take some dramamine before you open your morgan stanley stock up the stock and what's so funny is like my bloomberg terminal which is right beside me here at my desk i have not logged into it okay put it in a drawer unplug it yeah there's just no point like at the end of every week i get a report right kind of like our p l and i just look at the top line like connor always sends me the top line is like you know and and the last like eight weeks in a row we've lost one percent we've lost two percent we've lost three percent the time that this wishes he lost one percent i celebrated i got so drunk that night i was like this is where it really does help right sacks to think in decades like if you think in decades and you're a venture investor you can kind of just put the stuff out of your mind which is what i'm doing and the great thing is i'm seeing amazing companies great founders deals are taking longer to close people are starting to do diligence again and people are discussing what the right valuation for this early stage startup is which is good that's healthy i think we're getting like i don't know what you're seeing in the in the early to mid stage market privately but i'm seeing really healthy discussions and late stage madness is gone it's over yeah i mean i think 100 times ar is over but we no one really knows where it's landing so i've seen some deals get done at 60 to 80 times but um no one really knows where it should be you know i sent you guys his tweet from morgan housel who is a great guy and he has this fabulous tweet he says this he he it says this the shock cycle and it's this beautiful cycle assume good news is permanent oblivious to bad news then you ignore the bad news then you deny the bad news then you panic at the bad news but then you accept the bad news and then you ignore the good news you deny the good news you accept the good news and then you assume the good news is permanent that starts the cycle if i if i could just put it out there i don't know today if you guys saw non-farm payrolls but we had a huge print in um unemployment like really great print meaning like a lot of employers were able to find people to take jobs it was a big number but the interesting thing about it was we didn't see wage inflation tick up with it and if i had to look at that and if you actually look at a bunch of the earnings reports that have come out in the last three or four weeks i actually think we're in the part of the cycle here where we're starting to ignore the good news and we're so negative and we're so emotionally wrapped up in everything that people forget that actually the world tends to um keep moving forward right we are not in world war iii by any measure are we not we are not anywhere near that okay and so i just think it's important for people to take a step back and take a really deep breath but i think that there's a lot of good news out there there's a ton of good news and for people who don't know the term we're ignoring some people don't know the term print when we say there's a print that is just a colloquialism in the financial markets that something was formatted for printing previously and you got good news so an official report is sometimes called we got a price i agree with i think what's going on is there is some underlying good news right but there's this overhead of a small chance of something catastrophic happening so how do you price that in right it's it's it's uh it's like a one outer right yeah yeah exactly but it's this guy's quads were set over set yeah it's a one hour to one hour to the apocalypse basically if this tiny probability thing happens the game is over so you know so it doesn't matter it doesn't right like it doesn't matter if it's the cost of your house does it matter if there's a nuclear war that's right this is this is the thing that people underestimate is like that's not a that's not a risk that one should be hedging in any way financially right at that point the only thing that matters is the health and safety of your family and your friends but really your immediate family like can you take care of them and make sure they're safe and so you know if you're if you're an investor in the financial markets or you're building a company managing for that externality in my opinion i'm not sure makes a ton of sense because i don't think you can manage to that externality you have no impact on it it's something it's a controversial scenario yeah so i think you have to manage to the 99.999 of normalized outcomes and i think right now there are some what's called green shoots meaning like some positive news in the world and some positive data by the way the other thing that we saw today was or this week was jerome powell and you know the jerome powell testimony was also in the middle of massive amounts of bad news some actually pretty decent good news which was he said he's going to raise by 25 basis points in march everybody knew that right so we took the 50 basis pointer off the table but then he was very clear that they were going to be data driven and in the language of the federal reserve what that essentially means is like we're going to be patient and wait and see and if you couple it with what i said before which is the economic cost of these economic sanctions towards russia can be calculated and i think that we have proven a willingness to print capital and money and so if you put those two things together i think there could be a real possibility that powell becomes very accommodative and you know he and biden and the entire administration come together with europe and everybody else and say get the money printer back going because we are we're going to stand the line on these economic sanctions and we're going to you know sort of soft land the economy here because we think there's recessionary risks afoot let me just provide a little bit of a counterpoint which is where i'm most concerned we don't know what the repercussions are fully in a dynamical system of global capital of pulling out this much capital and devaluing assets at this scale so quickly the shock to the system i don't think has yet been realized and i think we'll know at the end of this month when books close what things actually do to businesses to swap agreements to trades you know trade balances that are outstanding and you could talk about economic stimulus as being the way to solve that but we don't yet know what's broken and they're like let me just give you guys another example today corn i think is trading at 760 a bushel that hasn't happened guys i can't tell you in how long this was a commodity that was trading at 350 a few months ago and so we're now talking about that the trickle-down effect of that price into the beef the trickle-down effect as we're already seeing in california where the or san francisco and the average price per gallon of gas at over five dollars the trickle-down effect on um on purchasing behavior on businesses defaulting because uh suddenly their their counterparties dry up we don't know and we won't know and it's not actually we know some of those we know some of them but we don't know what we don't know and the thing i'm concerned about is this is a imagine when i say dynamical system from a physics perspective it's like take 100 slinkies and tie them together into a giant graph of slinkys and you start punching one of the slinkies like this if you punch one or two of the slinkys hard enough you don't know how the repercussions will cause a slinky all the way over there to suddenly shoot up or shoot down but you're also denying your ability to change a difference linkey that's the whole point of a dynamic you could put energy back into it but we don't know what's broken and there could be something that's irreparable through these we've gone through these things before and i think you're not learning from history or you're at least not willing to admit it but no i i think we're seeing hold on a second we've seen it in tarp okay we did not know the total extent of what happened in the gfc and we had to invent a financial framework to soft land the global economy we figured it out when we went through ltcm and john merriweather blew up explain what dennis there was a huge hedge fund in the late 90s that basically had a massively levered exposure to the financial markets to the tune of like tens or tens or hundreds of billions of dollars go read the book when genius failed if you want to read the story it's a it does a good job summarizing it but it's a great story yeah go ahead and again we had to step in uh with a governmental framework and a broad infrastructure of actors across the world to soft land the financial economy in a way not knowing what the actual uh what what part was broken so i i just fundamentally disagree with this idea that we're running blind yeah look we're talking about i'm talking about capital and energy and food and some combination of those things are going to cause some serious deleterious effects on okay well i think and on markets and look i i get it jamaat i know that there's solutions for repair and i know that we're going to act swiftly and aggressively and every time by the way i just want to point out in each of those scenarios you've talked about we've acted more swiftly and more aggressively than we did in the scenario prior and it's getting to the point that you know what is the value how much debt how much deficit are we really willing to take on everyone obviously has these kind of you know intrinsic existential questions about how much we really can act long term without the dollar collapsing but certainly in the context of a global economy collapsing the dollar will always be the safe haven but there are other things that play here like you know the cost of gas for the average american you know the the the amount of wheat and the amount of food that people in africa are going to have what you're saying here freeberg is that some of these things we have been through and if you look at gas as one example i think you're bringing up the important ones here food and energy gas we actually know what happens when gas prices go up we saw that not long ago people bought more hybrids and the miles per gallon per car uh you know when you raise prices consumption goes down and people get created adjustments i'm talking about the short-term acute effects the thing that america has the ability to do is they have the ability to change the financial incentives for actors all around the world in a split second and behavior can change and and so i actually think freeberg the nuance thing that you're saying which i completely agree with but maybe we should say more explicitly is it probably is a reasonable way to manage risk in america europe canada japan but what's going to be very very difficult is the impact that this has on emerging markets in southeast asia asia africa could be really really deleterious for some amount of time and sad and it's a human it's going to cause a humanitarian problem it's really friggin sad and it's you know whatever progress has been made could be unwound i think you're right by the way i think i think that that is actually really the risk that i think um holding the line on these sanctions really does it pushes the risk towards em countries and then i think we're gonna have to figure out what our moral resolve is to go and fix those that's my point earlier which is we're gonna bear the cost ultimately the united states is gonna have to step up in a really outsized way to solve this problem and while we might not be sending troops on the ground we're going to end up paying several i don't know that it's going to be just the united states free burger the united states seems to be working in coordination with whatever it is in this situation unilaterally anymore that's a good news we're going to have an economic cost right there's gonna be something there's there's there's no amount of money that you can actually put on human life and so if we can avoid a military war i just think that there's just there's there's no red line on cost there and so if we end up running massive deficits and now we're at you know 150 250 300 percent of gdp uh i think that you know morally that's that is the right thing to do sax is is is the world becoming more idealistic and realistic let me bring saxon here sex is the world becoming more anti-fragile slash resilient pick one of the two i guess to these kind of upending events because of covid because of china pulling out of financial markets we just went through this freeberg was like hey this is unprecedented actually i think we have a little bit of precedent here we have the complete shutdown of the economy from covet in recent memory and we have china deciding that all these companies are no longer public we've seen they did their own economic sanctions they sanctioned themselves and pulled out of markets so what do you think sex i mean i think the current crisis is a reminder that it's not uh too anti-fragile i think we are in a transition we've the cold war ended about 30 years ago and since then we've been engaging in this sort of unipolar foreign policy where america calls all the shots now the world is becoming more multi-polar i'm not sure it's all the way there yet and you have countries like russia and china reasserting themselves and that's making the world a more dangerous place well you also have the eu working together in unison and they seem to be maybe they're going to become a bigger actor here because of this right we're seeing them take that that was sort of a positive surprise as long as they don't pull uh franz ferdinand like freeberg said and inadvertently blunder us into the into a war okay folks this is this week in dystopian outcomes let's talk about something good come on another good news is some good news here let's talk about the big carte breakthrough this week there is good news guys good news is that we just the good news is that we're managing um crises after crisis china crisis do you want to tell people about this revolutionary breakthrough i mean look there's just there was another car t therapy uh approved two of them approved in the last week for um myeloma car t just i think we've talked about it in the past you know every human body has um t cells they're a core part of your immune system t cells are programmed so they have a sensor you know that that tells them where to go and what to destroy and so as t-cells learn what to destroy you know they can be really effective at clearing bad things out of your body clearing pathogens and invasive things out of your body and so a few years ago uh you know humans gained the ability to engineer t cells by adding the genetic code to a t cell effectively engineering it to go after a very specific thing and so the big revolution in carte therapies has been in oncology and cancer so uh you know programmed t cells to destroy specific cancer cells in the body that you know you would historically have had to use really difficult systemically challenging drugs like chemotherapies and so on to wipe out lots of cells and in many cases it doesn't eradicate all the cancer and car t turns out it can be extremely effective at finding very specific cancer cells in your body and in many cases causing complete remission and cancer and so you know there was one car that was approved that showed i believe it was an 88 or 90 complete remission in multiple myeloma which is a form of blood cancer so they they take your t cells out of your body uh you just get a little blood draw basically uh they go in a lab they're zapped with electricity which causes them to open up slightly and an engineered a little crisper edit happens and those those cells are now edited the dna in those cells is edited and now those cells know to go after the cancer target you put them back in your body after they grow up for a few days and they filter them and test them make sure they're safe and after they go back in your body the t cells go to work and they clear all the cancer cells out of your body it's an incredible technology incredible salvage therapies are unbelievable is the name of the company involved in this a2 bio is that the no 82 did something else no so that breakthrough was even even more important i think in the long term what he's talking about is jansen and legend uh are the two companies that basically got approval from the fda now the thing with carte is like you know cartier has been incredibly um believed in blood-based cancers right but that's an entire category that excludes solid tumor cancers what you're talking about jason this week as well what happened was a2 bio basically figured out how to modify these t cells in a way where you can actually attack and target a very specific solid tumor so there's a lot more work for those guys but if you play that out now you have this incredible ability for your own body to be trained to fight and kill cancer whether it's in your blood or whether it's the solid tumors ah now the the pride the pr the price of these therapies today they're charging call it 400 to 450 000 per treatment and by the way the treatment it's a one-time shot i mean it's like what yeah they pull the blood out of your body they and then the the expensive challenging part is how do you take the cells isolate them engineer them test them screen and make sure they're safe the way that is done today is very expensive and time consuming because the volume is low and there haven't been as many kind of engineering breakdowns how long does it take you know it takes a month it can take a week to four weeks so before you get one person 10 people is it the equipment that's expensive like i actually um i invited champ to come with me we went and visited one of these labs a few weeks ago but i i won't get into it um but it is it's unnecessarily inefficient in the sense that you can charge so much because when you spend half a million dollars to treat a cancer patient you just save yourself millions of dollars in long-term care for that cancer patient so the price is determined by the alternative cause they're priced it's like how do you uh save money over the long run for the payer you know the insurance company and so if the if the insurance company knows over the long run they're gonna pay three million dollars in care for this cancer they're just staying in 2.5 they're totally willing to spend half a million dollars to you know to to end the cancer is that the right financial calculus for this thing so if you look at the actual cost of doing this there is a university in the bay area that is doing um car key therapies and their cost is about 40 grand they built their own lab to do this that by the way is also extremely inefficient we i think that over the long run we can get the cost of cell therapies below 5000 bucks and when you can do that by the way car t can be used not just to go after cancer but you can get it to go after autoimmunity so people with lupus and rheumatoid arthritis there are known b cells in your body that are making antibodies that are causing the inflammation in your body destroying your own body and so down the road we could use car t to destroy lupus to destroy antibodies uh b cells that are producing antibodies that are um you know fundamentally causing autoimmune conditions including what we talked about a few weeks ago multiple sclerosis given that we now have a strong belief that if you can get rid of the ebv the uh ft bar virus uh from your body uh you can wipe that out so so car t can in the long run be harnessed not just for cancer but autoimmunity and potentially other pathogens in the body in a really targeted way and this this is kind of the beginning of what will likely be a multi-decade kind of new therapeutic modality that's that's you know accelerating i had a question for you on the on the pricing model here of hey the way we price this is how much are we saving the insurer is that too much price optimization is there a better model here i have no idea okay i would like to talk about something else uh related to this jason there's this massive patent battle going on for crispr yeah uh and i think it's worth jcal if you can give just a two second primer because i think we should talk about patents just for a second and you know there are there's the extreme version which is what elon has done and then there's the other extreme version which is these two folks fighting over so obviously elon has gone with putting the patents out making his patents open source and putting them out there and using them as a deterrent like nuclear weapons have been but the u.s patent trademark office published a ruling on monday in favor of mit and harvard over berkeley the ruling cancels certain patent applications made by the university of california its partners regarding a crispr system known as crispr cas casino has nine the ruling states that they failed to provide persuasive evidence that they got the gene editing technology to work before the broad group did the central question and dispute is which group got to the crispr cast nine two basically the whole thing here jason is like there was a group led by these two incredible uh scientists who they won uh the nobel prize jennifer dudna and emmanuel charpentier there berkeley and uh and she uh emanuel i think is she's at a university in germany i think but then there was a different team trying to develop a system for crispr cas9 from mit uh harvard at the broad and they all filed patents on top of each other and this whole thing was a thing and you know the the big implication of all this is what are companies supposed to do right because if you are a company that wants to build a crispr cas9 gene editing thing look there's a lot of situations where uh a single point edit or a broad edit can have a meaningful change in your health so these are businesses that should exist you didn't know what to do because if you licensed the ip from the wrong person you get sued right and many companies now are like trying to license both sets of patents and i just think to me it frustrated me when i read this article and you know this is the conversation i had with you guys in the group chat is i think we need to think of and imagine a new way for patents to work because it it shouldn't be the case that you know folks are competing for what is really effectively credit and then what stops behind them are all the commercial companies and investors and all of them and just the normal individual day-to-day people who want solutions to solvable problems but the reason it doesn't get to the starting line is because of patent credit and having to deal with patent trolls and i just think that that's a terrible situation for us to be especially if it's something that could change the course of humanity almost feels like an arbitrator has to come in here and force a settlement what do you think freeberg is the right thing to do obviously we have a tradition of people getting to you know monetize uh dare i say their innovations for some period of time with a patent i have multiple businesses i'm involved in where we uh leverage crispr and uh i will tell you that the um you know the group at harvard so so the history is the group of harvard and the group at berkeley argue each argue that they discovered crispr cast 9 around the same time each or each argument that they have a right to crispr technology based on their discoveries that were made around the same time and so for years each of them have been starting companies and licensing crispr technologies to different companies and all of those companies now including several that are public uh it turns out that if this uh this ruling you know is to be believed they actually have a license to a technology that they may not actually have a license to so um there is a company that emerged a few years ago and actually made an open sourced version of this uh this system and so i have uh at least one company in gene editing implanted plant gene editing where we leverage this open source version of this system and many more companies many more businesses are embracing that open source alternative i don't think that we see this turning out to be any different than what we saw with the proliferation of linux in computer software where uh you know microsoft or whomever was trying to you know make everyone pay a licensing fee to use their operating system and guess what markets discovered they discovered that hey if someone is able to make something free and open source and everyone will embrace it and here we are where most of the internet is run on open source software so you know i i i don't know what the right thing to do with respect to patents are because you know the truth is a lot of very difficult very expensive technology r d dollars go into developing a technology that is theoretically someone could look at it make a copy of it and so i do think that there are rights to defend with respect to patents i think that there is if there is something that is a critical resource that an entire industry really needs to access an open source solution will emerge you know the markets take care of it and i think we've already seen that with crispr so um you know it's hard to say at the end of the day you want to license some you know patent a molecule and be the only person that can make that molecule make money from it go ahead but if everyone's going to need that molecule to run their business and to change the world someone's going to make a cheaper alternative or a free alternative that's just the way markets work so saks would like to recite a poem for peace at the end of the podcast he's gone totally soft the pacifist david sacks no i'd like to i'd like to address what you said when you called me a pacifist um because i think oh my god here we go after hours this is all in after dark here we go he's an existential pacifist go ahead sax read your power when i become a pastor well i'm not really pat look i still believe in the idea of peace through strength like reagan said okay but i remember when we what is the only clean win that we've had in a war since world war ii america has it was the win straight shot the first iraq war when we drove saddam out of out of kuwait that was george herbert walker bush our last conventional war well it was also the last war that we actually won every other war that we've done has been turned into a fiasco winning was pretty easy to define get out of kuwait the other ones we were trying to do revolutions but remember everybody wanted him to go all the way and march into baghdad and change the regime replace saddam and he said no and he had the wisdom to stop and everybody called him a wimp but he still had the determination and the the wisdom to stop and then what happened his son comes in ten years later and they finish the job yeah they get they take out saddam and they destabilize the entire middle east that's what the iron ass has got us so what has turned me against these regime change wars it's look when i was in college i thought herbert walker bush was a wimp you know and and george w bush was doing the right thing going into iraq 20 years ago but we've seen the results and anybody today who doesn't modify their point of view on these regime change wars is a fool i mean they're not paying attention and so for lindsey graham and you know these other guys out there to be a lot of republicans to be talking about regime change that's something we should be seriously promoting they've totally lost the script and they should be denounced as reckless dangerous fools and look i've seen it on both sides of the aisle but what we need to do now listen if it ends up being the case that the russian people want to make a change that's that's their call yes obviously i'm not opposing something that they might want to do but for the idea that that should be our goal that's our end game that's our objective that is a recipe for disaster yeah we'll just wind up getting in a perpetual war then when we leave it will revert and that's what we saw it reverts back to communist or authoritarianism the people have to really want it revolutions are hard fought and bloody and if you think you can just go in there with a couple of drones and get everybody to decide oh we embrace democracy from this point forward because you've drowned the hell out of the country is farcical and it's proven to be wrong 100 agreement with you no ceasefire is going to be possible i mean it's going to be hard enough as it is to get anything remotely like a deal but it's not going to be possible if you're you've defined regime change yeah as your objective it's way to dig putin in like that's literally what he wants to you know that that you're giving him all the pretext he needs to keep this thing going if it's self preservation all right everybody there's your overtime sex is uh sax's writers were freaking out in the writers room and i had to get his last point in because before i pinned him as a pacifist there are no writers for this stuff jacob because look everybody on cable news is singing from the same hymnal and following the same script they're all being the drums of war there's only one cheek right now which is we're not doing enough and we're being weak and biden needs to do more not being weak i agree having patience is nothing we are doing a lot we're doing a lot and we should be careful de-escalation is the opposite of weak these economic sanctions are real we have to work through and i think we have to make sure that the economy is supported while we do it on that note uh let's pray for peace and we'll see you all uh next week on the podcast the all in summit is may 15 to the 17th 16th and 17th are the two days of the conference poker on the 15th tournament for charity events every night of the week and you can apply for a scholarship at the website summit dot all in podcast.com or just type in the all in summit into google it'll be the first link and 400 of 600 tickets have been allocated either sold or for scholarships we're going to do the best we can to have as great of an audience there as possible and for the dictator chamoth paulie hoppatia the rain man david sachs and the sultan sultan of science hot off the launch of canna congratulations turning literally water into wine david friedberg i'm jake out and we'll see you next time [Applause] [Music] and they've just gone crazy with it [Music] besties [Music] we need to get back [Music]








i now have a chief of staff he's pretty great he's worked for me for a while and he's he's doing a great job but it's actually really helped i will say that and then i uh started a family office wow congrats what does that mean you have a place in your home that you call an office yeah you don't like to break by your refrigerator there's an office is that the family office yes the family goes in there to talk about all this stuff where does jade put the stickies that say we're out of granola bars [Music] [Music] hey everybody welcome to another episode of the all-in podcast episode 72 part du with us today again the prince of panic attacks the sultan of science david friedberg ah yes and also the zephyr of zoloft and also as you're hearing cackling the duke of degeneracy uh the dictator himself holly hoppity and of course everybody's uh favorite the rain man himself the drunk history channel uncle david sachs i mean david i i follow you on twitter you're tweeting 50 times a day oh i was thinking the same thing when do you work what has happened to you you you won't meet with startups anymore i i bring you startups she said you know what i'm no longer you're like stuck in your room tweeting i just i don't do first meetings that is the end of your career huge mistake no it preserves it preserves my energy there's nothing more draining than endlessly spending your day in first meetings no why don't you just have a short first meeting like a 15-minute first meeting well that's what you know we have a team for is there they don't because we know exactly what we're looking for sas investing is very metrics driven and so the first meeting yeah exactly so it's like the first meeting we just find out do they meet our basic threshold for love it for growth yeah exactly fantastic yeah so we run the numbers and i i will meet with them if they look good i love this i would like all vcs to take the same approach and i will let everybody know my dm's are open jason at cal academy i will take the first meeting saks i need to call you after this one of our businesses which is not in sas has started to sell sas software and we've already booked 40 million dollars of acv by complete accident from zero wow you stepped in it uh and i need some advice okay yeah let's talk all right everybody uh it's been a bit uh of a crazy couple of weeks here and i we have to start with the war in ukraine and and do a bit of an update it's been over 20 days the death toll continues to climb we don't know exact numbers here it's very hard to get information we're not experts we don't have boots on the ground uh but according to uh the new york times seven thousand russian troops have been killed and zolensky said on march 12 1300 ukrainian troops have been killed i think we've got three or four angles we need to talk about here one i want to talk about food supply with freedberg since you ran climate.com and have a lot of expertise in that and of course ukraine and russia are the breadbasket of the world trabot i want to talk about markets of course but let's go to our history channel uncle first uh sacks you have been going down the rabbit hole looking at the history of this let me just ask you just a pointed question is russia losing the war and if they are losing the war if that is a pos is that even a possibility that they're losing the war are they losing the war and then what is the exit ramp here and what does it mean on a go forward basis right i think great question so here's where i think we stand three weeks into the war is that putin clearly miscalculated he thought this would be a cakewalk obviously has turned out not to be the ukrainians have put up very fierce resistance the russians have taken very serious casualties and losses um and so the war is very much you know up in the air the the outcome is very much in doubt so i think you know putin was overconfident uh made a political economic and you know obviously humanitarian mistake but i think three weeks in here is where i would characterize things is it feels to me like the west might be making a similar mistake of sort of excessive overconfidence and triumphalism meaning that we think the rest of this war is going to be a cakewalk and the reason i say that let me just give you some examples and then tell you why it may not be a cakewalk so you've got francis fukuyama had a piece this week basically he's back with the end of history he predicts that you know imminent russian defeat and that there's gonna be a new birth of freedom uh for the west it's going to be like the bush doctrine and 20 years of failed policy in the middle east never happened you got david from you know all but predicting mission uh accomplished just like the iraq war he said the springtime's gonna be bad for anyone who bet on putin his words which in his view is anyone who isn't a basically a neocon who favors regime change you had a piece get a lot of circulation over the last week in the u.s china perception monitor by um by i think a former chinese observer named hugh way and he basically predicted that china would be under so much pressure by what the the russians have done you know in terms of humanitarian uh losses that they would come out basically denouncing russia and support the west and then of course i think the final example of what you might call western triumphalism right now is that absolutely no one in washington seems to be pushing for a ceasefire they're all you know they're all paying lip service at least to snow flows fl no-fly zone idea biden and the squad seem to be the last holdouts uh for the idea of not imposing no fly zone so i would say right now the west seems to be very confident about the way this war is going and not inclined to make any compromises or concessions i just want to flag quickly why that you know why there might be some clouds on this silver lining so you had a washington post article first of all warning it was very interesting that ukrainian military progress may not be as great as there's quote stratcom the strategic communications you know aka propaganda so in other words the ukrainians are very effective at fighting the information war but the the russians are still making progress on the ground you also had this um washington post story about neo-nazis flocking from all over europe to ukraine to fight for the cause again that story got it's it's very troubling and it got no likes or retweets because it just doesn't fit the great narrative here you've got the slow motion humanitarian is that true like this yeah but let's come back to let me lay out all the issues that we can come back to you've got the slow motion humanitarian disaster of you know a billion people across the world potentially starving if the spring planting doesn't happen which we should let freeburg speak to more you've got the fact that russia can still escalate this war i mean they could still rubble cities uh by elorus could enter the war and you know god forbid they could even use wmd and then we you have this idea this dream of toppling putin probably look it could happen but probably a fantasy you had 200 000 protesters pro-war protesters turn out in moscow today nationalism is still strong in russia yes there's anti-war protesters there but the russian people at the moment seem to be still behind putin and then i think you had today um the foreign minister of china came out with a statement really throwing cold water on the idea that they support the west they basically denounced the west for nato expansion so this whole idea of of the chinese bowing to western media pressure which they in other contexts called the baizou influence i think that's a fantasy that is not going to happen so look i think that you know you know we all support the ukrainian cause uh we all support their desire for freedom to their freedom from domination from this um this russian war of aggression but what i wonder about is whether this would be the opportune time to for washington to try and push for a ceasefire instead of a no-fly zone and we should talk more about what that might look like can i give you a psychological assessment of i think what's happening right now yes great just as somebody who as as you know you guys and i were just joking but six days just being mostly off the grid with my notifications off i was really like honestly like you you kind of like go through this dopamine fast and what it actually helps you do is pick out better signal and you know with all respect sex i think like a lot of what you said is not really a as meaningful signal as the following which is the most important thing that happened was both sides basically said the surface area of a deal was very much in sight and that they were down to three or four points and i think that that didn't get reported nearly as much as it probably should have and what i thought was psychologically interesting was that as soon as that was said the next few days was when the rhetoric got ratcheted up extremely aggressively on both sides and the way that i interpret that typically is having done deals that's typically when you're closest to a deal and you're trying to get the last few t's in c's and in that same construct as applied to ukraine and russia i suspect what's happening is they both put out the trial balloon it was well received on both sides the surface area is now down to a few points i'm not saying that those are justifiable in the end but i think that if both of these two folk parties want to come to a ceasefire which i think it does we're probably much much closer than anybody thinks and right now all of this rhetoric is meant to basically try to get the other side to budge a little bit more and so i suspect and you know i could be completely wrong um is that we're much closer to a ceasefire than anybody thinks and i suspect that you could see something in the next two to three weeks and i think that that's really hopeful because you want this thing to come to an end the thing i'm trying to parse here uh and i don't know if anybody here can even answer this is how did how did we either underestimate or over estimate depending on the time russia's ability to invade another country i think i think the thing is we we have we can't even estimate correctly so for example there was something that said there was a hundred out of a hundred russia has 170 battalions apparently i don't know if that's true or not right of which 100 were sent in we don't know if that's true or not of which you crane apparently destroyed 50 of which we don't know if that's true or not so we're left to guess and unfortunately what that does is that people psychologically then fit as david is used in the past your priors what are your biases right what narrative fallacy do you want to believe and then you're going to fit so the pro-russian factions will say that's entirely not true the pro-ukrainian factions will say actually it's even greater than that huge sustained military losses the truth is somewhere in the middle that will only get accounted for after a ceasefire is in place so i think we almost need to again we can get caught in this fog of war and and talk about this stuff in ways which we don't accurately know or we can level up and say the thing that we both know is there was on the record statements by the foreign minister of russia and the president of ukraine that a cease-fire and the surface area of that ceasefire is within sight and unless something is materially changed and then in the last three days which it hasn't it means we are really really close to this being done so i agree with a lot of what jamal said i don't think it contracts anything i said before i agree that there was a big piece of news this week that caused markets to rally for three days which is the announcement of a proposed 15-point peace deal and the we do know sort of the key features of that deal it means that the three big features are you uh ukrainian neutrality so they don't become members of nato you had zilinski saying that nader membership was off the table ukraine can't host foreign troop spaces or weaponry there'd be limits on ukraine's military but they would get security guarantees from the allies uh so it wouldn't be a complete demilitarization and then the the other pieces of it were ukraine recognizing russia's control of crimea recognizing that's not coming back and then some sort of independence recognized for the disputed territories in the dawn bass so i think you're right chamath that everybody now knows the broad contours of what a peace deal would look like and the markets are starting to price in them getting to that peace deal but i'm worried that if you look at it from the point of view of what people in washington say that there's no pressure here coming from washington for zielinski are who's basically our client he's an american client to make a deal you know if you compare this to say the 1973 yom kippur war where the us was on the side of israel but still acted as a peacemaker and got a ceasefire done you know kissinger got that deal done even though we were on the israeli side you don't really hear anyone in washington saying let's get a deal done so i hope you're right but it's because you're not we're not talking about the elephant in the room which is that in the yom kippur war the unitary resolve and the military dominance of america was undisputed and so as a result its ability to be the mediator was also undisputed we've already talked about this when biden called the uae in saudi they wouldn't even pick up the phone the people that are negotiating this priest peace treaty right now are naftali bennett and emmanuel macron so we're not at the table so i think a lot of what we're hearing as well is just a lot of the rejection and the psychological you know kind of anger that we have to not being even part of the process maybe the world doesn't want us to have such an outsider the point is it's we've moved past that whether you wanted us to be involved in it or not we're not involved and we are not the principal mediators in this and we i hope to god that israel and france and whoever else is at the table gets this done yeah i agree with that but here's my concern is i think everyone knows the broad contours of the deal but if you're russia or you're ukraine you're getting daily reports of what's happening on the battlefield and if you think you're winning you have an incentive to stall the peace process to cement greater gains and get more leverage for those remaining details and negotiating points and so if zolinski thinks that the ukrainians are making progress on the battlefield he's going to wait and so neither one of them i think left to their own devices can be fully trusted to make it deal i think you need the us applying some pressure or acting in a pot in a constructive way towards the process and i think it's a huge problem that the us is not viewed as a peacemaker uh we're basically viewed as so partisan and on the side of ukraine that no one wants us involved david we've talked on this pod about us not being the global police officer of the world and that other people need to stand up so maybe the lesson here is you know maybe strategically jason it's not like we were called on and we didn't stand up we weren't called on well okay that's we assume that i mean we don't have perfect information either but let's let's get to friedrich here i think the other wrinkle in all of this and i think it's quite positive is sanctions uh are seeming to have a profound impact here and people are looking at them as potentially maybe cyber warfare and just you know actual tactical warfare on battlefields is less important than economic warfare and russia has been essentially cancelled from the global economy from visa to mcdonald's uh to exports and these sanctions are not just uh government sanctions these are people opting into them whether it's corporations uh and other entities saying we're just not going to do commerce with russia unfortunately and this is something you have great expertise on and so we're lucky to have you here to talk about it people may or may not know this i'm happy to be here this is the bread basket of the world they export more wheat than anybody and they also export fertilizer soybeans and some other inputs uh which we've talked about previously that uh provide meat uh for the world uh so what can you tell us about the downstream effects of there not being potentially uh or half as much crops coming out next year and what would happen in places that are the beneficiaries or dependent on wheat and fertilizer from russia so there's a number of um first order and then second order effects that are not just about sanctions but also about export controls by russia that are creating swings in food markets like we've never seen and will almost certainly lead to widespread famine by the end of this year at this point so the first important point to note is about 15 of the world's calories come from wheat about a third of that wheat comes from russia ukraine russia has banned export of wheat and um the the wheat spring planting season is like now this week and there's not a lot of planting going on you know a lot of commodity folks are in the field trying to figure out who's actually going to go to field and plant but um no one's making you know the concerted effort that they normally would under normal circumstances so not only is the current wheat supply in russia ukraine blocked up and cannot make its way to countries like africa or countries in africa and elsewhere but the future planting season um is now significantly at risk and again that's 15 of global calories and i just to take a step back the whole planet earth operates on a 90-day food supply so once we stop making food humans run out of food in 90 days so another way to think about that is our food supply excess our capacity in excess is about 25 of our global production so if our global production goes down by 12 we've lost half of our global food supply and that's not just linearly across all nations what happens is the most vulnerable nations lose their food supply first and the richer nations buy that food supply to secure their population calories and so you very quickly see a bifurcation happen when you have a shortage in a food supply like this of just a few points where suddenly famine is a real risk and we already have about 800 million people on earth that are subsisting on below 1200 calories a day so this very quickly tips the bucket in a significant way in a number of countries that's going to be really awful and that's just on the wheat supply and wheat planting problem the bigger problem is the energy price problem and the phosphorus and potassium problem all fertilizer is made up of nitrogen phosphorus or potassium those are the three major types of fertilizer that farmers around the world have to use every year in order to grow that crop without fertilizer plants don't grow nitrogen is made from natural gas 98 of the world's ammonia is made from natural gas natural gas prices as you guys know have doubled and the futures market looks like in some places natural gas prices going up like 4x as a result the price of ammonia fertilizer nitrogen-based fertilizer has gone from 200 a ton to a thousand dollars a ton so it's five times as expensive to buy basic ammonia fertilizer today than it was a few weeks ago or a few months ago and so this is now leading a lot of farmers around and then the other big problem is phosphorus so phosphorus you know by some estimates i mean you know there's a little variation around here but about 10 of the world's phosphate comes out of russia and um about you know call it um 25 of the world's potassium comes out of russia but potash both of those markets are blocked up they they are they are sanctioned and they have banned exports russia has through the rest of 2022. so around the world the cost to make nitrogen fertilizer has skyrocketed because of natural gas prices because of the russia problem and russia is not exporting potassium and phosphorus and as a result the price of nitrogen has gone from 200 to a thousand the price of potassium has gone from 200 to 700 and the price of phosphorus has gone from 250 to 700. so now it's so expensive to grow a crop that a lot of farmers around the world are pulling acres out of production and they're actually going to grow less this year than they would have otherwise because it is so expensive and they cannot access fertilizer locally to plant crops so not only do we have the wheat problem we now also have the fertilizer problem and the acres coming out of production problem and so food supplies are going to go down even further and this is going to become even more catastrophic and so there's a scrambling going on right now you know food prices around the world as a result everyone starts buying up all the commodities they buy up all the corn they buy the soybeans they buy up the wheat and the price for corn has nearly doubled whereas you know from where it was in july of 2020 uh the price of soybeans the price of wheat are all skyrocketing and in a lot of countries they cannot afford to um acquire and individuals cannot afford to uh to buy food with the skyrocketing commodity prices can ask you a question uh i think it's estimated that the u.s food supply if you could x out the waste would actually feed most of the developing world because i think 30 to 40 of all of our food is wasted can you do something with that yeah that that is actually true um a lot of that happens at the point of consumption so it's in people's homes so it's a reverse supply chain problem um where you know we throw away a lot of like stale bread and cereal that goes bad or whatever there's some in the fresh vegetables market but generally the core calorie producing commodities are rice wheat potatoes and corn those commodities don't go bad in the supply chain they end up getting tossed out at the end of the supply chain which is at the point of consumption at home so you know i'm not sure there's a real solution there right now the the bigger issue is like how do you get bulk commodities to the places that are going to need them over the next 12 months so look right now we're reducing food supplies stocks around the world there are strategic reserves that are getting opened up and being released as that starts to get the plenish um diminished and as the production kind of numbers start to come out it looks like less acres are in production you know and god willing we have a good weather year everywhere this year because you know a bad weather year in some markets could completely decimate the remaining supply that's coming out this year regardless it is going to be a humanitarian disaster within a year and we will see hundreds of millions of people go starving and there will be potentially i think you said hundreds of millions of people hundreds of millions of people never happened in the history of 100 million people already live on below 1200 calories a year right now so you're predicting that 100 over 100 million people will die because of this i don't know about death salmon like famine is this like you know short of calories you know within within a market it's not like hey there's no food like you know there will be strategic reserves released there will be stuff but it won't be enough we just don't have enough in the way supply chains are set up there just isn't enough and so so once again we found another supply chain weakness uh like we did in covet over and over again and so the free surprise will be released but then hoarding is starting so david you take it after this but the one question i had was maybe talk to me about this concept of hoarding because there seems to be a cascading effect and you you kind of well yeah it's not just a little bit as with any market guys as you know when there's scarcity people come in and buy at a faster pace you know everyone and so this is a market dynamic it's not like people are physically hoarding loaves of bread but commodity traders countries strategic reserves they start buying up what they can get to prepare for the famine that's coming then prices go even higher and then it kicks other people out of the market that couldn't afford to buy it and the whole thing gets really ugly really and there's no off ramp here there's no way to solve this well what freeberg yeah the thing i want to ask you is if we had a peace deal right now a ceasefire would we avoid this outcome i mean like how long how long do we have to avoid we need russia to reopen fertilizer export markets now we need natural gas prices to come down now and we need them to plant the spring wheat those are three things that need to happen to solve this problem if those three things don't happen we're going into spring right now so around the world in the northern hemisphere farmers are making plans they're planting they're deciding how much fertilizer to use and so as this market starts to kind of work itself out over the next few months a lot of the commodity traders and the the ag departments they publish these planting reports and they talk about how many acres of what were planted and then everyone forecast how much the supply will be and we're going to start to see these uglier numbers come out over the next few weeks and months meanwhile we're seeing supplies dwindle and russia is holding all this stuff so you know they're holding hostage uh phosphorus potassium and the natural gas pricing is just what it is remember there are ammonia plants everywhere the ammonia plants and i and all ammonia plants use natural gas to create you know to create this nitrogen-based ammonia let me make a statement and i'd love your reaction we're finding out all of these externalities that was made with underlying poor scientific ra reasoning that has caused these issues to be exacerbated so we know for example that our over-reliance on russian hydrocarbons could have been mitigated with nuclear but we fell for shoddy science and we fell for uh a bunch of uninformed people who ran this banner of like environmental protection right so they screwed us okay and those people now have meaningfully less credibility let me give you another cohort freebergen you tell me all the people that pushed back on gmo and said gmo was unacceptable it could never happen it has to be x y and z way and there are ways where we could have been working on plants that had different mechanisms of action in order to actually absorb and retain nutrients from the soil in different ways that would have made us less reliant in exactly the way in which fertilizer works true or false yeah gmo technology as a former monsanto executive so you can call me a monsanto chill here but yeah gmo technology has been hindered globally by a challenge to adopt it and there are techniques and technologies that have not been aggressively developed because of the concern on approvals just to get a single gmo trait approved in the united states today and get it to market can take seven to 13 years and um even then you have to still go get china to approve it because they're the biggest importer and you have to you know get all these other market participants to approve it and there are multiple agencies to get to approve it europe is finally the eu is finally coming back to the gmo problem and saying you know what precision gene editing can actually be beneficial to growing better more stuff now would it have solved this particular crisis can i just say what's so ridiculous about this the fact that we have a modern agrarian economy is because we actually did figure out a way to do gmo except we use the punnett square and we use successive iterations but the minute that you try to scientifically scale it in a lab all of a sudden that same process is not uh does not make any sense to me that's it's just intellectually so inconsistent yeah the thing that really scares people about gmo look i mean i've spent a lot of time on gmos and and the reason people are upset i have a broader philosophical do you believe in that do you believe in that in consisting that intellectual inconsistencies like how do you think somebody from you know pre-bc to today i think that agriculture iterated on our roots no i think agriculture itself is technology think about it humans humans used to go out and just eat whatever was lying around what nature gave us then we started making rose in the ground and putting seeds in the ground and putting water on the ground we engineered the earth to make sure we started to breathe and then we used plant breeding and traditional plant breeding through enormous normal energy save the world modifying things it is and then what we did with gmos which is the distinction just to be really clear about the definitional distinction between gmo and traditional plant breeding gmo is when you take dna from another organism and you put it in the plant's dna to get that plant to do something very specific and jason you came with me to monsanto i mean you're sure cautious we should be cautious about any time we're doing stuff like that right but and then there's generally like a very visceral reaction when i make that statement and people are like wait you're taking the dna from bacteria and putting it in plants and how do i know that's going to work and so there's these layers of concern which you know are deeply psychological layers but we can you know scientifically resolve this over time but look at the end of the day humans today you guys remember last year how much i was talking about that stark synthesis paper and how important it was we don't need to grow plants to make the stuff we need to consume if every city around the world had a starch synthesizer and it took co2 from the atmosphere and water from the ocean and had this technique developed out it could synthesize its own calories in a physical device without needing to rely on the ammonia supply chain and the phosphate supply chain and all of the systems that we rely on that are super outdated that are all a scaled up industrialized version of old-school agrarian techniques humans today i think have the ability to synthesize and print food and over the next couple of decades particularly catalyzed by what's going on in russia ukraine today we're going to see these technologies accelerate it's obviously where i spend a lot of my time but i'm super excited about it yeah i think we suffer from a very insidious kind of plague in the world which is the plague of over-educated dumb people and it's it's almost as if you know because of their degree in the school you give them inordinate power to make value judgments that really put the world in a very difficult position and so when you have something like a war in ukraine it just lays everything bare you find all these things like you know another another version of this example how did an entire continent and specifically i mean europe abdicate their entire energy security to the group of it to a group of environmentalists and to you know to a 16 year old girl without even thinking about what the right answer was for themselves from first principles that's really crazy that that happened and you need a war you know where tens of thousands of people have to die to realize that that was a really bad set of decisions that have been compounding for decades here's another example where food security is yet another one where you know we weren't able to think cleanly from first principles and so depending on who had more money or who was able to create more psychological guilt or fear was able to get an outcome that fundamentally puts the world at a hundred million person plus famine so somehow we need to rethink how our institutions work because we are giving folks who haven't proved that they can handle power the ability to influence outcomes for the wrong sets of reasons what's even worse tomorrow these people you talk about who are smart dumb people they're so privileged that they're living in some bubble making decisions for people who have food insecurity or energy and security and it's only when kovid showed hey oh semiconductors i can't get my car that i want because it doesn't have the chip in it or i can't get drugs or i can't get ppe then all of a sudden they see the value in redundancy and supply chain but when they were living high on the hog and had nothing to worry about in 20 different flavors of captain crunch that you know they can't even think about people in africa jacob i think it's really important to speak to the capitalist incentive and how you get there so okay we've globalized supply chains because as a business it doesn't make sense for me to do every step of the thing that i want to do because you can get better utilization out of capex if a system is running all the time to make stuff so if one step of the system doesn't need the other system running 24 7 it's going to outsource that and that's kind of think about like semiconductors think about food manufacturing right doesn't make sense for a farmer today to make his own ammonia so there's a pneumonia plant that centrally makes that stuff 24 7 distributes it out to a bunch of farmers that brings the cost down per unit of production and so these systems have existed because we've had less capital with a higher roi on capital invested at every point in the system by you know distributing and having a kind of you know centralized supply chain system like this now what we're looking at today is what happens when one part of that system fails and now i think the big trend for the next decade or two everyone's going to have like an institutional memory of this and you're going to see companies that are going to start to vertically integrate supply chains they're going to vertically integrate their their manufacturing we're going to see a lot of businesses make what traditionally would have been really quote unquote bad capex decisions and bad investment decisions and they're going to say you know what we need to have redundancy because we cannot face the cataclysmic kind of circumstance that we faced in the past i also think those are by the way the easy decisions i also think that there are some more complicated ones of morality that we may have also misappropriated i'll give you one example so if you think about energy independence of america i think there's there's not going to be there's not going to be many who think that it's not critically important well then you go and say we have a short-term bridge with hydrocarbons and the long-term solution is renewables but underneath renewables is the idea that you have to store these things right you have to store the energy you make whether it's from wind or solar even if it's from nuclear okay and all of that results in us needing batteries while batteries need lithium there's enormous lithium deposits in the united states that today can never get accessed because we've decided that the you know the upper land grouse of the state is more important than america's energy independence right so when push comes to shove a small rat like creature is prioritized more importantly than america's energy independence the downstream implications of that are now obvious rising costs inflation unemployment potential recession war death famine is the upper land growth that fundamentally more important than all of these systemic risks to humankind and the thing is for a long time we would never even think about the trade-offs to actually think about why that decision should be made that way and now we actually have the ability to remake these decisions so it's going to be really interesting to see whether we upend all of these existing frameworks you know and there's enormous environmental lobbies that have been created that have raised hundreds of millions billions of dollars to fight these battles systematically wherever they come up and in some ways now what people will say well you've really prevented progress and you've actually done more damage that's going to be a really interesting point good intent save the environment and then downstream impacts let's go to sax about the sanctions we saw a level of sanctions we didn't expect they were ferocious they were unilateral they they're you know undeniably having an impact do you think putin would be at the table do you think these sanctions are having a dramatic impact and do you think that there will be a tool that we should use in the future or do you think maybe we need to be more thoughtful about them in other words cancer culture comes up as a an analogy here people are saying oh it's like cancer culture for a country i think it's pretty great that a country that is murdering their neighbors doesn't get to participate but obviously you could have some serious concerns if fertilizer and supply chain issues as we just discussed are going to cause famine so what's the balance here yeah i think i think it's a great another great example of um you know we're not thinking through the second and third order consequences of what we're doing we're just reacting and so to to freeberg's point um so you know first of all we have to realize this was more than just sanctions this was a complete severing of economic ties i mean basically every western country pulled up stakes out of they russia mean they did it on their own too i mean they did it because for the reasons you said because they wanted to make a statement that what putin did was wrong so every russian who was working for one of these companies basically got fired and all the stores closed and and so on so i think i think it is the repercussions of it are going to be severe however these things the economics of it take time to play out and so do i think it creates pressure on putin to make a deal yes but you know if the if this is going to be determined on the battlefield one way or another in the next month do i think it has time to operate in that time frame probably not and i think what's likely to happen here is that in the same way that the real repercussions of this war are going to be felt in grain production in six months you know there is an economic tsunami headed for our own economy as a result of the blowback from basically severing you know 144 million russians from the global economy um there's also going to be geopolitical uh blowback i mean you know i think it's very likely that the way this is going to play out geopolitically is that russia will become a chinese client and you know all of those natural resources that china produces the the gas you know all the the mineral wealth that those resources are going to flow on a conveyor belt on a belt and road conveyor belt from moscow to beijing and they're going to fuel the chinese economy yeah yes and no because the reality is the the the thing we have to remember is china is still a fundamentally export-driven economy of which 35 percent just alone goes to the united states when you add in europe and other oecd countries it's almost 60 so i think the idea that all of a sudden you russia will be able to back door all of these things through china into the rest of the world i think is not really realistic and this is actually why i think the rhetoric is so high because those two countries specifically are put in a very difficult situation like what do you think the china calculus on taiwan is looking what's happening to russia hasn't completely exported because it's completely off the table completely off the table they would never consider invading taiwan knowing that it would put apple in a position or other companies that are entwined in the chinese economy i think they would have to again i've said this before everybody has was always you know sort of like land-basing economic sanctions you know even on this pod people it's never going to work it doesn't do anything and it turns out it's just not true to be clear i think sanctions are an appropriate way to create economic pressure so that we can get a ceasefire and a peace deal made okay so i do believe in the same way that i believe we should arm the ukrainians so they can defend themselves while i'm against the no-fly zone the the issue is just are we actually using the leverage that we're creating to drive this process to a success i'm trying the ceasefire process to a successful resolution because if we just make this the new normal which is you know a basically an insurrection in ukraine that drags on forever and uh the china and russia cut off from the global economy and becomes a client of china i think there's a parade of horribles that flow from that and freeburg just outlined one of them which is hundreds of millions of people across the world potentially starving so my point about sanctions is not that we shouldn't have done them but there are going to be big repercussions for our economy if we don't resolve the situation in ukraine let's do best case worst case with these new this new economic order here in economic sanction ability that the west has now demonstrated um you know quite effectively for me the best case scenario here is if you want to participate in the global economy and globalism globally globalization 2.0 means you're going to have to be hit some base uh behavior level of being a good actor in the world if you want to participate in the wider economy therefore as chamath just pointed out i think quite correctly taiwan's off the table i mean china does already is having massive economic downturn and headwinds the the idea that they would face what russia is facing right now in terms of sanctions globally would be cataclysmic for them so do we think what's that what's the best case in your mind friedberg the worst case of this new economic sanctions that we've just outlined best case worst case much of this is driven by um russian decision making not just our decision making and so you know there's a lot of question marks around what they're gonna they've said definitively we are banning all fertilizer exports through 2022 okay so like does changing a sanctioned model at this point get enough resolve for them to kind of come back to the table do we need to kind of weave that into some discussion peace discussion that they're having with ukraine i think there's going to need to be this multilateral like global either support or partnership model that's going to have to kind of emerge for this to all get resolved positively i don't think that it's just about russia and ukraine agreeing to a bunch of terms we're all going to be affected by what's going on and what russia has chosen to do back to us and we all think we're in the power and we've blocked them and destroyed the ruble and you know knocked them back to the stone age yada yada but like we're hurting ourselves far more than we realize and we have to go get something back from russia in order to resolve this so nuanced i'm not sure i totally agree with that i actually think that you know necessity what is it necessity is the mother of invention um i think that this has the ability just circling back to what we said before for us to rewrite all of these other decisions that were frankly not necessarily rooted in either first principles or long strategic thought in a way that can actually improve the state of play for everybody not just including us for the next 50 or 100 years so i'm not completely convinced that it's as catastrophically bad as you think well what about this uh friedberg if if we were thinking about food stability you mentioned your slurry and you know being able to make these calories without actually planting any food if we it's not going anywhere if you call it a slurry but yeah okay let's call it a protein bar you know like ultimately jason we can actually create pasta bread rice i mean that's where this all goes perfect by the way just so you guys know i want to frame this up it's super important 60 of the world's calories come from carbohydrates which are basically two molecules amylose and amylopectin okay that's what makes up starch so if we can synthesize amylose and amylopectin we can make it how long would it take how long would it take what would it cost to build your pasta making machine and rice making machine you know uh to have more decades-long scale-up problems right this is not like this is like hey we got a solar it's similar to nuclear or solar exactly yeah yeah okay but there are solutions to this i look i mean this is why i keep coming back to saying like we're evolving the global economy and planet earth away from this model of centralized industrial manufacturing into a production system that looks more distributed more decentralized with better technology and that that's really a big trend for this century for for our global economy and that's why right now i think the near-term trend is in de-globalization people making less capital-efficient decisions that create redundancy in supply chains and there's a lot of ways as investors to play that by the way sax were your thoughts on maybe the the high order bit for the west being a race to resiliency or a race to redundancy in energy in semiconductors this race to resiliency in food supply yeah i mean look trade creates economic wealth but it also creates dependency and we're realizing the downsides of having that dependency if we're dependent and or europe is dependent on russian gas or you know you saw during covid we've become dependent on chinese pharmaceuticals all the pharma companies have moved their manufacturing over there and then you know that got when china was rattling the saber uh because we were blaming them for covet this is back in in 2020 they all of a sudden started implying we might not get access to pharmaceuticals so look we are going to have to rethink all those trade relationships you can't have trade without trust because again if you if you you are empowering the producer to cut you off when you make yourself dependent on that yeah so so look i think we're going to rethink all of that but can i go back to your best case worst case question yes i was trying to get somebody in there on this i think that's a good question and you know i hear here let me lay out the best case and then the worst so the best case look the best case is this sort of the fukiyama argument the sort of the from argument is this western triumphalism which is luck sanctions are going to drive the russians into submission they're going to topple putin the people are going to rise up they're going to lose this war we are going to strike a great blow against autocracy and liberal democracy is going to win okay i understand that argument okay now what's the the worst case scenario worst case scenario is freeberg's right we end up with hundreds of millions of people starving the war drags on because the russians aren't gonna give up so the sanctions you know while be while hurting the russians don't end the war and in fact drive them into the arms of the chinese you know the russia has been called a big gas station with nukes that gas station will now fill up the chinese economy henceforth worsening the balance of power in cold war ii and then there's a big you know tsunami or boomerang headed for the u.s economy we we have a recession later this year as gas prices go to seven dollars and ten dollars a gallon and so it ends up hurting us and so i don't i i certainly see the case for sanctions um but um but i wonder if people are really thinking through the downside scenarios and what i what i do think is that if that that the removal of sanctions should be certainly something we're affirmatively putting on the table in these ceasefire negotiations and and that sounds obvious but i saw a tweet from ian bremmer who's sort of part of the foreign policy establishment think tank guy who has been pretty good on like smart he's smart and he's been good on no-fly zone he's been saying the same things i've been saying like guys this is tantamount to a declaration of war we're not going there uh also basically saying that listen no matter what the russians do we are not gonna get into war three here he's been cool-headed about that but he also tweeted that listen as long as putin's in control of russia we can't ever do business with them again sanctions are sticking around basically forever and i just wonder if that is an overreaction if if we're gonna make that policy i'd rather see us as america be willing to put economic relations back on the table as you know in this peace process as opposed to saying that the russians are cut off forever because otherwise they're just going to become a chinese client state i don't see how that benefits us long term well again i did but again david what do you think they do with china china what are they going to do take 60 percent of their goods and still export them to us even though it just contains russian materials that are now considered contraband so they can't absorb it economically is my point there's not enough demand outside these oecd countries to absorb all of that well here's what i think it's just mathematically not possible i think so look i think you make a point but i think if you're going to look at this from like a 50 000 foot level i think there's like two grand narratives about what is happening in the world one narrative sort of the neocon sort of liberal hegemony narrative is that we're in a great battle between democracy and autocracy the other narrative is that we're in cold war ii is that it's more of a great power rivalry between the us and china i tend to think that the latter is where we're really at in the world and the reason why i say that is you look at there's a lot of autocracies who frankly we support because we want them on our side for example you know turkey is run by an autocrat um you know erdogan is becoming more autocratic in egypt we had sort of democracy there for a brief moment when mubarak got overthrown guess what they elected the um the muslim brotherhood and we didn't like that too much and now we got general al-sisi in charge we like that a lot better you know we are still allies with the the saudis and they're they're a more autocratic government so i tend to think that you know the better way to describe what's happening in the world is a balance of power rivalry between the us and china which is only going to pick up momentum in the current in the coming decades and we have to think about who's on our side of the ledger and who's on their side of the ledger and you know i think at this point it's we've pretty much driven russia completely onto the chinese side of the ledger and um i think it's gonna have like very bad consequences for us all right let's segue from here into uh the economy inflation and markets in a previous episode chamath you talked about the the psychological cycle of you know ignoring good news then accepting it being outraged by it and then maybe not taking the good news in the bad news column obviously inflation continues uh last six months of cpi numbers year over year obviously uh september 5.4 i'll fast forward to november 6.8 january 7.5 february 7.9 excluding food and energy core inflation still rose 6.4 that being said um we have 11.x million jobs uh available for americans five or six million people unemployed who are looking for work obviously there will be some uh mismatch in terms of geography and skills there uh and then corporate earnings great but a recession possibly looming where are you on this uh and obviously the market's bottomed out so where are you at with the economy hope fear and otherwise um well i think that we're in the midst of what i would call a melt up so you know probably the next month month and a half there really isn't much quote-unquote bad news that hasn't been priced in the the thing that i've learned over the last few years is that markets don't actually care what the news is they they can process good news and bad news equally well what they despise is the uncertainty of what the news could be and so this week was really important because we had two um huge buckets of uncertainty taken out of the market so the one we've already talked about which is when when the market saw that there was a surface area of a deal between ukraine and russia that was really constructive because neither side would have signaled something if both parties were very far apart so that that meant to the markets were a few weeks out from something getting done and then the second thing was jerome powell and the federal reserve they finally had their meeting they raised rates 25 basis points but even more importantly they gave you a very prescriptive forecast of what the next year will look like at a minimum and possibly even two years and once you could have that you were able to then go and redo all of your expectations and what people realized was okay you know inflation may actually start to get tamed in the back half of the year the economy is still quite strong uh and we could actually support two two and a half percent interest rates and still actually grow really well and so what you've seen in the last three or four days is a reaction to the loss of uncertainty and so there really isn't you know uh the only thing defying the ointment could be if the war all of a sudden escalates not that it gets dragged on because at that point that's also i think been priced in but if something very meaningfully different and some and and russia in this case ratchets up the intensity by going you know nuclear something else although i think that's a very long tail chemical weapon seems a possibility or carpet bombing i think these are all very very low probability events um but in the absence of these things you basically have really constructive dynamics right now for at least the next month and a half maybe even two months how much of this has to do with retail investors who were yolo huddlers speculators stemi chats super active for two years and then maybe getting super spooked right now and maybe needing the money to deploy in their lives look the the thing to remember and and and i hate to be this blunt but it's true retail is not a very good signal of anything in fact um if you actually look at retail flows typically you will make money by doing the exact opposite of what retail does and i posted this in the group chat to you guys you know every single day of since the beginning of this year retail was a net buyer in all of those days the market got punched in the face finally at the beginning of march retail capitulated right and i posted that same day and i said guys this is the moment to buy and it lo and behold what happened the markets rallied meaningfully from that point and the reason is because they were going into the end of q1 you have a huge tax bill due in april 15th people were starting to just finally give up they were buying every single day and they finally gave up but that capitulation was the moment that you buy so if anything retail is is is the you know you know i've said before you fade your faith list you know retail flows are something you typically will make money by fading by doing the exact opposite of whatever retail is doing um and you just need to have access to that information if you have access to it you can kind of um you know profit from it so where are we going from here probably up david you've been pessimistic uh we're seeing a lot of changes in the private market funding rounds taking longer a lot of funds getting closed uh you know venture funds that is but seems like a lot more diligence is being done the time mean time to closing a deal has definitely extended massively what's your batting strategy now as a venture capitalist i think that there's going to be a trickle-down effect of what's happened in the market to privates and the valuations are going to go back to their pre-coveted levels i mean ar multiples pre-covered we're like 20 not 100. so we're seeing a massive repricing of deals and that's going to continue and i don't think it's just going to be this like transient effect everything's going to bounce back in a few weeks on the public markets the defining characteristic of these markets is volatility i mean the vix which is the measure of volatility is at one of its all-time highs and so it's true that over the past week we saw a nice sort of melt-up or a rally because there was speculation about this peace deal the financial times had that article on the 15-point plan chamath is right that if that peace deal gets signed i think the market rallies strongly because you know it went up considerably just on hopes that it might be signed but on the other hand if this peace process falls apart i think the market will give back all those gains and then some i think we are nowhere near out of the woods on all the risky scenarios that could develop from this war i think that if there is no peace deal i think you can almost expect russia to escalate in the war they have said this is an existential issue for them i think that would mean at a minimum you know heavy bombing of ukrainian cities and then that will step up the pressure even more on biden and washington to get militarily involved this situation could still spend out of control so you know i think in the absence of peace deal and then finally we have all the risks of recession we we definitely are seeing a slowdown in the economy right now and i think if this war continues and we don't get the spring planning and things keep you know deteriorating i think we're headed for a very serious um recession in this country i think we'll go from slow down to recession so if i were advising biden of course no one's listening to me but if i were advising biden i would be telling biden listen mr president we are going to have a horrible midterms in november and you know we are going to have a really hard time in 2024 if this war continues and you know we head down into a recession or any of the other catastrophes that could happen we need to push for a peace deal right now and the u.s should be playing a constructive role and we should be applying pressure wherever we can to make a deal because the broad contours of this deal to jamaa's point have been set i don't think any of the details now that we know look it's about crimea it's about dawn bass about neutrality none of the details that we're still fighting over are more important than getting a piece right now and if i were in the white house i'd be singly pushing for that yeah it's uh it's complicated there the the counter to that obviously is this could be you know the beginning of the end for putin and you know even if that's a 10 chance or 20 chance the possibility that in our lifetime you know russia could have a leadership change could be tremendous obviously it's a coin toss which way it goes uh but change could be i think so look that's certainly in the cards and um and look if somehow magically putin got toppled and replaced with a democrat that would be a wonderful thing um however before it's rare but it happens yeah well tell me when does it happen uh east germany right on the wall yeah i mean that was a reunification here's the basic problem we understand the russians in the russian system you've got all these oligarchs are basically like bosses or mob bosses and then putin's like the boss of bosses right so what are the odds if you take out the boss of bosses that he's replaced with someone who's a democrat versus the next biggest baddest boss um i think you know look that that's certainly a possibility but my concern is that when you play for maximalist upside like that you're also taking maximalist downside and a lot of people have made this point that look if putin's life is on the line he's going to be more willing to do anything and i think that the better approach and you've heard people mention this idea of the golden bridge from sun tzu which is give your enemy a golden bridge to retrieve i mentioned it so that he's not fighting for his life that was a really clever um framework jacob i think yeah i think i mean if you guys went and created a tally and i'm not trying to be debbie down here but you know since the advent of the cia the number of times that we have tried to incite regime change and then the number of times it's been successful what is that percentage i mean we don't know because we don't know how many times we've tried well we know we know of many attempts yeah i mean we've chased a lot of two outers which every time we try it we either get the same or worse so for example syria we tried to get rid of assad he's still there and now it's worse uh afghanistan we tried it the taliban are back in power well no but hold on we finished to take it to the calculation is what if it does change hold on iraq we got rid of saddam and now we've handed that country to uh iran on a silver platter the ayatollahs control it gaddafi in libya we got rid of him because he was so horrible and now that country is in chaos you've got to try open air markets we tried in um in ukraine we tried in ukraine in 2014. so our track record is not super good yeah no i mean i i think regime change is like chasing someone out or something you know if we're a company at some point we would have been pipped for our ability to do regime change i don't i don't think it's a great strategy i'm not necessarily advocating for it but i'm not saying that i'm saying whether or not it's a good strategy i think that we are particularly not good at it yeah we need a performance improvement plan on that front well we should just i think we should just stop trying that we shouldn't be going for a regime change we should be this is a good question you and i had this thing where i said you and i are in sync that we both want to contain dictators and maybe isolation and you're like i'm not into isolation so i think a definition of like what is the strategy for containment going forward post a peace deal with russia and isolationism you know i guess is a bit of a trigger word and it's loaded but well yeah i'm not an isolationist next person i would describe my strategy as selective engagement meaning that we still engage internationally on behalf of vital american interests in our core interests but we don't stick our fingers in the pie of the internal affairs of all these countries all over the world to try and foment regime change so for example like what's an example of a vital american interest i would say standing up to to china in the sense that we do not want them dominating asia and becoming a pure competitor to the united states that can then challenge us all over the world so some more pragmatists on it and that would be more productive we can be isolationist with north korea because there's literally nothing they can do for us and and look i would not be throwing countries like turkey and egypt and saudi arabia out of our coalition in cold war ii because we don't like the the nature of their governments and i'm not saying i support autocracy i don't know but the reality is dialogue is reasonable because if you don't then the other side will the foreign policy playbook is going to get fundamentally rewritten after this russia ukraine war in large part because of the effectiveness of government sanctions plus corporate social responsibility whatever you want to call that csr public sentiment or whatever you want to call it yes i agree but the combination of these two things has proved to be incredibly effective at setting the stage for some sort of compromise or regime change the spectrum of outcomes is there but the point is that's an incredibly unique set of circumstances where before we never would have thought an economy that large or a country that important on the world stage would ever have compromised in the absence of military intervention and i think that that's important to think about as we think about what our forward going china policy looks like i think really like the the importance of like the oecd right the importance of all these organized nations that consume from china uh becoming more organized now probably makes more sense i said this before in a tweet but the importance of the us dollar has become completely primary which has been an incredible benefit you know benefit of what has happened because of this war you know very small silver linings in the grand scheme of all this humanitarian crisis but those are going to be really important things that the united states can seize on so you know we may in some ways have have had some diminished power in order to facilitate peace in this truck in this conflict but the downstream capital that we could accumulate by organizing these countries more effectively i think could be really important and then separately we have to have a moral conversation in the united states about all these things like environmental laws like our approach to agriculture that may have been underrated absolutely yes with faulty logic a little more pragmatism would go a long way yes it would i'm a little more pessimistic about our foreign policy establishment and part of the reason i say this is because i'm very disappointed in the republicans the republicans used to be the party a vital national interest meaning america did not get involved all over the world unless we had a vital national interest you just never hear them making that case anymore it's all the way back to sort of bush doctrine and you know as an example they're all pushing for the no-fly zone they're all pushing for the delivery of the migs despite they want war just say the words they're weird i mean those right wingers are crazy why are they so not war i've been very critical i mean i've been the war on this i don't understand well anxiety i think i think there's two possibilities i think is it free what is it anxiety yeah and this is why i predicted war at the end of last year but you know i think that trying to be a great prediction right look i've been i've been very disappointed in the republicans and i think i think here's what i think is going on i think if any of those republicans like say uh mitt romney or something and look i think lindsey graham is just a crazy sort of warmonger but but you take someone like mitt romney who's basically saying all these um sort of more uh bellicose and escalatory things if he was actually in biden's shoes i bet he'd be making the same decisions as biden because he would not want to risk war three but it's such a cheap easy partisan political attack to say that biden is being weak and he's not doing everything at all i think history will look back and think two things about about this whole thing with it with the american lens the first thing was for whatever set of reasons we lost it and we diminished some stature in the world as a perceived arbitrator and mediator in these kinds of conflicts but separately i do think biden has done a very good job in seeing the forest from the trees he held the line on military intervention and he has really ratcheted up the ability for others to impose economic sanctions beside and behind the united states and i think that will turn out to be a master stroke i give him credit and i think that that he deserves to be acknowledged for that i'm going to agree with you because i i think the uh biden has done an amazing job of just saying outright we're not going to war we are not starting to i mean and sacks you've lauded them i think that shows some intellectual honesty on your part and to your point there's a reason why we lost our credibility these misadventures of saxophonism in the middle east have been disastrous we made huge mistakes and we need to take a different approach i'll give a trump a compliment he didn't start any wars and if you look at every president who came before him in our lifetime every time they start two or three conflicts and he was like we're going to have a no war policy and now he got by and say we're not going to go to war either this could be a tipping point and our focus i think the ultimate checkmate should be biden coming out and the eu coming on saying we are going to start a race to resiliency and here's how it's going to look jason it's an incredible point that you just made i just want to reiterate it since reagan i can i can explicitly point out incremental conflicts that the president of the united states has approved and greenlit to get us into since reagan so we've been we've been in seven wars we've been in seven wars since the end of the cold war it's amazing the american people trump was the only one that did not start a new war right before biden you want to know why because he was a populist and the people of the united states of america don't want these crazy wars they are sick of all these wars it is the foreign policy establishment that is pushing for all of these wars and listen why and obama the same way obama let's just go back obama beat hillary clinton for the democratic nomination because he was against the iraq war and she was for it yeah obama had the right instincts on ukraine he did not want to escalate the situation remember in 2014 when they took crimea he said america does not have a vital national interest that justifies us going to war he was right the president that tried to incite regime change it's it's right you know why you want to know why because because the state department lifers you know who institut who incited that are under secretary of state for russian affairs was victoria newland who was a foreign policy advisor for dick cheney and these people bull weevil their way into the foreign policy establishment they're in the think tanks they're in the state department what did you just use bull evil they they like it's like they are the permanent hold on a second they are the permanent establishment of washington the president's come and go they stay forever yeah she was there she was caught on a phone call basically picking the new leader of ukraine after a coup in 2014. she is she the one that had that famous quote that said uh putin putin was that he said no he said he said yeah she said yas is our guide basically picking yatsenyuk to be the new leader and she said the eu when the eu wanted to take a more temperate approach okay okay look at william f buckley here you going saks i think the mistake biden made listen i think biden has good instincts on this i think he had good instincts last year in june when he called for basically an emergency summit with putin to dial down the tensions and i think that summit was successful so what happened okay the intercept just had a great article talking about how tensions ratcheted down after that june summit but they picked back up in october november what happened between june and october i'll tell you what on september 1st zielinski met with biden in the white house and the state department issued a joint statement basically reaffirming that ukraine would be part of nato they would reaffirm military ties economic ties and then on november 10th they published a giant charter agreement between the united states and ukraine that was signed by blinken now look did i know about this yes but this is the state department agenda and it was on the heels of this charter agreement that the russians basically said they had reached the boiling point they basically delivered the ultimatum to the us in december and precipitated the crisis that preceded this war so my point is just listen we have a state department with its own agenda it loves regime change it loves having clients all over the world and inserting its fingers in the pie and unless biden hold on if unless biden stands up to his own state department we will not get a ceasefire and we will not get a peace deal and that will be disastrous for his presidency what i will say is um i think biden has done a very good job and uh i i know tony really well and i think tony's trying to do the best job he can i think he's done a pretty good job all things considered as well that's awesome final thoughts here on uh you know a very difficult time period we're living through the global order is being restructured it's predictable i think again if you read ray dalio's book which i recommended heavily last year um it's surprising how much of that simple um rubric uh is playing out uh today exactly as that rubric kind of estimated it would um and you know the look i mean by the way one way to think about the china russia us dynamic you know you got a one two and three player game theory number one wants two and three to be at it because then they'll you know end up diminishing value number two wants one and three to be at it number three wants one and two to be at it and so we're seeing that um that multi-party game theory play out right now um and you know again based on that rubric you could probably predict where this is all gonna end up brilliant point listen if you were to look at this from the chinese standpoint they must be loving what's going on loving it old saying i think napoleon said it never interrupt your enemy when he's making a mistake why is china so quiet right now well yeah because they love their dreams their dream is the us and russia attacking each other yeah we have to implement energy independence writ large and we have to make sure that it is very clear we have influence amongst all these oecd countries because if china takes one foot over the line we have to have the ability to do to them what we've done to russia economically it's the only way in which we can ratchet down all this tension and find peace yes the new war is the war on our dependency on dictators we must must must have a race to resiliency we're going to talk about this and more at the all-in summit no more may 15 16 and 17 all in summit miami uh 500 of the 700 tickets are gone if you want to apply for a scholarship you can apply tell us how much you love the show at the website just do a google search for all in summit really excited to announce keith reboy will be joining us uh one of sax's besties a very iconoclastic person we're going for iconoclasts next up brian peterson friend of the pod from flexport talking about all these supply chain issues the number of speakers we're going to have is going to be extraordinary brad gerstner friend of the pod is going to come talking about markets education joe lonsdale is uh halfway in again another iconoclastic controversial person and then we'll keep announcing more every week uh apply for a scholarship if you like and uh we'll see you all there for love you guys sultan of science the rain man and the dictator i'm jake al love you besties bye bye bye best love you sacks love your socks love you free bird back at you those are good feelings for you to have let your winners ride rain man david sacks and it said we open source it to the fans and they've just gone crazy with it [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension that they just need to release [Music] your feet we need to get back [Music]








hey everybody hey everybody welcome to another episode of the all in podcast we have a new bestie yesterday filling in for the prince of panic attacks [Music] the queen of quinoa the sultan of science can't make it this week i think after his incredible performance last week and him trending on tick tock with his incredible insights over uh sadly the the potential famine that could come after this ukraine war he decided he would take a week off i think it's just a little too much attention for him so we have a bestie guestie today yes the shaman of stocks is with us he brings the equanimity to equities you know him he'll bring that namaste to your payday his predictions are the anti-galloway brad gerstner welcome back to the program thanks for having me namaste uh and also with us of course the rain man himself he's bitter on twitter he's brawling on colin he's the bill of rights from pack heights david sacks boy you've really outdone yourself today wow and the prince of palo alto the overlord of the overton window paulie hupateo are you the stinker of stonks oh god relax you don't leave the comedy to me all right [Music] let your winners ride [Music] rain man david [Music] it's been a pretty pretty crazy couple of weeks here we are not a political show here but obviously when world affairs become acute as they have we cannot ignore uh the war that is occurring in ukraine uh we're going to talk a little bit about markets i think we'll start with those with brad gerstner here the sas market and the index uh why don't you walk us through this chart here because everybody's wondering what's happening with the markets given the war given interest rate hikes and the repricing of stocks i don't know how you would look at what happened in november december january brad how do you contextualize well certainly a repricing is certainly repricing but i i think of it more as normalization okay right chamath was saying it november i was i was on cnbc talking about the fact that when when we got to a post covered world rates were going to normalize go back to where they were in january 2020 that was around 2 percent and the growth multiples would have to come off of this historic red bull high that we were on during most of 2020 and 2021 so we were 30 to 50 depending upon the index above the five-year average growth multiple pre-covet so that just needed to happen like we should be celebrating in one sense that that happened because that means that we overcame a global pandemic the downside is we couldn't play with artificial money zero percent rates trillions of dollars you know of of congressional and fed injection in order to prop up valuations and when it happened in and of itself that was going to be extraordinarily painful what i didn't anticipate and what most people didn't anticipate is that on top of that we're going to have increasing fears of hyperinflation not just getting back to normal rates and that we were going to find ourselves in the middle of an incredibly devastating war in ukraine those two things added to the uncertainty the risk premiums added to uncertainty around future inflation the dot plot exploded higher and expectations of forward rates went higher now why the hell does this matter it matters because when you take you know if you're looking at that chart the five year average the ten year was two and a half percent like we all got comfortable investing in this period of time the markets hate uncertainty we had a predictable way for us to estimate where we thought our wax should be in our discounted cash flow models all of a sudden that was thrown into uh thrown into the air oh my god look what we got going on i can't believe it look at this oh yeah never compete with babies or animals yeah no chance no chance this is talita talita look at this little look at this little butter ball oh my goodness lord look at that so so good sex that's called a child it's uh you have three of them those are babies and what you're seeing there is affection from a father and a child look at how cute this little baby is going to eat sax is like this is taken from my time get that baby out of here ah so cute so brad i guess what everybody wants to know now that we see this repricing occur is what do you think's gonna happen in 2022 uh and then into 2023 so we're now multiples are now below the five year average for for software we're about at the five year average for internet we're well below the five year average i said on twitter that the rate path last week became a lot more certain the fed said something last week that i think is still not well reported well understood the fed said at the end of the year we're going to have two percent negative real rates they said we expect inflation exiting the year to be 4.3 and we expect the tenure to be around 2.3 the reason the market exploded higher is because under the fed's prior protocol a four percent uh a four percent inflationary rate would mean that rates would have to go to four and a half and if you take rates to four and a half then growth multiples need to be about 30 below the five year average okay so as investors whether we're investing in mid-stage venture late stage venture whether we're investing in the public markets like we need to know what exit multiples are and it was bad enough that we had to bear the drawdown coming off of you know this this red bull high of 2020 and 21. but if you think we're durably going to an inflation rate of three percent or four percent and an interest rate environment of three percent or four percent then you simply have to adjust what you're willing to pay for growth assets and so as i look ahead right we don't we don't know with certainty the question is what's the distribution of probabilities and you know just this morning city goldman sachs raised their exit year their their exit tenure for 2022 to 2.7 percent and took it as high as three and a half percent for 2023. i think it's going to this period is going to be marked by a lot of uncertainty around inflation and rates till we have more clarity and what that means is allocators of capital are going to allocate less to risk assets and they're going to pay less for risk assets um but you know listen if i look out over the the 5-10 year horizon i don't believe in global stagflation i don't believe that we're in this new hyperinflation environment um but we're going to have to get through this next uh six 12 18 months and it's going to be filled with a lot of volatility and a lot of uncertainty jamath what rings most true about what brad just said and then what can you add to the prediction for this coming year i mean i don't know what the prediction for this year is um i i think the markets are mostly moving upwards for the short term and then i think volatility is going to come back i'm just trying to find good long-term businesses and just kind of close my eyes and not have to look at these stock prices every day and as long as i can manage my own psychology i think i'll be fine i think that's probably the thing that most of us need to be doing the interesting thing about brad said is that the implication of that is that it means that late stage venture is pretty badly mispriced and i think you're going to have to knock these things back by 50 60 percent i think you saw the first real big movement there yesterday which was the instacart print right we went from a 40 billion valuation uh to i think it was 24. if you look at from february of last year which was really the high for all of us right that's when we all thought we could do no wrong you know the comps to uh instacart are off anywhere between 50 and 70 you know takeaway is off 70 uber's down 60 doordash was down 55 so these are some big moves and so you know it made sense that instacart had to get kind of like reset the problem that it has is that it's now the nth player trying to get public into a space with many players who've guzzled up a lot of capital in a low rate environment and so if you think about company building this is why entrepreneurs have to pay attention to this stuff you want to get money when money is cheap but the problem is you can't control that timing and so if you can't control your operating margins and your profitability then you're gonna have to go and basically pay somebody an enormously high price to get their money and i think that's what's setting itself up to happen in a bunch of these markets i think enterprise sas has always claimed long-term profitability um the thing is when you look at sort of like the real long-term companies they've built some enormous moats right like if you look at a service now or a sales force at the high end and then there's a crop of a couple of companies like palo alto networks who are the next ones coming after who seemed like behemoths in the making but everybody else i think people have to really question like where the long-term profitability going to come from and so if that's true then the late stage private sas companies are in trouble similarly in places like delivery where again you've had a bunch of comps come out they've been curing in the public markets for years you know uber doordash there's a couple of these behemoths getting built doordash being the most obvious and then there's a bunch of more kind of question mark business models including uber which is not really hanging together in the public markets so i think the real question for entrepreneurs is if you have the nth business nth being not the first not the second but you're the seventh or eighth or tenth trying to go public and all the seven or eight before you are gas guzzling machines you're going to pay a very heavy price to get public and i think that that's the reckoning that we're starting to see so i'm really interested to see how that plays out you know the instacart valuation could easily be cheap at 24. but it could just as easily be overpriced by another 10 billion dollars depending on how people think about who the last buyer of resort is in the public markets saks did uh instacart miss their window to go public and then what does this say about the backlog of hundreds of unicorns that the venture community is investing heavily in some of them are probably gonna have to ipo at down rounds um i think that's sort of the takeaway explain what that is to uh to neophytes well it just means that they're gonna have to go public at evaluation lower than what the last private round was so all of these late stage private investors who assumed that they would always make money investing in a company in the last private round before it went public they they thought that was sort of an automatic gain in arbitrage and it's not and there's going to be some disappointment there brad's been sharing these charts with me since i guess what december brad um where the charts basically show uh public sas valuations as a multiple of arr and then he's got a similar chart for it sort of the internet companies the sort of nonsense internet companies as a function of revenue and we've been looking at these charts you know once brad showed these to me again four months ago it became so obvious what was going on which is that valuations were reverting back to the historical mean if you look at you know during the two-year period during covet the they the multiples had risen to some insane level right and because of all the liquidity that had been pumped into the system so as soon as you saw that the charts that way you could just see where things were headed which is back to historical averages now we're below those averages um partly because no no no not really the multiples are can i summarize brad's chart because it is extremely elegant and simple for the layman to understand so here's the layman's understanding of of brad's uh uh analysis technical analysis and and and balance sheet and p l analysis which is accurate when rates are zero typically people are willing to pay eight times revenue for a company okay so if you're generating 100 revenue top line revenue you're generating 100 million revenue in your reasonably high margin reasonably high growth software business that's worth 800 million dollars in the public markets for every 100 basis point increase in rates you decrease the valuation between 15 and 20 so if you think rates are 2.75 the price is somewhere between 30 to 40 percent cheaper than what it was when rates were at zero so if you go back and you look at every techcrunch article and every bloomberg article and every information article and you look at all those headline valuations when rates were at zero we all just said rates are going to be somewhere between you know 2.5 to 3 percent at the end of this year at a minimum you have to haircut those things by 30 to 40 percent steady state meaning the company is continuing to execute on all on all cylinders if they have a downtick in their performance then it it increases that discount if rates go higher it increases the discount but the basic way to think about this is for every 100 basis point increase in rates you got to downtake that valuation by 15 to 20 percent and i think you know just to be fair i think i don't think there's any daylight between you and saks on this what what's actually saying is the 40 percent just giving the numerical rule that that's something i think you're right that is the that is the the correlation and so this idea listen we all get paid to find good companies and avoid bad companies that's generally what we get paid to do we're decent at it all of a sudden in fact most fundamental investors say hey i'm not a macro expert i don't know where inflation's going i don't know where interest rates going i just find good companies we've had a decade or longer where that was okay to do that was easy to do because guess what inflation was at two and we had two and a half percent tenure when all the sudden you have massive volatility in that it's not acceptable as an investor just to say well none of this matters because it does matter right price matters because what you can exit for is essential to the game and there were a lot of people invested in 2013 14 and 15 when when the cost of entry was low and exited when the cost of entry was high multiple expansion hides many sins right and now just the opposite is happening in a dramatic and historic way and that multiples were higher than they've ever been caused by a global pandemic and the exit rate for a lot of those companies right is going to be very painful i think that saks's point about down around ipos i don't think this is the exception david no reddit i think i think the vast majority of companies that come public in the next 12 months are going out below their last round of valuation yeah the reddit rumor was that goldman put a 10 billion dollar price on the cover and that you know it effectively been cut in half again these are all rumors so these could completely not be true i don't i don't have any knowledge one way or the other uh to 5 billion and that may actually end up being too expensive it just depends on where the market is well just so people are clear when investors sophisticated investors make these late stage valuations at very high multiples like they have they do have some downside protections in other words they cannot lose more than the money that was put in when this thing ipos or they may get kickers of additional shares so maybe these ipo no no in fairness you're talking about something very important but they're very rarely in these high priced rounds because most of these high priced rounds are in go-go companies where all of those rights get stripped away this is why i do think jason what you're actually bringing up is in in the last innings of a bull market you have incredibly irresponsible behavior by a bunch of these investors and that's also going to get exposed as well so jason what you're talking about is what's called an ipo ratchet yeah which means i'm giving you this money at this price but if you can't ipo at this price then you're going to give me an equivalent number of shares that makes me whole right right so it's as if i am i am indifferent to what price you ipo at that's extremely dilutive to really one really important class of individual which is the employees of the company it's also really dilutive to other investors who've come in before them but jason you're probably right to the extent that there were ipo ratchets they'll get triggered but i think in many of these go-go companies and you know brad and sachs can confirm but i see it all those rights get stripped away it's like come in at this crazy price get out get get our logo on your fundraising deck for the next round and so this is the price of the capital it's been a little bit of sloppy behavior just so people understand this if the reddit valuation was 10 billion somebody put in you know 100 million in this late stage round if it came out at 5 billion they would get twice as many shares to make up for that difference that doesn't exist in the case of reddit j cal you know it was fidelity who led that last round so they're going to be price takers at whatever price the company comes public what does that mean explain that price takes you so you know if they come public at five billion dollars and you put in a hundred million dollars your stake is now worth 50 million right right so why didn't they have the discipline to put in these protective provisions ratchets etc what happened in the market to chamas point they haven't really existed in most deals for the last five years right uh i go back to 2000 and i think 2007 2008 kayak raised money with a ratchet in their last pre-ipo round it prevented them from getting public for three or four years that dilution overhang um was a significant impediment to getting public so you know listen we all know that groupon raised at 20 billion dollars went public in a year later is worth two billion i mean it's not as though this hasn't happened before uh but yes uh people people got a little laxative i just wanted to i just want to say one other thing though because multiples coming down is a problem what this really reveals is the importance of stock and company selection right because if you were a shitty company with an unproven business model way out on the risk curve okay and you had a super high valuation last year and you don't you know there's a good chance you never grow in it grow into it you never get back to that valuation example your example your growth will do you sell well give us an example company okay discord ripple companies in the 15 minute delivery space in europe you know i i i would say go puff is one of the best of them there are a lot of startups that got funded with billions of dollars in europe unproven business models burning tremendous amount of cash right like i don't know why they need to exist i don't think they're going to get funded right maybe one or two of them do but when you have doordash and uber that are free cash flow positive that have strong brands and that can redeploy those profits back into compete in those markets i think it's very tough neobanks are another example neobanks you know the number of neobanks that have been funded at exorbitant valuations where um you know the problem is all of these financial services companies are essentially an arbitrage on rates right when rates are zero they take that money at zero percent and then they can go and execute a business model you know and sell that money at one percent and take the difference but when their cost of capital is two or two and a half or three percent the whole business implodes on them so you're going to see a bunch of these financial services companies get under pressure another example jason is like all the low end you know bottoms up sas companies and the reason is because they spend their time inside of google and facebook doing customer acquisition and managing this very intricate dance of ltv to cac and when all of those input costs go up their business implodes because you can't raise rates faster or you can't raise prices i would say then faster than the input costs are and then all of a sudden your unit economics blow up and in all of this what is the salvation in a moment like this it's being healthy gross margins healthy contribution margins and in a realistic path to profitability which means being ebitda positive this year or within the next two years said another way if you're profitable you're not going to go away if you can't if you can't show that you're you know to use the famous paul graham adage default alive in a moment like this then you are a price taker which means that you will have to pay probably a very high cost of capital to raise incremental capital to support a fundamentally fragile and non-resilient business model is the issue here saks that when you see the getter gorilla zap all these instant delivery companies get funded at exorbitant prices and they're the seventh eighth ninth as chamath is pointing out no no instacart was the seventh those are like the tenth eleventh okay so now here we are this to me seems like the fault of poor judgment by capital allocator sacks are there too many venture funds chasing too few deals and not thinking through what investing in the 10th 11th or 12th player in a market is going to be able to do is it too i think part of what's going on with the companies you mentioned is that they're physical world companies they are very capital intensive they burn a lot of money they're operationally intensive i have sort of i soured on those businesses years ago and that's why i just focus on sas because they're basically perfect gross margin businesses they're very they can be very capital efficient if the founders want to run them that way so what we're doing now is telling founders lengthen your runway be more capital efficient you need to understand that you know multiples if you raised last year at 100 times arr you need to understand that the next time you raise it may be at 20 times ar so now you can grow into that right if you're tripling and then triple again the next year you'll be able to grow into that valuation but you know make your money last two three four years instead of you know burning it in 12 to 18 months unless you want a down round i think this is this is the point that now allocators venture capitals are going to spend the next six months thinking about what's in bucket one low quality companies burning a lot of cash that may very well not make it across the chasm no path to profitability what are the high quality companies that yeah the multiple's down because public market multiples are down risk premiums have changed inflation change but they have plenty of cash on the balance sheet and think about it this way snowflake became a poster child in the public markets of a high priced uh sas business snowflake this year will grow its free cash flow at over 100 a year next year probably you know 80 or 90 free cash flow not just revenue free cash flow in q4 i think they booked 1.4 billion of revenue q4 on a business that entirely in last year did 1.2 billion in revenue right you think about that the incremental was more than what they had generated in the prior many years that business so let's say we reduce the multiple by 50 percent but the company's growing top line and free cash flow by 100 doesn't take you very long to grow through the multiple compressions so snowflakes multiple is plummeting for two reasons one because the stock price came down number two because right their growth rate and free cash flow growth is so high and so now if you look at the multiple it's similar to what we would expect of a regression of the five-year analysis unless these companies unless these private companies are want to go dark for the next three to five years meaning you know no sophisticated late stage investor doing around or going public they'll be okay but otherwise they're going to have to reckon with a version of what brad just said which is the high the flight to quality problem you know when in moments of uncertainty and high volatility it's just more straightforward to go to the things that are reliable and so you know when you think in the public tech markets what is a reliable must-own company well i would put snowflake in the list of these must-own high-growth software businesses right you know the fangs tend to be in the must-own category but then there are all these other businesses that then get orphaned because they're kind of nice to own would love to own would be great in any other circumstance and that gets even more exacerbated in the in the private markets you have to remember right now like the private markets cannot really exist without an incremental buyer of equity right holder somebody has somebody needs to be the better you somebody needs to be the bag holder after you and the problem right now is that those folks have a lot more credible safe durable assets that they can own and not have to deal with all the crazy anxiety that comes with owning something that's that's high volatility like or chamath correct me if i'm wrong or brad if they don't want to even be involved in this meshuggana they could just be in cash and the interest rates are going up so maybe they can say you know what i'll just sit this out for a year is that also happening with those folks well is that too hard to do because of impressions she knows a bunch of these folks but like take for example d1 you know it's uh dan sondheim's great investor i mean my understanding is that they are sort of off privates completely because why invest in a private company at x times ar when you can invest in a public sas company for six times so they've substituted i think tiger is still in market with a gigantic fund for privates but the valuations have come down so they're essentially re-pricing everything i think those are probably the two broad reactions you could have right brad certainly i i would say this broadly speaking the late stage private financing market inventure is closed um because there hasn't been right we're in this this buyer seller standoff sellers aren't to the point where they're willing to accept that a new rate a new regime of multiples exists right it's painful we saw you know the instacart news here recently but i think you know like listen we're not even 10 or 20 of the way into the psychic reset that needs to occur in order for us to see real price discovery that's not going to occur until these companies need money or want to go public that's right this fall is when we'll start to see real price discovery you couldn't pry a late-stage dollar out of my hand right now because i don't think we have real price discovery going on early stage venture if we're investing in an incredible you know software business at 300 million 400 million 500 billion we think could be worth tens of billions you can withstand a little inflation but the later you get in the life cycle of a business it's about irrs and irrs in late stage at last year's valuations relative to today's public market valuations that is a negative arbitrage explain irr why that matters yeah just for the latest you know we expect uh our herder rate in the public markets is a 20 risk adjusted rate of return so if i'm you know like you know you look at these late stage private valuations from last year i mean uh you know saks just talked about companies repricing down 40 or 50 or 60 percent so if they haven't done that now just didn't just up level this what brad is saying is the following jason any person can wake up tomorrow and buy the s p index right what buffett would tell you to do just by the s p 500 index that historically has compounded at around eight percent a year if you reinvest the dividends so you can do nothing right get a basket of the 500 best companies in the world that are automatically selected for you based on revenue and profitability you don't have to do anything and that'll compound at eight percent that is effectively the risk-free rate if you want to own an equity so if you're going to step into the late stage private markets and you know buy some shares in you know dingdong.com you got to be rewarded for that which typically means that there is a premium above the eight percent and what brad is saying like you know it's it's actually more than double in his case what he's saying is it's two and a half times you know you've got to clear 20 percent to you otherwise you're better off on a risk-adjusted basis it is what's likely to happen i'm looking here at a list go puff at 40 billion canva at 40 billion florina at 45 billion discord at 15 billion ripple at 15 billion these grammarly at 13 billion these don't make sense given that if they were public they would be trading at well you can 60 of that here's what you can say if if everything is held equal just with the rise of rates you have to reset those valuations between probably 15 and 40 percent okay at a minimum minimum but what brad said is also true which is if they then keep growing at a superior rate they can get back to even so meaning 18 months they could also show up again at 40 and be net net awash they could get unstuck but a lot of hard work will need to happen underneath the covers of these businesses in the next two years okay for that to happen and that's what's going to happen with a lot of these early stage private companies right is let's say the error multiple has gone from 100 times to 20 or 30 times they have to grow their arr 5x to get the same valuation so the question is can they grow their ar-5x before having to return to market that's just to get a flat round now if they are tripling this year and then doubling next year then that's 6x growth in arr so even if you know the multiples gone down 5x they could still get a slight upround so that's the game i think all these companies are going to be playing is lengthen your runway so that you can grow into your valuation and not take it down round because the problem is if you're ever in a situation where you take a down round it's way worse than just the dilution because now the psychology of everyone in the company changes everyone has to worry that you're gone sideways it's hard to experience but here's the here's the difficulty of what saks is saying though in order to grow revenue you have to invest right you have to invest in sales people and account management functions in engineers and product managers right and all of those people uh need to exist which actually increases opex right it increases burn it doesn't maintain burn and so this is the death spiral jason you're talking about which is in order to actually grow by those multiples you actually don't have more fuel you gotta increase your speed you burn more fuel you don't actually have the money to to withstand two or three or the altitude you're now so it's going to be a very precarious balancing act of trying to figure out how these companies actually get to the other side because again i think the the buyers in this case will be will drive a hard bargain you know i mean like look organizations like you know durable d1 tiger altimeter these guys are the smartest of the smart they're not dumb yeah and so you know the price of capital is going up in that case and so you know they're going to strike really good opportunities for their investors right for their lps if we were going to do an analogy here 20 the analogy here is these founders were on autopilot they were asleep at the wheel and now all of a sudden they're in the soup and they got to be really perfect no that's not fair i don't think they were asleep at the wheel at all i just think that they you know when the music is on you got to dance they did it they raised money at the highest valuation possible god bless them now you're going to see who uh is really good at what they do um and who is benefiting from a lot of just natural uh you know you know but people were only there for the first time that's what i'm talking about you're gonna have to make real changes look in an um well in an up market or a boom market the three things that matter are growth growth and growth in a down market the three things that matter are growth burn and margins it's not that growth stops mattering it's just that burn and margins also matter and now there's going to be real trade-offs before it was just how much money can we spend how quickly to get growth now let's wait a second is this growth efficient you know and will we have enough runway to get to the next round without having to take a down round brad when we saw at the peak of the pandemic some leadership i'd say you know seasoned or well-informed leadership airbnb and uber come to mind cut their staffs massively they use that crisis to reset their cost structure and get to profitability quicker those were money losing businesses for a long time maybe you know taking advantage of these hot markets is that what needs to happen here are we going to see a cascade of companies lowering their evaluation lowering their costs sharpening their pencils cutting staff and then becoming more efficient and more ruthless at you know the sixth seventh eighth product they're launching saying hey let's go to the core product and make it sing make it profitable you know frank slootman has said that silicon valley is full of companies that are walking dead and they don't even know it right zombie starting you know frank is you know he says in tape sucks he says listen i'm a wartime ceo not a peacetime ceo right he came into he came into snowflake when it was growing over 300 percent and he you know he he reconstituted what what that culture was about to prepare for wartime right because he says when wartime comes right and it gets challenging i want to run the field right i don't want to be laying off employees i want to be that's the time to hire that's the time to press the advantage that's the time to invest in product that's the time to win the new customers over the course of the last 12 to 18 months a lot of people without that experience right took a negative signal and the signal was money will always be available and it will be available at ever increasing valuations and of course anybody who's been at this for 20 years like the four of us we know that isn't true but it's amazing i mean the behavioral psychology our ability to gaslight ourselves totally in these moments and move out on the risk curve and ignore these lessons right and so i really actually hurt and i've spent a lot of time on zooms lately with founders and with their teams talking them through this because like we talk about it in the abstract and in through the lens of a spreadsheet but there are a lot of people's lives at stake if you're an employee and you went to this company and you took everything in stock at 15 billion that's now worth 5 billion you're totally underwater at the same time the cost of buying a home and mortgage rates and everything else is going up against you i mean this is a massive morale problem right uh you know for for companies that frankly we want to invest in these are the innovators but this is what happens when you have government intrusion right that we can all debate whether or not is worthwhile but it was hugely distortive what we know to be true is that we had more distortion in markets the last two years than probably any time since post world war ii and the consequence of that is dramatic and you know we all kind of saw it but we all kind of gaslighted ourselves as well because you were like well maybe there is a new normal maybe we have accelerated digitization the truth of the matter is the law of economic gravity is interest rates and inflation and it remains yeah and and this time turns out is not really that much different i think jason if you take your list of these high-priced startups yup i think it would be a good useful exercise for somebody to do somebody in the press should probably do it but if you take that list and just rank companies based on valuation the last announce date yup and then if they are not announcing layoffs of any kind you can probably forecast when they're going to burn through the money especially if they're hiring and the reason that you can probably forecast that accurately is you can pretty much predict what opaques will be especially knowing the fact that their input costs are actually going up so for example most of these businesses that rely on facebook and google and instagram for customer acquisition those input costs are going up and the reason you know that is that's two trillion dollars of market cap that doesn't give a flying [ __ ] what's happening in startup land they're gonna make their numbers right okay those are the most important companies in the world they will ratchet up the prices and so your input costs are going up it's not just the physical supply of materials that i think is going up it's just the cost of customer acquisition is going to probably go up by 20 30 40 right and you know this because facebook and google guide to where they need to perform and so if you pass that through the venture ecosystem that all of a sudden now upticks your burn yeah if you're adding more people it upticks your burn yep and now back to david's math you then also have to grow five or six x that none of this hangs together so we are at the beginning of probably a very complicated process of unwinding yeah the distortion that we've lived through in the last couple years at this point i mean you have to blame the capital allocators in this instance they bought these logos they suspended disbelief we've had this ridiculous culture of no governance uncapped notes just pushing i see it on the boards i'm on you guys probably too some people just pushing top line growth never discussing uni economics never discussing the bottom line and they created these crazy fugazi markups they raised bigger funds based on it and they just were never the adults in the room the stories of capital it's infuriating i'll tell you an incredible conversation i had yesterday with one of my partners so he's been you know with me for 10 years he was really the one that pushed us very early on to go into deep deep deep tech when nobody else is doing it 3d printing of rockets satellites all that stuff and it's been so i really trust and respect his perspective and he was telling me a story he uh called um a recruiter um you know because we've been toying with you know helping get some folks to help us manage some of our early stage deal flow and he asked her essentially something to the point of like uh who are the types of gps that are getting hired today in early stage and he said you know this is how we approach our business right we have a permanent capital balance sheet you know we do you know at most one deal a year per partner and she said well you're never going to get anybody because a mid-level executive at one of these high-flying startups that then goes and joins a venture firm she said the consistent single thing that they make their decision on are you ready for this is how many deals will i be allowed to do per year what and so you know these people are make work construction workers right that's dig a ditch fill a ditch that is not what investing is that's not about having a discerning philosophy on what a business should be or a market so if you have a bunch of capital allocators jason to your point who are unsophisticated about investing probably very sophisticated operationally but fundamentally don't know what they're doing and they're coming and transforming in an organization that should be a disciplined discerning allocator of capital and turning them into a velocity deal machine this is what you're going to get i mean sometimes the best money sacks is money you put into a bet you've already made continuing to build the pot with a startup that's already proven themselves correct so i think what we're going to see we have a follow-on fund yeah i mean i got to say the the things you guys are saying are making me feel great about our portfolio explain um not not because we won't get hit with the same valuation corrections that everybody else is going to suffer but because you know a few years ago we decided we were going to invest in a certain kind of company i mean high margin sas and marketplace businesses that were not capital intensive we defined a new metric that didn't exist called burn multiple which is the amount of money you burn for every dollar of incremental ar that you generate incremental uh subscription revenue and you know we turned down investments that were growing fast but they had a horrible burn multiple and um so and and i do think most of our companies raised last year when you know they made hay while the sunshine so there's going to be they need to manage their cash flow so they don't have to raise too quickly but um as long as they do that and they keep growing they're going to weather the storm what's the right number spend three dollars to make one spend two dollars to add one what's what's your ratio so what i've said is that if you can spend a dollar or less to generate an incremental dollar of ar you're doing amazing and uh between one and two is good so in other words if you're burning 20 million in a year to add an incremental 10 million of ar you're doing quite well in startup land and then when you start getting it to two and a half three that's a problem and then above three is just bad spending 30 million to add 10 million an ar it means it takes three years or probably four or five because you'll have turn to get that money back yeah and that's just a lack of discipline and how many vcs are we on the boards uh or you know other investors are we on the board and having that nuance of a discussion it's always just top line top line top line who's going to be the next holder i think it's very difficult because i think the number of qualified investors have gone way down as the surface area of investing has gone way up so again just going back to this conversation this woman is staffing most of these venture firms with their junior and mid-level partners and again the qualification to become a venture capitalist at this point is not that you have an ability to pick or you know in david's case have operated and actually run a business and then actually have developed a methodical framework or brad's business which is brad had to start from literally zero in the public markets and work his way backwards to end up with 15 or 20 billion of assets it's it's none of that it's are you a vp at an xyz unicorn that may also be poorly run and all of a sudden that you know gives you the qualification to go into a job where and it's not their fault where what they are told is uh what you want is what we're going to give you which is the ability to write you know x number of checks per year that is insanity that's not what makes a good investor and then your ability to then give advice i don't know it's probably zero or less than zero your ability to give advice is uh i think we have to qualify bad advice is being given so the ability to give quality advice is what's missing in this formula i just think these people are really naive like you know and it's not their fault but you know they're given way too much rope to hang themselves with and they're and and the the the unfortunate byproduct is going to be the uh the companies who gets bad advice or the bad businesses that get funded um and that's not what you know an efficient capital market should do so one of the things i'm seeing our portfolio companies do is use burn multiple as a governor for how fast they're going to grow so for example they will say that the burn multiple should not exceed two in the next quarter so you know we want to so that the old way of doing it would be that the company would just have a forecast and say we're going to grow 3x this year we're going to grow er from 10 million to 30 million and whatever that cost it costs right that was basically how companies did it now what i'm seeing from some of our portfolio companies is they are saying yeah our goal is to grow from 10 to 30 but we will not spend so much money that our burn multiple exceeds two so you know if if it turns out that there's a trade-off here between growth and burn burn is going to win we're not going to exceed that level of that ratio of spending and that's actually a good i mean i've seen a few companies implement that already and it's probably something they should all be doing i mean if these are pilots they basically created a rule to not stall the plane right you got to keep a certain altitude a certain speed so what is the opportunity here then if we're going to have too many companies two high evaluations if we're going to hang around the rim and try to get some rebounds here and try to find opportunities what are the opportunities what are the layups here for capital allocators and for founders if we have there are no great advice for them there's nothing there's there have never been layups and the problem is um you know in in up markets whenever we think that there are um it ends up being what causes our downfall later because we we just take the wrong signal away i i i don't think that there are i don't want to be investing incremental capital into a late stage startup that's poorly run that doesn't have their margins in line and then having to work it out why do that again i can just go in the s p 500 and get eight percent and yeah it's not thirty percent but it's eight percent and i don't have to deal with all this nonsense like wow a bunch of people think because you're a crossover investor right i mean you have the ability to choose between public privates or wherever you want to play i actually think what i am is an investor right you you don't have lps for a vc fund like saks and i do but but this but this is my point like i think investing irrespective of whatever stage you do it still fundamentally comes down to the following which is do you have the judgment to understand whether these decisions are marginally good marginally average or marginally destructive for the short medium and long term of a business and i just don't think that enough people steep themselves in the practice that it takes to get good at that kind of a game and i think what these moments expose is that the status games that come around investing because it just seems like it's easy it just seems like you don't do much work that's what ruins these periods and the implications i think is brad said is really right it affects the employees it affects the entrepreneurs it affects the startup culture it affects the incremental desire for people to take a shot at things you can overcome all of it we have and we will again but i really think like to the entrepreneur the message is if you're you know taking a term sheet i think you have to have better judgment to really look at that on that investor and say is this person really qualified to help me because in these moments in the absence of help you're probably going to basically have a valuation reset at the minimum case and the worst case is you go out of business what's insightful about you said chamoth then i'll hand it to you brad is that a lot of the founders picked based on the highest valuation who their next investor should be and now we see what a trap that is brad you know the takeaway for me is we return to a place we've always been which is about selection right look at the mean returns for ventures for 20 years they're lousy lousy right ninety percent of the of the spoils they've apparently barely mapped to the public five to ten percent of the investments and that's the way it's always been look at look at buffett right by superior companies at good prices what are the two technology companies buffett bought in the public markets right apple and snowflake snowflake apple and snowflake he doesn't own a broad basket of long tail internet or long tail software and so i think what you're going to see and and to sax's point i think even running a recipe on software as though all arr is created equal i mean i can show you five companies each with a hundred million of are each growing at 30 percent and there's massive dispersion in future outcomes yeah right and so like i i just think that this at the end of the day is a craft business it's an essentialist business it's about finding and identifying those very very very few companies that ever durably are worth more than 10 billion dollars you know on my screen today chamath was just talking there are four internet companies that are green today amazon google apple and facebook everything else on my screen is bleeding mustang mustang versus versus everything else is red and my growth internet stocks are down 400 basis points right the market is voting with its wallet where it wants to sit on the risk curve right and i think we're just gonna go there's no new normal here this is just back to the future right is what we've always done and you know the reset is always painful uh the only surprising thing is how often we have to go through it if if opportunities do arise where will they where would they be brad i mean i was watching peloton i always loved that company i see the change in management i see the management you know thinking about profitability thinking about creating it into a marketplace maybe having uh more hardware available disconnected from the software etc do you think there's opportunities there or there will be opportunities over the next year to buy some of the names that aren't the fangs um what we do in the first instance jason and listen we we outperformed last year because we owned quality and we're short lower quality stuff unfortunately this year the market said guess what it's all overvalued quality low quality doesn't matter we're taking it all lower and so for us in moments like this and i've lived probably through five of them in the public markets we always do the same thing d gross take risks down first thing is like have less chits on the board number two reduce the number of outliers pull in the risk curve right for me i want to own five or six things because remember i'm the biggest lp in the fund this is my money i want to sleep well at night and i want to protect the foundations the the endowments the good causes we represent i can't do that with a company that has an unproven business model i may think that it's going to be great in the future but i don't know so the problem with for the pelotons of the world right they may be incredible returners but what every portfolio manager on the planet is doing today is compressing the number of names of their portfolio saying what are the companies i know with absolute certainty whether rates are two and a half three and a half four and a half five and a half is going to be worth more over the course of the next two to three years that's what i want to own right right but what i was just going to start not even interrupt but jason what you're talking about is what a lot of people do you see a lot on twitter and i call it clapping as a strategy what about this and what about that and what about if they do this and what about clapping is not a strategy clapping is something people do at the blackjack table it turns out it doesn't actually influence the cards sure um and so i think you have to stop with the clapping as a strategy because to be clear that's not my strategy i was asking that as the moderator is there just i think you're representing a psychological reaction that a lot of people have and i think what brad is trying to tell you is clapping is not a strategy i know i'm asking that on behalf of the audience it is not my belief just to be clear my commentary to the audience is clapping is not a strategy yes correct yes if enough people though do what you're saying brad and they just retreat to quality at some point that qual those quality companies would then become fully valued maybe even overvalued and thus the cycle begins again or not so long does that take no you nailed it what happened last year 2021 dispersion collapsed go check out jamin ball who does incredible software analysis on our team dispersion collapsed between the best cohort and the worst cohort of software companies last year the first thing that happened is dispersion returns we pay a higher price for the best [ __ ] and we pay a lower price for the low quality stuff right then when we start to recover when there's more predictability in the world when we resolve the war when we understand the path of inflation right the stuff close in on the risk curve that'll start being fully valued so then we will be brave enough to walk a little further out on the ice on the lake testing it is it safe to walk here and then you walk out a little further and sadly right eventually we're in the exact same pattern we've been before which is we'll know we're at a market top five or six or seven years from now when we repeat the same asinine behavior that we just went through when everybody becomes complacent again and over bidding this stuff way out on the risk curve i'm just suggesting to you the number one question i get from gps venture capitalists and others right now is when are we going to bounce back let me be absolutely clear there is no bouncing back to where we were the last 18 months that was the outlier that was the make-believe what i hope and expect is that we can ba bounce back to the five-year average but even to durably trade at the five-year average we have to have a lot more clarity on the war in ukraine on inflation and rates so that's a perfect place to pivot sacks uh we are now here and i think this is the fourth or fifth episode where we've been discussing the war and we flipped it today just to do markets first uh for a little change of pace and since we had brad here where are we at with the war and what are your what is your expectation of it wrapping up or it escalating well actually there's a tweet storm this morning um that schmoth you sent to the group that from a russian official and it seemed to indicate well it indicated what we've kind of known for a few weeks now which is what the broad contours of what a peace deal would look like which is there's three main pieces uh neutrality for ukraine the russians insist that it not be part of nato they get to keep crimea which they annex in 2014 that's been a fade accompli and then some version of independence for these sort of breakaway territories in eastern ukraine the in the donbass region everyone kind of knows that's the the broad strokes of the deal then there's you know a lot of details are going to matter a lot to the people who live there like is there this land bridge from crimea to don bass but frankly don't matter as much to all of us the united states of america so the question is you know what what is the administration going to do about it biden just went to europe and you know my concern is that no one in washington and i talked about this last week seems to be pushing for a ceasefire it seems like their preferred position is for russia to bleed out as as long as possible in ukraine for the us to fund an insurgency a la afghanistan where you know these fighters in eastern ukraine are sort of like the mushrooms urgency is that the right word well sure because you know if they're defending their own land and so we're the mujahideen i mean i know but why would you call it an insurgency or defending their land if if the government of ukraine falls then it becomes an insurgency so the point is that the administration the question is what's the administration's end game here do they want to lead the world to a ceasefire or do they want to protract the conflict to impose on the russian state a afghan-style uh you know debilitating defeat to destabilize the russian regime neil ferguson had a column this week in um it says bloomberg he's from the brooking institute at stanford no he's from he's from hoover uh i'll move around the start yeah so i'll read i'll read this part where is that can you just explain to people what the hoover institute is and how that leans whoever institution for war and peace i would say it sort of leans um i idealistic in foreign policy i would describe neil as sort of the most realistic idealist got it um but he's quite well sourced i think uh with you know in with you know various people in washington and europe and what he wrote is the us intends to keep this war going the administration will continue to supply the ukrainians with anti-aircraft stingers anti-tank javelins explosive switchblade drones it will uh keep trying to persuade other nato governments supply heavier defensive weaponry and so on uh he says washington will revert to the afghanistan after 1979 playbook of supplying an insurgency only if the ukrainian government loses the conventional war so the concern here is that the u.s government has an incentive actually that right they don't want a quick end to this war is basically the theory is they want the russian state to bleed out and be destabilized in a way it's the one chance we have for like regime change there without us actually starting a war is that they have this self-inflicted wound that is the theory yeah and i think a lot of people are saying that that is what a lot of people want in washington i don't you know this is not like conspiracy theory people are saying this is our chance to topple the russian state to destabilize it there was a rand corporation how do you survey a few years ago hold on there's a rand corporation study done a few years ago that was commissioned by somebody probably in our state department or someone like that where they talked about this that if we want to destabilize the russian regime ukraine is the way to do it right they would fall for it right they would actually fight that fight that is an unwinnable fight we would basically be putting an f we'd be supporting an afghanistan-like path for them to go down like we did and they did previously to that right and the problem the problem that i see is just this which is we've discussed on on this program the downsides of this war first it's a humanitarian disaster second we've talked about the risk of recession later in the year third freberg talked about famine the risk of famine later this year if the spring planning doesn't happen and then fourth we have this always have this risk that the war spins out of control and goes nuclear right and leads into war three those are some vital american interests to avoid all of those scenarios i don't see an equivalent vital american interest in determining the exact nuances of who rules the donbass in other words the broad strokes of this agreement are there you know what the u.s should be doing is leading they should be pushing for lead not bleed lead the way to a ceasefire not to inflict maximum damage on the russian regime which we don't know exactly what their intent is because they're doing this behind closed doors brad what's your take on this i think that dave and i talked about this at dinner the other night i think there's something bigger playing out here i mean clearly he's the expert on real politic and you know but it seems to me that we have had decades of military diplomacy right and and most recently the pal doctrine of overwhelming force we don't want to make the same mistake we made in vietnam so like we're going to go in with full force and you know basically the public doesn't support you know military adventure ism anymore right and so now we have maybe we'll call it the blinkin doctrine which is the pal doctrine equivalent but for economic force it's the nuclear economic weapon that is on full display by the west right now that i think has really significant implications right it's reunited the west um and i don't think this is just about putin and i think the reason that the us and western europe is slow playing this a bit as they're sending a message to the chinese as well which is that we we are unified and we will use an economic weapon of mass destruction if right you don't play by global norms and so the box i think we're in from a negotiating perspective right uh in ukraine right now is not a box around neutrality i mean neutrality is already clear i mean we had zielinski didn't even ask for a no-fly zone he's not even asking for nato membership they've already seated neutrality i think the real question is sanctions i don't think the west wants to roll back sanctions and i think putin's saying i can't hightail it out of here unless you roll back all the sanctions and give me a little bit of the donbass and so watch the next week or two like in any good negotiation unfortunately i think both sides are going to amp up their current strategies we may see missiles coming out of russia and we may see european uh complete european embargo of russian oil three million barrels a day those will be the final straws right before we enter negotiations because then they can see the last things that they took as part of the negotiation but this i think is going to be all about economic sanctions um and uh and and i think the west is playing a a really strong game what i worry about and saks has talked about this at length is that we overreach we over play our hand here in an effort to send a signal to other parties around the world right and that has fat tail risk associated with it that you're representing in taiwan let me ask a question how many of us woke up or this at the beginning of this year or making our new year's resolutions and said that we need to risk recession famine and war in order to destabilize and topple the russian regime when did this become a vital american interest no one at the beginning of the year thought this was an important goal of america what's more important is is basically getting our economy back on track getting back on track after this long day this long this this plague we've had i mean nobody needed this problem and what the administration should have done was use diplomacy and all their resources to try and prevent the conflict and now the conflict has occurred we should be pushing for a negotiated peace and ceasefire we do not have a vital national interest in the details of who roles rules the dawn pass yeah the problem with your setting up of that question is that we did not start the war putin did shamafi you've been silenced so far what are your thoughts on this war that jason saying we started the war well you're saying did we wake up and say that we should do this we did not listen to you a lot of other people in the media woke up on february 24th and you think putin went mad and there's no prehistory to this conflict now here's the deal hold on a second this is a war of russian aggression it's true that putin started it he's the invader however there were things we could have done to prevent or to avoid this war and american diplomacy completely failed and we even discussed it the month before this war started we talked about how the u.s could have given a written guarantee to russia that ukraine would not be part of nato just this week zielinski in an interview with fried zakaria admitted he was told by blinken you will not be part of nato but we don't admit that publicly what games were they playing what is the point of playing that kind of game with the grave issue of war and peace why didn't lincoln say publicly what he said to zielinski this administration did not do everything he could do to prevent war and now we are faced with all of these existential risks why for what reason the reason is that it gave the united states an opportunity to topple russia i mean exactly who who of us thought we needed that at the beginning of this year well i think that you know the thing to keep in mind and i'm again i don't i'm not saying that this is right but i'm just game theorizing uh that these are like you know um grudges that these guys have held for a very long time and i think it started when they were in the obama white house and it carried over to now and i think they saw an opportunity to basically execute a strategy that essentially now i think we're moving into the second phase of this war which is effectively trying to bait russia into doing something really egregiously bad and that is terrible david to your point i think we're willing to you know sacrifice a lot i think we've decided that uh implicitly by based on the actions of of the american government and and it's weird it's like we're trying to get russia to react and so the rhetoric in fact the rhetoric since that do you guys remember i think it was only 10 days ago that both russia and ukraine said the surface area of a deal is pretty much in sight um oh friedberg from the top rope coming in look at you freedberg i mean like you you look like an everyman i mean i'm so proud of you are you actually driving your own car gas guzzling car suv in the mountains you you should be you should put your skates in that tank is in that tank is that putin's gas i only use it i only use ethanol i make in vats in my backyard when i don't solar panels that are handcrafted in my bag out of my way to find a luke oil gas station filled up um what i was saying guys was that uh you know from the 10 days from when you know both sides russia and ukraine were like hey you know we think we're basically there we have a deal the rhetoric has gotten really insane uh you know yesterday i think it was like the united states said you know we we think that russia should be kicked out of the g20 then russia responded and said i'm only going to sell in that gas and settle it in rubles you know all of a sudden uh other actors china and saudi arabia are in the game now you know china and saudi arabia are negotiating settling a huge oil trade in yuan why in the last 10 days have all these things happened when we were so close to getting something done i think the best explanation is that um we are willing to i guess we've decided i mean none of us have decided but american government decided that some amount of sacrifice is okay uh if it could trigger a russian escalation which could then further destabilize that country and i think they believe that that's more important than anything else and i think we you know from where i said i think we can take putin at his word that he actually cares about reunification and that's not to say he's crazy david um and i don't think we can control his behavior i think you're wouldn't you use word reunification uh i've never said that jason and also just today the russian military the tweet that i sent you guys was from the russian military and that was an official statement and i don't think he they would be allowed without putin's explicit sign off they no longer talked about denatificating ukraine or demilitarizing ukraine they simply focused it on the donbass and to use your sun tzu argument it's almost like they're trying to construct their own golden bridge to exit in a way where they can claim victory to the russian people to explain the tens of thousands of you know russian military people that have been killed in this whole conflict right because they have an explanation that they have to give but in in all of this i think that we're we're uh probably exposing a very high risk game of poker that we're playing which is it seems that the us government is focused more on the destabilization of of russia than they are in getting this conflict behind us i mean he did he did say in his speech since time immemorial the people living in the southwest of what has historically been russian land have called themselves russians and orthodox christians that's don bass yeah i know but he is there's been a jason there's been a civil war going on since 2014 in this donbass region between ukrainians and these sort of these russian speakers and now that civil war is this a balkan style civil war that has now escalated with you know ukraine and russia getting in and now the whole west potentially could get in this is a very dangerous situation that we should not let spin out of control i'm agreeing with that you guys asked me did he ever talk about reunification he did he did in his speech that was not one of his stated war objectives now you could keep accusing him of being a liar but look what his objective is i'm just talking about his word that he believes these areas are russian and they should be considered where they are predominantly russian speakers i'm not taking a side and who should rule the donbass okay yeah i think it's a complicated ethnic strife sort of issue like we saw in the balkans all the time between the russians who live there and the ukrainians who live there what i do know is it's not worth risking war three over an agreement 100 agreement 100 agreement sacks let me can i ask you a question um so how is putin gonna withdraw without a hundred percent lifting of the sanctions and how is the west possibly going to trust him to withdraw right while taking all the sanctions off that seems to me like when when i try to construct the golden bridge in my mind it comes down to you know like how do we how do we whack up the sanctions do we take some of them off say prove to us be out for x period of time and then we'll roll the other ones off because these sanctions are not going to be rolled back in the next three months based on some ceasefire i i agree with that i i don't know that putin can expect the sanctions to be lifted or that he can effectively negotiate for that i think again where i think the the peace deal is is that we've known all along what it's going to be ukraine will agree to neutrality in exchange for some security guarantees from the west uh russia will get to keep crimea because that's been a fetacon police since the annexation 2014 and there will be some sort of regional autonomy for these sort of russian-speaking areas in the dawn bass which by the way we could have had that too there was a a deal called mints2 since 2015 that simply hasn't been implemented so you know i think that those are the broad strokes of the deal and then there's questions about well is there a land bridge from crimea to the donbass and you know what weapons exactly does ukraine get to get from the united states or get to keep i mean so look those details matter a lot to the people who live there but the broad strokes of this i think are pretty well understood i'm not betting this way with with our book but if i had to guess we are going to have a period of significant escalation on both sides before they both get to the table macron said this week that we still have the europeans have not made a decision about the embargo of russian oil that will collapse the russian economy and oil will go to 180 or 200 a barrel i think that's a real likelihood and the second one is i think the russians will amp up military aggression um uh in some phase saving measure and to have more to negotiate with um so maybe to answer my own question is if there is an oil embargo then you take the oil embargo off right as part of the economic sanction whacking up of the sanctions um because that's really the nuclear option uh against the russians economically but it's a you know unfortunately i think we have to be prepared for this to get worse before it gets better because it makes sense from just a game theory for both sides to grab as much as they can right before they sit down at the table so they have more [ __ ] to give to each other right but the problem is if both sides keep asking i agree with that fundamental analysis is that neither putin nor zelinski can be trusted on their own uh to basically make peace because they want to push their advantage if either one believes that they're winning on the battlefield they're going to push their advantage to grab as much they can to then negotiate from a position of greater strength the problem is that they're in an escalatory spiral where if you know one or both of them miscalculate we never get that deal and i think the longer the war drags on the harder it is to make a deal not easier one one of the i'd i have to say one of the disturbing things that came out over the past week was in that interview that i mentioned uh where fried zakaria interviewed zielinski zielinski said he said that it's we're either gonna get a peace deal or war three and i'm listening to this thinking wait a second um you know that that is a pretty scary posture for him to be taking and furthermore who appointed him leader of the free world you know the decision to have war three is not his decision he is not the president united states we did not vote for him we may think he's heroic we may think he deserves our support but he does not get to turn this into war three for us the american people did not choose that and this is where i go back to buying in the administration and their leadership what are they pushing for are they pushing for a protracted never-ending afghan-style war in ukraine or are they going to lead the situation to some sort of negotiation or cease-fire and i just think if we're considering the interests the united states we would not let this decision purely be zielinski's this guy is willing to entertain war three that can't be acceptable to us but what what what what is his worst alternative i mean like he's losing his country so of course he wants to say the thing that would scare us into action potentially right so he has nothing to lose so he's right for us he's not he's using he's he's using rhetoric to get us to talk about it which he just won like he you can see that what he's saying is working yeah uh because you're talking about it so uh i think the i think the bigger question in all of this is when uh is the united states willing to draw a really hard line so there was a another thing that happened which is that you know biden essentially said like you know if they use chemical weapons we will react sort of in kind right there was some some version of that it's a red line basically he said yes and and then he also said you know depending on uh you know how they use nuclear weapons we could theoretically respond so just the the rhetoric is ratcheting way way up and that is surprising to me because i would have thought we had a deal in sight just get it done be pregnant you're assuming that we have the influence you assume david that we have the influence to actually cut a deal you were saying yourself for the last couple of months that the u.s power has waned and that we don't have influence so which is it i think you're just blaming it i believe we have the influence to get facilitated we lost our influence listen let me give you an example we are giving zielinski and the ukrainians all these incredible weapons what are the conditions on that if zielinski is unwilling to make a reasonable peace deal do we do we have any conditions and are giving him these weapons why wouldn't we insist zelinski listen we support you we basically are against this russian aggression you should have the right to defend your homeland and drive them out but we also want you to take a reasonable peace deal if one is available and we need you to specify what that is you're we exercising that kind of discretion i don't think so i think you're assuming that biden is blocking this when in fact it might be that putin is and i believe you're taking putin's sort of position here over our own presidents i think you need to know for a second that we don't want to have this continue or escalate you actually think there's a world in which biden wants to see this escalate i don't think that that's the case david we do not have the influence today that we did it is no longer first united states you know gets to dictate to the world what's going on here we no longer have to thought about this who wants to talk to israel putin wants to talk to macron in france not us because we're not seen as an honest broker but but look we don't have the influence we once had okay let me explain i'm not saying we can dictate the outcome okay but we can push for a negotiated settlement instead of a protracted we can lead not bleed okay chamoth laid it out neil ferguson laid it out the rand corporation laid it out these there is a significant chance that there are definitely actors in the state department who want to see an afghan-style situation insurgency play out in eastern europe that's their goal okay now i don't know what biden is thinking but he has made no statement to the contrary what have we done to help lead the situation to a negotiated settlement name one thing well i don't think we're in the room david but biden is in europe in the room i i read all their public statements i don't see anything i don't think they want to negotiate through the press with putin i don't think they want to go up right now i think that says enough about him what his intent is he's in poland right he's going to pause he's in poland we're scaling up our military presence listen yeah i mean i don't all i'm saying is look i don't know exactly what biden is saying or doing behind closed doors what i'm saying is that the u.s should be playing a constructive role to get to a negotiated cease-fire not indulging this sort of fantastical thinking that we can basically perpetrate a regime change operation i agree with you on that i agree with you on that i i'm worried that there may be a small strain of that probability in the range of outcomes here and i didn't think that before i really thought that okay maybe we were a little bit on the outside looking in but it looks like you know we're pretty close to a deal these guys will get in a room they'll you know chop it up and uh it'll be done and uh instead honestly if you just look at the headlines and the rhetoric and the words from all these three leaders in the last uh ten days it's been it's been in the other direction and so you have to wonder what is the point of all of this right now otherwise it could be crescendoing like brad said you know i i i i listened to blinken over the weekend and he talked about what i think he defined what is this new doctrine of economic statecraft he said our objective is we have the power to impose overwhelming costs on our target okay economic costs and he said our cause putin's actions are remembered as a strategic failure not regime change that's what's within our control that is very different bush wanted regime change in iraq and we executed it through the pal doctrine of overwhelming military force i think that this is a doctrine of overwhelming economic force that is meant to not only signal to the russians but every other rogue dictator in the world if you go rolling into your neighbor uninvited you can count on the fact that there's going to be massive economic sanctions because our our military deterrence is no longer a deterrent everybody knows we're not going to go defend taiwan everybody knows we're not going to send our military into ukraine so we have to demonstrate that we actually have economic resolve not these poo-poo sanctions we've been having around the world for the last 20 years and if that is the lasting impact on this i think you're right you know that that we turned this into an economic nuclear weapon yeah better than sending our kids around the world to get killed i think you're absolutely right and i think tony is very smart to say what he said the um the one thing that i would want though on top of that tell me if you agree is just to ratchet down our rhetoric which we can control and maybe to to i mean why not say that listen we're willing to put these sanctions on the table we're willing to basically reinstitute economic ties with russia if we can get to a satisfactory outcome well you don't want a reward i would say is we're making a big assumption to say that there's not back channel diplomacy going on from the israelis the turks the the french you know having those conversations on our behalf right like i i don't i honestly i i don't know that there that's a high probability that we're not sending those signals but to your point i i just don't know i don't know i don't know i but here's what i would say is look i can only judge from the public statements and i think there is signal in these public statements and this the statements are all one way there is no olive branch it's all it's all basically about escalation just like in january before the war what were the state department's statements about the situation they said that nato's door is open and will remain open even though they told zielinski in private that he would not be joining nato okay that was an astounding revelation that came out this week on the fried zakaria show number two lincoln was saying that there there was no change in the american position and there would be no change they said these are all public statements that the u.s would never recognize the russian annexation of crimea never you know he said that we went into these peace talks to represent our core values there's no change on that so in other words it's been the position of the united states to be hard line with russia to basically engage in no compromise whatsoever and uh it's basically double down it's a double you assume you assume david you don't know those are the public statements i know but you're assuming that there's no back channels going on and just to just i wanted to make one quick point which was you know what if we offer to take the sanctions off and then we are training putin that these kind of misadventures get him something don bass etc and that the sanctions roll off so the isn't there a possibility chamath that if we don't keep the sanctions up we're actually rewarding his behavior i'm a huge guy look i've been the first person in the front of the line on sanctions i thought this was the most brilliant approach to this whole thing and i still believe that sanctions work and i think that this will [ __ ] that country what i'm saying though is that there are these moments where instead of then sticking to the rhetoric that tony talked about what he said i don't know brad where tony said this uh this weekend but like sticking to that there are these added flourishes that i think are unnecessary so what i mean by that is the talk about you know us reacting uh or retaliating for the use of chemical weapons biden made a campaign vow i don't know if you guys remember this about nuclear weapons where you know he was very clear that you know it is a mechanism to demonstrate that this deterrence exists and instead he actually caved and instead he put out this carefully worded statement which kind of walked back the campaign valve earlier this week and i'll just read it to you i'll just read what the wall street journal said it said by president biden stepping back from a campaign vow has embraced the long-standing u.s approach of using the threat of a potential nuclear response to deter conventional and other nuclear dangers in addition to nuclear ones during the 2020 campaign biden promised to work towards a policy in which the sole purpose of u.s nuclear the nuclear arsenal would be to deter or respond to an enemy nuclear attack instead now it holds that the fundamental role of the nuclear arsenal will be to deter but that it leaves the opening to respond and use it in extreme circumstances so these are big changes and if if our whole goal is to just focus the surface area to an economic set of sanctions these are somewhat unnecessary would we all agree we don't need to talk about changing our nuclear policy yeah biden was right on the campaign trail the united states of america should never use nukes except if nukes are used on us come on we know that yeah and we're talking about changing that now that's insane look it shows that there there's an influence in our government our state department of certain hardline elements who want this very tough policy that includes destabilizing the russian regime and maybe toppling putin i'm just saying that objective is not worth all the existential risks that we're now facing all right do we want to touch on the ccp tax cuts we want to wrap we're at 80 minutes i mean the the ccp tax cuts harkens me back brad you can react to this because you lived it with me 2018 2018-19 i'll say it again we were in this unique moment where you know we were not sure whether there was runaway rampant inflation and in q4 of 2018 the fed basically said okay you got us you know the boogeyman exists we're going to go tame inflation and they ran forward and raised rates and lo and behold the chinese economy turned over in q1 of 2019 we had like a you know kind of a blippy little recession um and we had to overcome it because china became stimulative now here we are again we're worried about this inflationary boogeyman and the chinese government basically extended these tax cuts increased the tax cuts and essentially said we're going to be very stimulative in the economy especially through the back half of the year now china again is a massively export driven economy right so the reality is that as goes china so goes the rest of our economies and so i think that it's a setup where how can the united states be under so much inflationary pressure where china is effectively telling you that we are in a um in a contraction and a recessionary period and so if that's where china is there's a risk that we may already be there or entering that and so i think it's a little um you know uh contributing to you hit two really important points jamal number one which we didn't get to earlier i tweeted a few weeks ago the fed's probably behind the curve on recession not inflation right we have massive demand destruction going on right now on the u.s economy massive the producer define what that means brad define what that means so i mean if you just think about what does six dollar gas mean what does no stemi checks mean what is the fact that you actually have to go and get a job again mean you know we're we're rolling back trillions of dollars off the fed balance sheet i'll tell you what it means is that people can't spend as much money just the increase in the 30-year mortgage means you're buying power in december four months ago to buy a house and you if you could afford 1200 bucks a month that buying power bought you a 350 000 house today it buys you a 295 000 house people's ability right to have money to spend money is getting crushed so i think we are going to face an economic slowdown if you look at the pmi so this was the inflation read in january little people didn't really notice it pmi in january came in at 0.2 versus the consensus estimate of 0.6 that means the producer level of inflation was meaningfully less than we expected if you look at consumer confidence it's plummeted one of the four biggest drawdowns over the last 20 years retail sales in uk this morning crashing consumer confidence in the uk crashing the chinese government sees this we're we're not surprising look at the what's going on in the world with energy prices we've never had oil over 120 bucks and not gone into a recession we're facing a global slowdown that will have big implications for inflation big implications for rates but china sees this coming and says we're going to get ahead of this we've got a people's congress in november we've promised him five and a half percent gdp growth three trillion of that is export driven that means if europe and the united states catches a cold they catch the flu okay so they have to do everything in their power this is why they're not going to supply the russians with weapons right because it's economically assassin assassinating themselves right so we have this interconnected world this idea that we're de-globalizing what we do doesn't impact anybody else like that ship has sailed a long time ago and the chinese see this that's why i think there's also a probability by the middle east this summer the fed in the united states is saying we now see a balanced risk between growth and inflation saks let's get you in on this just as we wrap here the chinese communist party premier talked about tax costs and this is a quote fertilizer applied directly to the roots of the economy tax rebates look like reductions but actually are in addition today you get back tomorrow you get more in returns does this mean the united states uh people will go back and get jobs because they need to have more money and that maybe we should be looking at you know tax cuts at some point listen jkl i think we got big problems here at home in the united states brad and chamoth they've laid out these gigantic economic risks that are facing the country you know i tweeted at the beginning of the year january 24th the president's main job is to ensure peace and prosperity and bind's popularity was already plummeting i think this is when his poll numbers were at 38 but if he gets us into war and recession he ain't seen nothing yet this war the longer it drags on the longer it basically can spin out of control and become something worse that sucks us in the longer it creates the risk of basically causing a recession in the united states we need the american we need the the blind administration to help try and lead to a better outcome here instead of ratcheting up the rhetoric all right folks there you have it that's your all in podcast for this week thanks so much to brad kirstner for joining us and filling in for the sultan of science bg thanks bro and a lot of great announcements here brad will also be joining us for the all in summit we're about to wrap up tickets uh we've announced a bunch of great speakers uh for the event may 15 16 and 17 in miami uh you can just do a search for the all in summit we have uh given out uh we've sent 200 emails to people who asked for scholarships and 100 of them have taken the tickets 500 of the 650 tickets or so are accounted for we'll be wrapping up registration in the next week or two and we look forward to seeing you all at the new world symphony in south beach do you have any announcements of people who else is appearing oh my lord we have great announcements keiser boy is coming joe lonsdale is coming nate silver is coming nate silver i love nate silver well we decided chamoth we would have people do 15 uh to 20-minute ted-style talks like position papers and so who else do we have doing that uh tim urban of weight but why who's a brilliant tech speaker and writer nate silver's gonna do that and then uh antonio is coming he was just on uh uh and uh he was just on a rogan show and so we're gonna have these like 20-minute uh kind of hits then the besties will sit with them we'll do those back to back kimball musk is going to come and talk about his uh dao that he's doing for non-profits brad we're going to talk about what topic so we're collecting all this talent and then we'll figure out what positions they're going to play in the show and what the themes will be but the themes will match what we've been talking about here and we don't want to pre uh set the themes six or seven weeks seven weeks out from the event because we don't know what the world will look like then uh and then free burke said he wanted to do a position paper and actually give a 20-minute talk so bessie's will have that ability and besties will start the event and end the event tons of different speakers rotating in and out talking about the most important topics of our time but i would like to have peter there can you get peter thiel to come he's maybe the most iconoclastic please please i'm just not i have to get over my uncertainty that this whole conference thing is really a grift it's not a great we're putting all the money is going back into the event and we gave 200 scholarships there would be no profit from the other there needs to be a really nice swag bag and i i think it was already at 600 dollars a person i just spent three or four hundred letters what is the material of the hoodie all right if it's gotta be a cashmere hoodie if that'll be on the ground hundred dollars for people need to be able to buy up to the to the special hoodie brad i just spent six hundred thousand dollars per gift bag for 600 gift bags okay it's like 400 grand in gift bags and chamath wants to put a six thousand dollar so that i just wanted to know what the material was of the hoodie in the bag that's all i'm just asking a question this is my life brad i am busting my ass to put this event on and complaining about the gift bag saks is complaining on me making a dollar from it and free berks having a panic attack that we don't have enough great speakers and i'm doing all the work that's my whole [ __ ] life i appreciate you j kell i know you did say some nice stuff to me you did say some nice stuff right appreciate that i'm bored with you getting a fee for your hard work yeah i don't need to give you like an hourly wage you know 15 an hour no i'm not your weight slave david sucks i'm working hard here but i'm working hard but i i just wanted to be appreciated i don't think you should have like a cotton blend is my i think by the way brad do you have any thoughts on the sushi is there should we be using brown rice and not the two line cloth tuna no just make sure there's golden brown gold leaf on the sushi no literally we're spending i think for 300 or 400 000 per party it's over a million dollars in parties and i'm talking to talent bookers about serious talent coming to perform drake can you get drink how about dueling that's three million dollars do a lipo two million dollars in two million dollars that's what the dungeon i got what does that mean how much is dojika she's great i think those are all seven figures i would like to anyway what i'm trying to do worthwhile i mean that would make it an incredible party oh god i mean i really would like to get started how much is drake again two million dollars i heard two to three million and get drake yeah good idea yeah yeah yeah cancel the bags give it all the drink so you guys are saying and all the work i do i should take two million dollars and hand it to [ __ ] drake yes yes drake is more valuable than you 25 years of working on events and media brad and these these are my friends who are like take the 2 million drinks you can put in your pocket and finally make a profit on your work and just hand 2 million in a bag to drink we don't need the bags forget about this one guys can i get a plane i'm do we get to work with drake on which songs he's he would sing i think he does like a medley of like three what i would like to do is have three songs for two more come on i think it's basically like a hundred thousand a minute i think that's what you're in for a hundred thousand per minute just 20 minutes that seems egregious no i mean these guys get paid when when i hired snoop he did like 20 songs for me i mean it was unbelievable two or three hours three hundred that's because he forgot he was there yeah he had a great time oh my god man he was blowing this joint that was so powerful that i was 10 feet away and i got stoned i mean it was like he walked in it was like i remember it was like 20 super bowl shows good stuff all right everybody love you besties love you brother we'll let your winners ride rain man david sacks [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension but they just need to release [Music] your feet [Music] oh [Music]








i mean jason and sax look like two accountants who've just been fired from lehman brothers in 2008 actually we're carrying our boxes out to the street and getting a taxi sacks does look appropriate for his setting how long are you in dc for saxophone in and out one day what are you doing yeah i'm flying back tonight for the fundraiser tomorrow morning uh who's the fundraiser with you want to tell everybody a big boy yeah it's an april fool's joke i'm hosting a fundraiser for a democrat blue state he's trolling everybody with his blue state put your red tie on put your red tie you have a red tie with you sex i wore a blue tie today really oh you're trolling my full troll is on oh wow what a little troll artist all right let's get started [Music] [Music] all right everybody welcome to another episode of the all-in podcast with us back from his tahoe vacation you were certainly missed even though the episode was record setting the queen of quinoa himself he'll reboot your physique with his munique puts the mana in the kana and he's your pal from norcal the sultan of science david friedberg how are you doing brother you have a little secrets of these things this is great you actually do work for this podcast you can keep this going every week it'll be amazing i mean i just felt like getting a plug-in from unique and connor that was my if i could get to portfolio okay hit socks and me let's go all right well you know he's back with us again the czar of arr the savant of sass he puts the ass in asperger's he's the sucker he's a sucker for tucker the rain man himself david sacks that's so good all right next up the dictator agitator and our frequent collaborator he's back to back with the spax a trendsetter with his sweaters the future he can foresee chamoth paulie hapatia we got you everybody it's not as good as david's i gotta say well there's a lot to go with asperger's tucker i mean he's the material for sax i could have done 20 minutes 20 minutes i could have done 20 minutes on zack sacks you are of course in dc with some star chamber thing you bannon tl who's who what what star chamber are you doing in no i spoke at a foreign policy conference today called the name of it it's called up from chaos and sponsored by a group called the american moment and uh the american conservative what did you think about well it's called up from chaos because our foreign policy has been chaos for the last 30 years the united states has been in seven wars we've how many trillions have we spent on nation building we've lost all of those wars name one war we've won look at all the lives that have been lost thousands and thousands of our soldiers and then you know millions of innocent people all over the world i've said it before this what happens when the united states goes around the world stampeding like a raging elephant we need a more restrained foreign policy so that's what i've been articulating i don't know why what about that makes it either conservative or liberal but um you know what we need is is more restrictions first of all it's too logical right yeah you know it's it's it's pretty much everyone in this town i mean there's no lobby for decreasing our involvement right because i mean the military industrial complex has gotten so big and so powerful i mean trump did not want to start worse it was a key piece of his platform uh and it did seem up until uh and we'll get into this obviously up until the uh from biden 12 hours after i said you weren't giving him the benefit of the doubt he threw me right underneath him just declared a new world order i mean he is regime with putin yeah and he said regime change i mean he's bought into this liberal interventionism um obama was much better i mean obama had all the right instincts he de-escalated things in ukraine we could have had the situation back in 2014 obama pulled the plug and he de-escalated in syria over the over the objections of his staff i mean the problem is if you that obama basically got played by the the staff and the establishment because obama was there for eight years and he knew that you know it was all about doing the right thing and also about the legacy and the judgment that would look back on his decisions whereas everybody else is like well i'm here for this four-year grift and i'll be back for another four years later so you know the more chaos the better for a lot of those people he couldn't get us out of afghanistan why couldn't he get us out of afghanistan zach because he wanted to right he got played by the general so ben rhodes wrote a book ben rhodes was sort of one of obama's um right hand guys and he coined a term that stuck for called the blob which is the term for this sort of washington foreign policy establishment all the people in the state department and the think tanks and the sort of the the journalists who love being the drums of war i mean that whole establishment that just is addicted to war and um you know if you read that atlantic magazine interview called the obama doctrine where obama's interviewed he lays it out he says look there is a foreign policy playbook that presidents are expected to follow in response to any provocation any incident you're supposed to react in a highly militarized way and if you don't you get attacked and the generals he wanted to get out of afghanistan but the general started leaking against him that it'd be a fiasco and then unfortunately obama didn't stick to his guns he didn't want to take those political hits it was unfortunate he really should we'll get into ukraine at the end of the show but let's talk a little bit about markets up top here the us yield curve uh inversion is upon us maybe you could give us cp a little primer on what this means the inverted yield yield curve and why people are talking about it this week well i think people were talking about it the reason they were is that they believe that it predicts a recession and specifically what they look at is the interest rate on a two-year bond and an interest rate on a 10-year bond and you subtract one from the other and when it inverts what effectively what it means is that you know typically in a healthy economy you want rising interest rates over a long period of time and the reason you would want that is that you are guessing that the economy will be healthy there'll be a nominal amount of inflation so things will tenderly increase in price and as a result of that you need to get paid more for the future than today right so if you want me to take 10-year risk you need to pay me a little bit more than if you want me to take two-year risk and so things should go up and to the right but when all that stuff 10 years out all of a sudden is trading for a lower yield than today what people think will happen is that you know governments will cut interest rates massively they tend to do that in order to stimulate the economy right to get money back into the system and they tend to do that because of a recession and so people look at the the difference between the two-year bond and the 10-year bond and they try to guess what's going to happen here's the problem with all of this it turns out that it's not as correlated as one thinks the and nick i posted this link so you you can just put it up there but a bunch of economists at the fed actually went and you know you have access to this data they back tested this and what they found was that there was actually a more predictive signal of recessions which is the difference between the three-month t-bill and the 18-month t-bill and if you look at the 3-18 spread they call that the forward spread at the fed uh that's actually not showing a recession at all in fact that shows a very healthy ascent largely taking into account the fact that the fed has told us that they're going to rip in a bunch of rate increases over the next year to 18 months so what are we to do with all of this well when there's been a recession it has typically been true that both the two's tens and the forward spread have collapsed to zero or gone negative that's this inversion it has never really been the case that twos tens inverts while the forward spread stays up and you have a recession in the past we've mentioned that when oil has these kinds of price spikes it typically forecasts a recession so if you put all of this data together it's a really murky picture so what are you supposed to do it's not totally clear to me but i think the the general way that i think the market is reacting to this is probably inappropriate and i'll tell you why and the setup by the way because of this inappropriateness is actually quite interesting so why is the reaction inappropriate look if you think about where we were in november and where we are today almost april 1st right so it's been four months five months we've had massive exposition of inflation we've had massive disruptions to the supply chain we've had the beginning of a war whose end is somewhat indeterminate today that's causing a bunch of spikes in a bunch of really critical commodities the entire world needs we've had a federal reserve that went from hiking 50 or 75 basis points to hiking 200 to 250 basis points by the estimated average and so all of these things have happened yet the market is basically at an all-time high plus or minus that five percent that really doesn't hang together at some really basic logical level right so so what's gonna happen well brad said this last week what has actually happened under the hood is a dispersion which means the crappy companies have gotten crushed and the good companies have gotten whacked but not crushed okay and then when they rally they rally disproportionately in favor of the good companies so what are we doing right now i think we are going to see this diversion of companies and we're about to go through earnings season right we're at the end of q1 and i think what's going to happen is really interesting you're going to have a handful of companies who have a great handle on their business who actually project strength i know what i'm doing i know how i'm going to perform the levers are in my control i'm going to invest for the future i'm going to go and consolidate a market those companies will get rewarded and then anybody else who has a whiff of indecision or whose structural business is flawed and then they use all of these other issues as a reason to explain their flawed business will get completely whacked two examples over this last week and we had this debate you know people were talking about restoration hardware and the ceo basically saying the sky is falling and there's a huge recession and you know my comment is well if you take the other side of the coin restoration hardware sells overpriced crappy furniture into a housing market that's basically shut down because refi rates are at five percent there's the other explanation for why his business is crappy it doesn't necessarily have to be a resolution and just to clearly define it a recession is two quarters or more of negative growth the the economy contracting and we've had about a dozen of these since world war ii we remember a couple of them in our lifetimes obviously the covid uh situation created a recession uh for a couple of quarters and then we had uh the great recession which lasted i think that was almost it was over a year right that was six quarters i think five quarters so these happen every ten years or so uh so if we do have a recession and it it seems implausible to me that we would have negative growth for two quarters so the other the other interesting company for example was uipath which uipath got whacked today 25 or 26 and what they actually reported was that they thought that they were going to increase um arr to you know 1.2 billion from like 900. that's a that's a huge at that scale to grow 35 40 in ar in a year is really quite incredible but their acv numbers and their revenue numbers were a little soft they got whacked and now they're trading you know like 11 times arr so you have some of these companies that are going to blame macro headwinds but they may actually just have a you know a flawed business model you'll have these other companies who actually over perform but may have been a little bit too highly valued to get valuation reset on any faint weakness and so you know it's going to be really up to these ceos and these boards when they write their earnings releases to be very precise those that have a handle on their business i think are going to get really rewarded and those that don't need to blame the macro market and just get all the bad news out now because this is the quarter it doesn't get any better from you saks best ways to fight a recession cut spending i'm sorry increase government spending uh cut taxes where are we at in terms of how many bullets we have left to do these kind of things we don't really have a you know ability to spend more money and i guess lowering interest rates is the other way to stimulate it do we even know we're going into a recession so do you think we're going into a recession if we are is there a way to reverse it through the normal tactics we're definitely going into a slowdown and whether it becomes a recession to be determined i think there's a very good chance because we already were headed for a slowdown because of interest rate increases because of inflation and now on top of it we've got all the supply chain disruptions from this war and we know that you know unplugging the 144 million russians in the russian economy we've basically unplugged that from the global economy so that's gonna hit our economy if there's a little bit of delayed reaction there so these are all negative indicators and i think we're either gonna have a recession or something very close to it and they typically last 11 months right sex so how long would the recession be i think it's typically 11 months two quarters six quarters yeah normally it's like 18 months so you get back to where you're supposed to be or something like that um but you're right we have very limited tools to fight this because we've already spent i mean we've already broken the glass in case of emergency for covid we spent something like 10 trillion by the way that's what caused a lot of the problems is we flooded the zone with liquidity now we're trying to mop that up with interest rate increases that's slowing down the economy so there's nothing left to really spend you can't really drop interest rates uh much more and if you do you'll get much worse inflation so it seems to me that we don't have a lot of tools here and we could end up with something like a stacked 1970s style stagflation where we continue to see inflation with the slowing economy let's unpack what that experience would be like economy slowing there's less job openings people are spending less money while the prices of goods and services continue to go up that's why they spend less money and that's why there's there's um recession like i mean you're paying six bucks for gas you have less money to go out for dinner every week right you pay uh you know twice as much for an airplane ticket you don't spend as much on the hotel i mean like you know the rippling effects of the rate of inflation are decreased spending and there isn't enough time for you know the the new job uh creation engine to catch up and you know without a stimulus effect you're in trouble that's really the situation we're in and that's what you know can kind of cause these stagflationary effects to to drag on almost every other time we've had a recession people couldn't find jobs and i can remember them qualitatively people saying hey i want to get a job i need more money i can't find one and now we're sitting here with more jobs than we can fill still over 10 million jobs available and and people are still resigning from jobs so how do we factor in the labor market jamaa well it's all this is super confounding it's not like previous ones it is i actually think jason the explanation for all of this is um not necessarily about the supply demand dynamics of labor but our social policies related to our birth rate and immigration i posted this article link for you guys to read in the atlantic but basically our birth rate in 2021 absolutely fell off a cliff it was less than 300 000 net births in the entire country and net birth is defined as immigration plus births minus deaths and when you look under the covers you know we had two really discontinuously bad things one that was that has been building since trump and one that was acute the thing that was acute was that in 2021 after we had vaccines which is crazy thing to think about we had a million deaths basically right because of covet so that's a million people that largely exited the workforce plus or minus obviously some not all of those people working but i think the overwhelming majority probably fifty percent we have fifty sixty percent over participation more more i suspect i suspect some could have been retired right that's what i'm saying i think it's probably like seventy eighty percent of the people that died were probably in the workforce in some way so you had all those people leave we have a you know troublesome issue with births and birth rates um all western economies do basically as a standard of living goes up and as the equality between men and women go up birth rates go down without commenting on the the dynamics of that that's just that is just true and so you know we should celebrate that in the sense that like you know you want increasing equality you want people to have more choice etc all these things so how do you make up for the gap well you make up for the gap in immigration and the problem is that trump closed the door yeah and biden has not reopened the door and so you know we have had a meaningful fall off in immigration it doubly compounded because then because of covet we had border controls and we shut the borders completely so even if you know you were a student that would come here odds were maybe you'd get a master's or a phd and then stay here none of those people could so nobody can get in so that's the real problem that we have to solve jason which is that um you're not going to get you know families to all of a sudden have kids you know that that's a 18-year problem if you started that problem today to get them into the workforce or 25-year problem so immigration is really the only solution and we don't really have the sponsorship to do that at a domestic policy level well and then you add to that the fact that labor participation which when we were coming up 67 68 percent of people in the country were work choosing to work uh and now we're we're down in the sixty percent of maybe ticking up to yeah sixty-two percent it looks like uh on that fred website so we we need to greatly increase the number of people in the country and the people participating in the labor force if we're to avoid a recession right more people working we need more economics we need to boost it yeah i would encourage everybody to read this atlantic article because i think nick thompson does a very good job of just basically summarizing the issues that that we have freeberg what are your thoughts here if is it getting more people to participate in the labor force importing more people both and then how do you how do you get that to actually happen sorry derek thompson not nick thompson look i'm i'm not an economist but i don't know if that really solves the acute runaway problem that we're experiencing right now one thing i'll say about inflation let's say you're running a company and you raise your prices you're not often going back and dropping your prices again and um you know you have to have a catch-up effect for income and savings to make up for the increment in pricing and that's really you know a key driver right now that the rate at which prices are going up and you know cured gas and other commodities trade back down but consumable durable typically stay high after they inflate you end up having you know kind of this persisting effect and it's really hard to kind of just grow your way out of that so um you know without stimulus and so you know i'm not sure the labor solution is gonna solve this kind of acute problem um that we're going to be facing that that seems to be at this point dragging on what do you think about the argument though that there's a substitutional effect meaning yeah when prices of goods rise people find cheaper goods uh and then separately what happens is you know part of a productive society is you make better and more interesting and more useful goods and services and you know incrementally especially if you use technology those things tend to be deflationary so they do get cheaper meaning you know you used to pay for photo storage dropbox comes along gives it away for free then google comes along and gives everything away for free yeah so you have this deflationary natural deflationary effect where you tend to save money on the things you use to pay for because a lot of people find that they can build a different kind of business model to monetize giving it to you or subsidizing it i think this is the key to moth is that if peop if prices go up then entrepreneurs are going to look and say you know there's a better way to do this you want to go on vacation you want to stay somewhere for two weeks you can't afford the hotel okay let's try this new thing like this airbnb somebody rents you their apartment they move in with another person for the week you use their apartment and you can rent for 150 tonight instead of 350 at a hotel that that uh pricing uh when there's runaway pricing people come up with better solutions for people yeah i think i think that that's generally been true and by the way the if you think about the the biggest areas that have been sticky um which are energy policy and housing policy the way that we'll have to unlock better pricing in those markets will be because we deregulate not not by increasing regulation but by massive deregulation you know we have massive nimbyism up and down the stack that prevents us from building the housing supply we need that has to get fixed right and we need to have better uh energy policy like for example you take a state like california you know it's the most populous state in the country it's the richest state in the country but it has electricity prices that are three times higher than the national average that doesn't make any sense right and so you know how do you expect renewables to really compete when people are so incentivized to fire coal and not gas it doesn't make any sense whatsoever these prices cannot be this high they're high because of lobbying and because of lobbyists and special interests and so if you rip that stuff out by deregulation you actually allow as you said jason entrepreneurs to do the right thing and they will push prices back down sacks what's your question well i thought you might want to comment on what we're talking about entrepreneurs creating products and services at lower prices that then you know maybe create the the exit ramp here to inflation and stagflation some combination of that that's going to be upon us sure i mean there's a lot of entrepreneurial energy in the u.s it's strong there technology does cause deflation it's deflationary but this is not going to help us get out of what's coming over the next year or two look the bottom line is that we had a massive government overreaction to covet in which we printed and spent way too much money something like 10 trillion plus and you know this is the classic hangover after the party you know they put the punch bowl out for way too long and now we're all going to pay the price for it they spiked the punch ball they spiked the punch full big time yeah and we're already seeing it think about like all the advice we're giving our portfolio companies to slow down their spending and extend their runway every board in america is going to be doing that so it becomes a self-fulfilling prophecy but this yield curve inversion is you know fairly predictive i mean it's not perfect but you know cnbc had this report today historically it's met when the yield curve inverts there's been a better than two-thirds chance of a recession at some point in the next year and greater than 98 chance recession at some point in the next two years so it looks to me it needs to be inverted for uh at least 90 days typically but again i think if you look at the the forward spread from the fed it's it's more accurate than the two tenths but your point is the same something is happening that we need to take seriously and none of the outcomes here are growthy good outcomes and the policy wonks in washington really need to figure out what their position is going to be on this stuff and what they push next in terms of legislation because we're going to be going into the back half of the year in a midterm election where the economy is slowing interest rates are high prices are high this is a horrible setup for the debt yeah and let's think about what the priorities of the administration have been throughout all of this i mean one year ago they did that whole 2 trillion american rescue plan they were warned by people like stanley druckenmiller that retail was back the consumer was back and yet they still printed two trillion that caused a huge amount of inflation it totally backfired and that wasn't the end of it if they had their way we would have had four trillion more of spending and the whole build back better now biden just floated this neutral balloon over this unrealized gains tax so last year they floated the trial balloon about basically doing a wealth tax and everyone hated it and now they just proposed it again it was insane and even when they brought it out they leaked that they had mansion support behind it and then the next day manchin came out and disavowed and said no no i don't support this i mean what is the administration thinking it makes no sense well i mean clearly on foreign policy i mean i strongly believe we could have cut a deal on ukraine a year ago to defuse this whole situation before it turned into a war now we got a war over there let's talk about what they should do i mean number one on the list for me is we should be getting every entrepreneur from around the world any really intelligent person who wants to go to graduate school here into this country we need to have like a manhattan project to just scoop up all these mutant geniuses from around the world and get them here and get them starting companies here you know you don't even need to do that it was working don't it up bush obama all you had to do was just leave it alone everybody who was any good at anything wanted to come to the united states including the three of us yep and all of a sudden it's like nah it's good yeah i pass yeah okay i guess yeah well i mean if you set out that you hate entrepreneurs and you uh resent them for success don't be surprised if they want to stay in a country that but i don't think that's what it was i think it was much crueler than that i think that we went to a posture that said okay you know what net new immigration was viewed as something that was displacing people wasn't a net value creator was you know in some cases viewed very xenophobically and that is really problematic because it's actually about a large population issue and it's about how you construct a healthy thriving population yeah this was trump's worst yeah worst approach he was best approach clearly not starting wars worst approach shutting the borders down for some populist reason when we actually need people in the country well hold on but see the way you just framed that is why i think there's a problem which is look obviously the immigration is a very fraud issue but the choice that's being presented to us by our political parties is either you're in favor of immigration you know like bringing in all these superstars like we have founders in silicon valley that makes sense or you're in favor of open borders i mean why are those the two choices that we either have h1bs or we have an open border i mean that makes no sense i mean what we should have is a sensible immigration first of all we should strip the border security issue out of it because whatever the number of immigrants should be pro-border security i mean we need a point-based system we need to be have a reasonable discussion between democrats and republicans about a point-based system right qualitative discipline you you've got that for a long time and it works in canada and you're i think you're absolutely australia new zealand uk they all have this it's like what what does our country need right now okay do we need people you know who are laborers or do we need people starting companies do we need you know scientists you've noticed but to me this is very equivalent to the removal of sat and act scoring and admissions in college explain the notion of merit the notion of performance is not one that really matters in this country as much right now as much as the notion of equity and equity really has kind of become the mainstay of not just how we're making policy decisions on a local level but a lot of these kind of national issues are becoming about equity and it's about you know equitable consideration for wealth creation for existing citizens in the united states and the perception that a minority of people or some majority of people actually missed out on significant wealth creation over the past couple of decades as globalization and technology advances have accelerated growth in our economy and the share of that growth has been disproportionately assigned to a small percentage of people and i think it is that same notion that drives a lot of the the kind of sub decisions the local decisions that we're making as well as these important policy decisions and the point that i think is critical that's really hard to get across to everyone or anyone for that matter is that you know and i've talked about this a lot but progress brings everyone forward but it doesn't bring everyone forward symmetrically right progress brings everyone forward give an example freeberg so amazon's a great example i've used it a lot um with amazon we've all been given access to more goods and cheaper goods than we would have had before so we all benefit from that progress right everyone can get on an app and get a freaking inflatable swimming pool delivered to their home and the vitamins they need within 24 hours at half the price of what it would have cost them to go down to the local ace hardware store that's an incredible benefit for all of us so our share of wallet on that sort of goods has gone down therefore we can spend more get access to more stuff and we're all prospering and if you think back to what life was like 30 years ago 20 years ago to those of you who you know were spending money 20 years ago or whatever it's an incredibly different proposition than what we had back then and it really has changed the world and changed all of us as consumers ability to consume more that's amazing the problem is jeff bezos is worth 160 billion dollars so everyone looks at that and they want to land based jeff bezos and they want to say this is unfair and equity becomes the discussion which is why is one guy worth 160 billion dollars the reality is he benefited everyone everyone got benefit from the value that he helped create in this world in this market and then the reaction is we got to stop this from happening we can't let people be worth 160 billion dollars without putting their eye on the point that you know what i'm spending three grand a year less because of this possible because of this technology that he brought to market and so there's a lot of these solutions that i would say are progressive they progress us all as a society everything from biotech to technology and software to any sort of business or services innovation that people are willing to pay money for that people are willing to embrace in an open and free market and then what happens is the spoils of that progress aggregate in a minor in a in a small way to a small number of people and that's the payoff in capitalism but when that happens over and over again for 250 years you fast forward and by the way a lot of those compound people wake up and they say i don't want that anymore and they miss the fact that progress is taken for granted and here we are we want to give up progress and we want to get equity and it's going to cause a real ripple effect that's going to last for decades and it's not the first time we've seen it right this has happened historically over cycles that last hundreds of years and it's happening now in the united states and in the entire western world um and i think it's going to be really unfortunate generally for progress um and all the ones all the advocates for equity are going to kind of what's the solution i think you're totally right what's the solution because that's it's just a really sad i've thought about this a lot and you know i look at what china did um and everyone's going to say i'm pro-china but what was interesting about china recently is they ratchet up and they ratchet down that free market system so they allow progress and then they disallow progress when the equity meter goes the wrong way and so if you kind of think about an equity meter and a progress meter you have to balance those two over time because otherwise what happens is you spring back and then the springing back is when governments change revolutions happen you know democracy falls apart autocracies arise all those sorts of awful things and or really i would say those cyclical things that happen i don't want to characterize any of them as good or bad but the cyclical things that happen with society over time and so you know that is effectively what's happening guys like the ultra high tax rate the um the regulatory regime you know the government coming in and stopping facebook i mean these sorts of behaviors are almost like an attempt to mute and ratchet down both um inequity as well as the you know unfortunate side effect of progress um and i think we're basically punishing excellence and that is challenging for long-term growth minimizing progress to improve the the the rate of equity of distribution of gains right and and it's it's very hard because by the way what you're also doing is you're relating a first derivative and a second derivative effect um and so you know first order and second order effect so it becomes a really difficult thing to and people don't really see it this way people see kind of the very you know myopic view of i gotta redistribute well if i gotta help people that are out of jobs these guys have only seen their income go up by 10 while everyone else's incomes gone up by 40 and so you know politicians you know legislators react to that circumstance but the zooming out is that circumstance arose as we all made progress with respect to security with respect to health with respect to food availability with respect to consumables being cheaper etc etc all these great things that progress has given us um and you know there's a ratcheting effect the hope i have is that that ratcheting isn't um too binary it doesn't flip too far back the other way too fast in which case you have a socialist state arise a revolution arise you know all the things that we've seen kind of come out of our people just cancelling ap math in california precisely precisely and then and then the the rippling effects of no more ap math and no more sats is you know rural like you know yeah fast forward 20 mit brought back the uh i don't know if you saw this week mit brought back sats as a qualifier uh after they paused it and i think a lot of people are starting to realize this is a a road to nowhere saks what do you think is to chamat's point like is there a solution to get america behind excellence and pragmatic you know kind of solutions for immigration and if there is a way to do that how would you do it well i think like we were talking about you got to kind of unpack the issue so like we talked about strip border security out of it don't make that part of it then i think you gotta differentiate between high school and low skill immigration like what you called the points system i mean if you look at who's founding companies in silicon valley something like 40 of startups have an immigrant co-founder so clearly immigrants bring a ton of entrepreneurial energy to the us but we also it's in our selfish interest to make sure that the immigrants were letting in actually have the skills that make them potential founders so i think it would be smart for us to think that way and you can't even really have that conversation it seems like today to have more of a skills-based immigration system i mean who who's willing to say that well you could just say three buckets you know here's people who need amnesty right because they're being prosecuted persecuted in their country and they're here because of humanitarian reasons here's a bucket for high performers who are going to add to our economy and create jobs and then here's another bucket which is a lottery and a lineup system hey you want to come here because you don't have skill but you want to come here because the country's so great okay you know each of those buckets is gonna have its own process and your your odds might be different in each bucket you know is that so hard for people to grok right you know we're we're sitting for in the economy i mean it's very easy for us to say this because we are sitting in silicon valley and for us immigration isn't economic good it's a benefit but if you are in a part of the country or part of the economy where you're in a low-wage job maybe you're a service employee or you're a union employee in the midwest the more immigrants that are let in that are low skill they compete with you and drive your wages down and that's why people are against it so that's basically the conundrum is as long as you're talking about immigration as being a single thing it's going to have a lot of political opposition that's why we need to you know bifurcate it between high school and low skill more high school people and exactly less low skill the least if you had to rank them from least controversial to most controversial i think letting in high skilled labor is probably the least controversial thing then and there is always controversy around this it's always on the you know the bucket of people for humanitarian grounds right some people agree some people disagree should these people be considered refugees should they not how many of your family members should you be able to sponsor how many not et cetera et cetera and that's somewhat controversial but i think we can all agree the most controversial bucket are folks that would otherwise come that would be considered lower skill um because they are the ones that really put pressure uh in very practical measurable ways into the economy and we just have to to your point segregate and differentiate how we think about this problem because again if you take immigration the word away and actually just use immigration as an input to this equation on population stability we have population instability right now so unless we figure out something between live births and deaths which i don't think we're going to solve tomorrow oh it's going to create a very large imbalance that our economy and our country cannot really recover from you know what it's you you sparked by thinking there it really is a framing issue we should not call high-skilled labor coming here as immigration we should be flipping that to talent acquisition we should be looking at it as america is trying to get more talent here so we can win the industries that matter and if we looked at it as this is talent acquisition has nothing to do with immigration this is us going out and sourcing the smartest people to come here so our companies win against other companies in the global economy to create more jobs for american talent acquisition could be something we could be investing in we should be thinking how do we win that all the problems that als the solution is in some hardworking group of men and women of which some will be entrepreneurs who want to be here you know we're trying to figure out how to actually build our own chips while there are semiconductor experts getting trained whether here or abroad who would want to be here to do that job on behalf of the united states right we want to figure out climate independence there are men and women being trained here and abroad who want to be here and solve that problem on behalf of the united states on and on and on and on and that's what it means to be you know use the sports analogy you know the la lakers right that's what it means to be you know the the new england patriots everybody wants to play for you and so when you're in that position and you have that branding tailwind you have to use it to your advantage to stack the deck in your favor so that you're constantly winning championships otherwise you're being really derelict in your duty and i think you know hopefully if people look at the broad population level issue that we just exposed because of covid there was a stat in this article as an example in the county of los angeles we are now in the last 20 years we've seen a 50 reduction in the birth rate in l.a from 150 000 births here to about a hundred and if you forecast that forward you know before the turn of the century the county of los angeles will have zero net births if you run if you run if you run the that's insane yeah so we we need to figure out how to solve this problem um because it's it's it's a it's a it really impacts gdp it impacts all these other issues that free brook just talked about as well the sense of equality and fairness if we're not creating and growing we are going to fight over how to split a shrinking pie and that does tend to lead to revolution yeah that's when people it could get really gnarly we're not growing entrepreneurs are not coming here new jobs are not being created imagine if this wasn't created the historical implications for what free brook said are really well defined in history if you go back thousands of years you look at every single time you know an empire goes through that period of decline when they have net negative growth economic growth and they have this sort of rising populism what they end up doing is they end up fighting and they have different ways of fighting right but they end up fighting over how to reallocate a shrinking pie and there are many of those outcomes when they fight that ends up in you know really turbulent moments in history and that's where this wealth tax yeah that's right yeah that's where we have a responsibility to make sure you don't end up going through you know a russia scenario a china scenario you know uh and there there are more productive ways to to solve these problems well that's where the wealth tax that was floated which seems let's doa already but this concept of everybody having who's over 100 million dollars having to assess all their worth and give 20 back minimum each year uh is that dividing of the pie and maybe they can allocate less money towards can we all agree that like you know on the margins when you make a lot of money you can and should pay more taxes i don't think that's a super controversial idea you know on the margins if you are a massive polluter you should pay some taxes to to compensate for the damage you're creating to the environment these are not controversial ideas the problem is that you know what sac said is true you take a sensible concept and then you pervert it because you have to contort it with all this language to make it political and it loses all of its value in it and so for example you know why does the administration have to write this law potential law or proposal in a way that so obviously violates the constitution of the united states are they that dumb i don't think they're that dumb but they do it to appease some political aspect of the democratic party and then as a result it becomes doa within eight minutes of it being announced manchin says this is dead what is the point of that theater it's virtual signaling yeah aren't you a donor you should know right what would they tell you i mean what's the democratic party saying i think what they would say off the record is that these were sacrificial totems to the progressive left meaning that they do it for window dressing to destroy like it's like throwing a cat a ball of yarn it seems like that populist progressive left is becoming a bigger base than it was historically in the democratic party it is i'm not sure how big it is but in the democratic party yeah look it's where all the energy is the dark hair party it's where a lot of the donors are that yeah that is who's driving the agenda in the democratic party today that is why the democrats are going to get shellacked in november read roy to share his sub stack he is the democratic political consultant who wrote the emerging democratic majority predicting this is back in 2002. he wrote a book about how there would be a new democratic coalition of young voters and minorities and women and they would come together and that would create you know democratic majorities and democratic presidents forever and then obama wins in 2008 and it looks like two shares predictions coming true and he recently in the last two years has been warning that that some things happen that he could never have predicted which is that working-class voters are now moving out of the democratic party not just whites but also hispanics and asians even uh black voters who are working class they're all moving to the republican party so he believes the republican party is losing its national majority why because progressives have taken over and on cultural and social issues they are much more liberal than the working class of this country so basically what's happened is the democrats have become a professional class party and the republicans are in the process of transforming into a working-class party and that's turning everything upside down but ultimately you know with yonkin winning in virginia last year and i think the republicans on a generic ballot are up like what plus 10 plus 12. i mean they're going to have a huge i think wave in november you know you gotta remember that professionals meaning college-educated voters are only about a third of the electorate i think about 37 percent and then the other 63 are working class the working class does not like this extreme socio-cultural progressive agenda they don't like seeing their statues ripped down they don't like this sort of what they see is kind of this this antagonism towards american history and american icons they don't believe in um and socialism you know um and so on down the line and uh the democratic party is increasingly speaking only to itself i mean they are in an echo chamber and i think these progressives are gonna have to lose a few elections before they realize i mean the same thing happened to the democratic party back in the 1980s right you had ronald reagan and then george herbert walker bush win three landslide elections 1980 1984 88 and then fi and the democrats nominate these like horrible candidates jimmy carter walter mondale dukakis and then who comes along bill clinton easy on the greeks easy on the greeks dukakis was pretty great okay like we found the one fan we found the one fantastic yeah who comes along in 1992 bill clinton and he has this whole new faction within the democratic party the dlc and his explicit mandate was to lead them back to the center and then he chooses al gore as his running mate to double down on that image i don't think al gore actually was that centrist i think is that but his image at that time was that he was pretty centrist he was so so you had yes i mean i think at that time so their democratic party had to lose for about 12 years before they nominated a candidate and put him at the leadership of the party who could drag them back to the center now listen i mean all we have right now are foreshadowings of this we have the yunkan victory last year we have the fact those three school board members san francisco got kicked out you know we'll see what happens to chase boudin on june 7th so we're getting these glimmers and i think november will be a big test but where i think this thing is headed is that the the working-class voters of this country don't like this radical progressive shift in the democratic party and the democratic party is going to keep losing until they're willing to make changes well and immigration is just such an easy one and and courting the working person is what the democrats did forever so i don't know how they how they can screw this up but remember working-class voters don't working-class voters are not in favor of immigration j-cal they do not want unlimited number of immigrants coming they don't want to limit it but they would like to see their family members driving their wages down but they do want their family members to be allowed in so for the folks who no you talk to you talk to hispanic voters who are citizens in america they are not in favor of unlimited immigration pressure for them reasonable i'm telling you that it's not it's not like what you think the the more the higher you are economically in the social strata the more professional you are the more you like immigration because like for people like us we like immigrants because they found companies and we invest in them we see the economic vitality that they bring but if you are a working class okay you do not want that wage pressure you just don't so unless the democrats figure out a way to talk about it the way we're talking about it where we separate high skill and low skill they will lose with that message all right let's get into some other things happening in the market sec is proposing a new set of rules to regulate specs uh i wonder if anybody here can uh chime in on this well i wrote who knows about it i wrote an editorial in bloomberg basically a year ago spelling out a bunch of new regulations that i thought the sec should adopt they adopted a lot of them in this draft so i think that that's really good they missed a couple key things and this is again tying back to this other thing when we're in this phase right now where we are really questioning how capitalism should work i think that there are two reactions that people can have one is you pass more regulation that entrenches existing advantages and the other is you pass regulation that either deregulates or democratizes a market and if i had to cast the half of my proposals that the sec adopted i would say it falls more into the first bucket than the second and jason you've spoken to the second bucket of laws that the sec could also change which is you know it's in their power to give people an on-ramp to prove that they are qualified and accredited so that they can participate in some of these really you know vibrant ways of making money beyond just investing in the s p 500 like investing in startups if you if you're educated and capable of doing the sec at the same time proposed a bunch of legislation around reporting requirements for esg and if you look at both of these two buckets of laws i think they're rooted in good ideas and i think that there are some good concepts in it but who really wins i think if you look at it the american bar association had a huge victory here because the amount of incremental regulation uh is going up which means you know what was a 300 page filing with the sec will now be 350 pages right i think that benefits lawyers i think it benefits consultants i think it benefits the accountant so i think it benefits the ecosystem people that participate it's not so clear how normal everyday folks benefit from a lot of this stuff so i think if you strip it all away what i would say is i think the sec is trying to do the right thing but i would really encourage them to do the second half of what they should be doing which is making these on-ramps um better generally speaking what do you think happens in the spac space we had 600 of them it's going to consolidate to the 10 of us that know what we're doing got it just like you know look the ipo rules are extremely sophisticated did it hurt morgan stanley or goldman sachs's ipo business no it just meant that the 95 small banks that did ipos went away and it consolidated to six and the league tables you know just churned between the six j.p morgan one year is the top you know then it's morgan stanley then it's goldman sachs and it's b of a then it's credit suisse similarly spax will consolidate around six or seven players and you know we'll do most of the business what do you think friedberg of this new sec uh announcement that they're considering climate disclosures for public traded companies this would basically not only what they're doing in terms of um consuming or you know allowing greenhouse gases and emissions but also this scope 3 concept your inputs what is your supply chain doing and what are your consumers doing so if you're making the iphone what happens to the iphone when the consumer gets rid of it or what did it take to get those minerals out of the ground to make the iphone what do you think is this a net benefit is it the lawyers win or does measuring all this actually mean we're going to see publicly traded companies manage it better a lot of opting into it already like google and apple are doing it on their own accord but what do you think generally of this regulation well i'll say let me just say something on the specs and i'll answer that question um you know if you read the comment the the first fcc proposed rule it was to amend the definition of a blank check company to make the liability safe harbor for forward-looking statements such as business forecasts unavailable and filings by specs so you know this was um you know i think one of the primary points of appeal over the past couple of years we've all been private market sophisticated private market investors when we take a pitch or hear a pitch from a company we all have the experience and the know-how not always correctly but at least we know what to look for what to ask and um over time have learned through our wounds and our failures to appropriately diligence forecast and understand what they mean and what they say and you know because the public markets historically through an ipo um are available uh to retail investors you know generally whatever the definition is of unqualified or you know um folks who may not have the level of sophistication that you know some regulatory body has deemed as needed to be able to do that level of diligence um the statements that are made in an ipo in an s1 need to be kind of factually referenced referenceable and that's not true when it comes to forecasts and that's why they're not included in s1s in an ipo but in a spec the appeal was you can tell your forward-looking forecast paint the rosy picture like you would for a startup and then theoretically the investors should make an assessment of the the risk and the upside and the objectives that the business is saying they're going to go shoot for and achieve and it's pretty evident i think we all knew this you know coming out of last year that you know many investors made investments on the basis of those forecasts you know being to some degree reasonably achievable or likely achievable and it turns out that in many cases they were not and were not achieved um and that's the big motivation here so the real fundamental question with respect to chima's point about markets is how much do you want to have the government and a regulator play the role of deciding who is and who isn't sophisticated enough to make an assessment about a business's forward-looking prospects or should we simply keep all forward-looking prospects or you know forecasts like yes you know out of those documents and it's an important conversation to have because for years people have been saying i want to invest in private companies but i'm not a qualified investor therefore i'm only going to be able to invest in public companies and as we're seeing the problem with investing in private companies or speculative companies is that you're investing on the com and more often than not that doesn't end up happening and that's a really hard lesson to learn and specs have kind of forced them the retail market that have not historically invested in private companies to learn that lesson very fast this is why by the way in my what what i what i was asking the sec to do on top of the things that they already did was i said make us all invest our own money you know make the sponsor really monetarily at risk i've invested a minimum of 100 million dollars in every single deal i've done as a spax sponsor that's a lot of money more skin in the game and disclosing that would be great and maybe even having a clearinghouse where you could see the percentage of cash to the ultimate raise that the promoter has that stuff work great all of that stuff jason is in the spirit of disclosure and transparency you still think it's important to have forward-looking statements and needs um inspect i mean if that ends up becoming you know the the the cornerstone of this uh proposed regulation i don't think it's a i don't think it's a cornerstone i think what i think the thing is that there are really important businesses that need good stewards to help them get into the public markets to raise money to fund their business and there are some people who really understand that and there are many others who don't and the thing that that the sec should make a decision on is whether just having a bunch of middlemen serves a market better or having a combination of some middlemen and some principles all competing is better because remember what like what is capitalism really you have these trapped sources of money right when you buy an equity right or you buy a bond you're putting money into a trapped asset it's an unproductive asset it may yield some return but it's not regenerating it is dead money capitalism is about creating an incentive for you to take that money out of that debt asset that unproductive asset and put it directly into the hands of somebody who will make it productive i'm going to you know build some oil fields i'm going to make a battery factor a battery factory i'm going to make sure whatever it is right and so you know having more competition that creates the incentives for that process to happen to go from point a to point b should be the goal of the government because in the absence of that again going back to the previous conversation you're going to basically shrink the incentives of productivity and i don't think that's what anybody wants to have such an easy solution to all of this we have a test if you want to drive a car and if you want to drive a big car called the truck you have to get a different test if you want to drive a motorcycle side and take that by the way jason i just want to why not have it you brought up a really good point earlier and i just wanted to put a fine point on what you said let's just say all these companies let's all of our startups included well now when we go public have to create these disclosures around scope 1 scope 2 scope 3 emissions and there's this weird concept called materiality that exists in law which will now again have to get adjudicated let's say apple doesn't disclose what's actually happening in their factories somebody can now sue them because they will say that's a material disclosure that you didn't disclose well guess what will happen that will wind its way and meander its way through the courts it'll take years there will be tens and tens of millions of dollars spent on that litigation because apple will vehemently defend the right that it wasn't a material disclosure because the implications otherwise will be measured in the billions or tens of billions of dollars so who really wins consultants when yeah trial experts win the lawyers lobbyists lobbyists i just i just want to frame this up for a second um because i think it's important for people to think about you know costs that are external uh to the business operation meaning costs that are born by the broader society by other um members of society not the business itself so let's say that you're a company that makes products with a lot of sugar and you know or cigarettes that you know we know when people consume a lot of sugar cancer goes up obesity goes up diabetes goes up the cost for cancer treatment the cost for diabetes treatment the cost for um medical treatment associated with smoking or sugar or alcohol is borne by a health system where the ultimate cost is shared by a large group of society by an all number of members whether that's a public health insurance program or a private one there's a group that shares that cost and so you as a consumer are not paying that cost today the question is should you be paying that cost and this is true for co2 emissions for carbon emissions you know you drive a gas guzzling car you purchase gasoline there is carbon that goes in the atmosphere you're not going to end up individually fixing the carbon out of the atmosphere later the rest of us are going to have to bear that cost as our homes burn down you know as floods cause you know houses to wash away as all the catastrophe that we're all predicting is going to happen starts to happen so the question is how do you account for those external costs and then the second question that will arise in a market-based system that we have is who's going to pay for those costs right now we all assume those costs and we don't charge anyone for them we don't just we don't charge anyone for the obesity epidemic we don't charge anyone for the cancer epidemic associated with cigarettes until we have that big legislation that that you know the doj knocked that off we don't charge anyone today for carbon emissions that we're all going to have to pay the cost for and so you know the first step is identifying and quantifying the external costs of the product or service that you're providing and deciding whether or not to tax the consumer of that product whether or not to tax the seller of that product and ultimately how to transition that capital back to the repair mechanism for pulling the effects of that product back out of this so in this analogy coca-cola if people drank too much of it and got fat would be responsible for their diabetes treatment well this goes back to the sugar tax point which is should we have a sugar tax because there's a quantifiable effect that too much sugar has on human health obesity diabetes yes sir i mean so that's an argument right and so in order to do that the first step is disclose the risks disclose the associated conditions that arise from the product or service that you're offering and i think that's part of the intention and a lot of very smart progressive people in capital markets some good friends of mine we have been talk have been talking for years about the importance of this level of disclosure because it is the first step in truly accounting for climate you're talking about yes yeah for climate yeah pretty controversial sac do you think we should charge p we should charge uh coca-cola for diabetes we'll go ask the question of should you charge for a carbon-related product for okay oh that's both carbon uh should corporations be responsible for the downstream carbon from their um customers and the upstream inputs at least disclose who's ultimately going to have to pay for that the answer to the former is yes the answer to the latter is um if you you know there's a there's a term in out yeah garbage in garbage out uh i've spent a lot of time in climate um i know what's measurable and what's not i've looked at the space a lot and i just think that there is no credible way to execute on david what you're saying you want all it's going to do is going to create a bunch of money that flows to consultants that create bs nonsensical reports the downstream and the downstream implication of that will be lawsuit upon lawsuit that gets adjudicated by the courts on this concept of materiality you think we should be recording a free burger now you agree disagree or agree with jamal no no i agree it should be recorded i'm saying okay it's not possible i'm saying the only winners in this will be the consultants you agree with that i'll agree these carbon markets are absolute bs carbon sequestration mechanisms are absolute bs i mean none of this stuff is real right now into the market it's all grifters it's all bs right you know you look trash yeah i'm not trying to be too disparaging with everyone there are good actors out there and good intentions for sure there is a tree but there's a lot of ways that you can kind of take this stuff apart and say you know what this doesn't actually add up and there's a good business to be at in the meantime and everyone feels good running that business simple example jason how will you know that a sensor that's on a flue of a manufacturing plant is accurate how do you know that it's not been doctored how do you know just to say just a very very simple question just that well when it came to volkswagen uh a leaker leaked the information and that's and the press got on it and that's how it was regulated it was it was in the review mirror that's how volkswagen got busted so that's how we're gonna we're we're gonna fix this there's a bunch of whistleblowers i mean that's what happened also within rj of nabisco and the the cigarettes as well and changed as a result of that nothing uh no in the cigarette industry um that led to the largest fines in the history of corporate america i think up until that time we still don't have a tax we still don't have a pool they don't have a tax we have a big tax on tax on cigarettes yeah sure but it's a lower consumption yeah yeah but we don't you know we don't force these companies to basically subsidize a portion of our health care costs every time somebody shows up with lung cancer it's not like we say you know what that's going to be half borne by rjr nabisco yeah so i mean this i the measurement can't be bad but i guess it's what you're saying so the mineral i'm saying the concept is good the measurement is literally so terrible as to be worthless and so wouldn't there be a bunch of new companies that come up though that then create the auditing trail so you say hey we're going to put the you have to have one of these companies put the sensors on your uh factory and ernst young have to audit it's a small oddity of you know again there's a lot of companies for example this is where silicon valley i think gets a little you know caught up in their own nonsense there's a lot of companies in silicon valley that have made a lot of money measuring bits right analytics companies because the exhaust of a tech company is sitting in some log file somewhere that's just a matter of being parsed right do some etl do some transformations put it in some beautiful table run some query on top of it lo and behold you can know everything about your company when you're measuring atoms it's just a little bit more complicated and i think that people underestimate that complexity so while the desire of this is good i think the whole point is that you know if you draft this language the wrong way again my own i want to be very precise what i'm saying what i think it will do instead of actually causing more conformity and have people emitting less carbon it'll create a shadow industry of measurement and consulting around this industry while people debate materiality when they get caught got it that is not the point of this but when you draft laws like this you have to think about these implications so is there is there an easy answer here or just no easy answers in terms of if we want companies to be somewhat more knowledgeable and responsible in their carbon emissions well i think that the responsibility ultimately comes from the end consumer buyer customer of a product because if they have an alternative that offers them those trade-offs whether it's at a higher price or a lower price or the same price and they adopt it then these companies really pay attention right because ultimately what they really care about is their downstream profitability otherwise i worry that a lot of what's happening in corporate america today is basically some form of greenwashing you know so for example like we joke but it's true when you look at these carbon offset markets these indirect offset markets what are they a company spews all kinds of gnarly stuff into the environment they hire a consulting firm i just want to explain to you how it works today they hire a consulting firm who uses an excel spreadsheet to guestimate how badly they have polluted the environment okay it's a fundamental guess then they go to another company that says well can you buy me some equal and offsetting amount of credits and that company then will go and plant some trees or buy some trees claim the trees exist measure and impute again in a different excel spreadsheet how much you know carbon capture is happening by those trees do we know that those trees aren't getting sold 10 times over to 10 other companies we don't know that so my point is the the we have a lot of work to do to solve these problems i would rather see again raw capitalism solve this problem and i think in in climate change the most productive thing we could do is lower the barriers for trapped unproductive capital to get into the hands of really amazing scientists and entrepreneurs who are building things that can measurably remove carbon from the environment and there's really two easy ways to do it one is have a test and the other is on the roads we have a speed limit so if you are a non-affluent person already but you want to dabble in this it's a very simple way to do it i propose have a written test just like you have a handgun or a car test a driving test and then how about you can deploy ten percent it's so incredible you just said this you could allow an 18 year old person to buy an ar give me the name of the gun ar 15 and a car and go speeding down the highway but they're not allowed to invest in goat puff yeah no they're too they're not sophisticated you can shoot the bullets in the air while you're going down the road what is going on well i mean there's no path to it that's the frustrating part like in some places it's hard to get a gun you got to take a eight hour test other places you can just buy them on the wherever you allow 18 year olds you can allow an 18 year old to take psychedelics and marijuana legally yes open in a market but they are [Music] and so this is the stupidity of it well here and here's the other thing you can have two different things you have the test so now you know the person's educated but you could also say hey listen whatever's on your tax return for the last two years you can invest ten percent of that a year in you know private companies so if you made i don't know a hundred fifty thousand in the last two years you made seventy five thousand a year okay you could put fifteen thousand let me give you another one you will allow people to go and work for startups to help build the enterprise value of a startup let's pick our favorite startup like an uber but not invest in their equity before they go public right you're not sophisticated you're sophisticated enough to build it you'll you're sophisticated enough to drive for them for years to help them build a 50 billion dollar company but not buy a piece of that company along the way yeah that doesn't seem right either but you could pull over and buy scratch-off tickets and lottery tickets still the cows come home but you can't buy a scratch off take it in a startup makes no sense all right zach you've been quiet in all of this i know that you hate the environment and regulation what's your thoughts i'm not i'm just not deep in this topic so i don't want to weigh in all right well here's one you are deep in facebook hired a gop lobbying firm to smear tick tock according to the washington post hillary clinton here's something it's a gop before that you said you said he's like into destroying the environment or something yeah no he doesn't care about the environment so i mean saks is never going to go into the forest and even go near a tree he doesn't go outside a sealed bedroom to his house he closed the curtains he's like oh beautiful view of the sky oh nature's like the pope his car has one of these things he doesn't even have to sit down it's just enclosed he stands up it's bulletproof glass you know he just waves as he goes by exactly i go outside sometimes i much prefer going to an outdoor shooting range so when you're going shooting you send an outdoor one so this is a really crazy story teller runs broke it uh facebook paid the gop lobbying for your friend yeah i had her on the show here is the exerted uh from the internal targeted victory email obtained by the washington post quote get the message out that while metta facebook is currently uh a punching bag tick tock is the real threat especially as a foreign owned app that is number one in sharing data that young teens are using bonus point if we can fit this into a broader message that current bills proposals aren't where state attorney general's or member of congress should be focused uh so what do we think i mean we've talked here many times about reciprocity we can't have our social networks in china why should tick-tock be here i think we all agree it sounds like they want to do a pr initiative around the points that you've always made on this pod exactly no i mean that's the that's the the they could be right about this but doing a dirty tactic it's a dirty trick in a way for them to deflect attention from themselves onto some other company's problems so there's something distasteful about that but the point that they're making is kind of true i mean we should not allow i mean i'm not saying we shouldn't allow them but i think whatever wait you don't you think tick tock should be allowed in the united states really i don't know about that but i i just think that what do you think people have with facebook they should have them like 10x with tick tock that's kind of my point a thousand percent in agreement on this tick tock is run by a country that we wondered ah do they care about the data and then they literally pass the law if you want to run your company the government has to have the data i have fallen into a tick tock rabbit hole and i don't know to come clean uh with you guys there's some there's something on tick tock called sandwich bros what are these guys these guys are guys that make sandwiches and then they cut the sandwich and then they open it up so that you can see what's in the inside of it gooey cheese i mean delicious no some of these sandwiches these guys are made sammy dude i have watched an hour stream of sandwich time wait here's the best part so then there was this uh woman who i thought was going to be incredible she's like you know i'm tired of these sandwich bros i'm gonna be the first woman that really breaks through making sandwiches i was like you go get it and she made a vegan sandwich god damn it and i was like where's the meat i wanted to be i wanted to be deep into it but like you know chicken roast chicken oh my god it is yeah bacon avocado chicken bacon bacon maybe some pickles in there get a little yeah i mean this is the thing that i find so chicken chicken masala burrito that's probably my favorite one and the guy made it from scratch like everything from scratch i love that here's the problem it's such a compelling product you feel so terrible using it so you love it at something and then you feel very vapid for having used and you have regret and then the chinese are running it and they're programming our children and have all their data and locations um you know it's a lot of conflicted feelings they're trying to program in me with all the sandwich stuff maybe you're too thin and you need to eat a sandwich it'll be so maybe they're trying but that sandwich yuck it looked horrible i think this use they're trying to program no offense again but yuck that's what they want they want you to get fat what are you seeing on your chick talk feed right now freedberg since you're so obsessed with your phone and should should tick-tock be banned should the chinese be allowed to program our children with their algorithm yes or no freeberg exactly well just mentioning the product makes you want to use it so it's so addicting what is so addicting about it tell me the best vegan sandwich you ever had like the best one like is there one that's sawdust quinoa quinoa cucumber there's a great um sandwich shop in berkeley you guys neither none of you i don't think ever go to berkeley i live in palo alto yeah berkeley is i'll get one i'll actually get one ubered over to you what what it what is it what's up avocado sprouts yeah side of one i actually there's one i like that's got the the the feta cheese like the really good sharp salty feta cheese yeah okay so it's feta cheese it's actually voted one of the best sandwich shops in california i think yeah yeah really good no i made myself a tempeh avocado sandwich for lunch today oh yeah oh that's fantastic you know what i was going to do that myself but instead i just decided to slam my hand with a hammer because it's more enjoyable i should like smash my handbag oh i had uh crab ravioli wonderful wonderful this is absolutely great you murdered those crabs delicious okay but let's just go around the horn should yes or no tick tock be banned should a chinese company be allowed to have a social network at scale in the united states yes or no friedberg no yes i don't think that we should be restricting the products and services that people choose to use even from a communist country that is likely spying on them okay got it we know where you stand sex well i don't i'd want to know that they're not that it's not spyware right so yeah if it's sure that's illegal if it's illegal stop it but like okay so you're saying you just no i don't trust them it would be a serious it would be an issue i'd seriously look at i might come out on the india side of things but i'd like to understand a little better like what the indian side of things being that india has banned they yeah they they they're smart indians are smart because then you end up seeing china ban iphones and i mean you know the whole thing kind of we're already banned they already ban twitter facebook and instagram in their country there's still a lot there's a big consumer market in china for u.s goods and services and it just seems like it's very slow where do you say i think you guys nailed it which is that i think these things have to be quit pro quo it doesn't make any sense in my opinion for us to allow um a non-american company to thrive where in that same end market um our products are not allowed to compete absolutely so i think there are two things that matter to me which is that you know if we're going to allow tick tock to thrive here it seems like there needs to be some version of a deal that says facebook google you know these core products and services just need to have a chance where consumers can vote that's one thing and i do think separately what david said is really importantly true and i don't think it applies to just tick tock but whenever a product gets to a certain level of scale and we can define what that threshold is but it's probably in the half a billion to a billion mal kind of range monthly active users range um you do have to a way of like you know going through the source and making sure there's no crazy spyware in there and i don't know exactly how to do that um but i think that that that should just be a general expectation uh for any product because look let's let's be honest and and we've had this conversation before you don't think the odds are high that at some point some very talented knowledge worker that is on an immigrant visa inside of one of these large tech companies isn't actually working on behalf of a foreign oh they had twitter had it they had two people from the kingdom right there so so my point is i think that that these things are probably true right like in the tens of thousands employees that work in big tech there's probably at least five or ten of these people that work on behalf of foreign government so we don't know what they may or may not have introduced in certain elements of the code so it's not unreasonable to fund a you know an organization that can audit this code base but i think that i would rather let them stay in order to open up that end market for our products all right we have to wrap on this uh freebird a couple weeks ago you outlined the pasta the potential of famines caused by putin's insane ex you know war in ukraine that's not what i said but sure all right okay the way i want but you commented on the possible famine caused by putin's insane war again not what i said but yeah well let's go to famine before sax loses his mind about uh biden's quote of regime change which i'll let you end on so actually get your victory lap but um somebody came for you and said hey listen freeburg basically doesn't know what he's talking about because commodity markets are showing that india and other folks are going to step up and there's not going to be a problem with famine so can you unpack that for us i i will tell you that we are already seeing a lot of scrambling happening for a redundancy in these commodity supply chains and there's a couple of issues which i highlighted before i'll highlight again number one is just the ability to export so while there may be product commodity products sitting in these markets getting them on ships out of russia out of ukraine even if sanctions and trade restrictions are lifted and make them available is very difficult because a lot of the carriers are concerned about insurance and liability as they would be forced to go into a port and do a transaction with an entity that they're supposed to not do transactions with so there's a lot of reasons why these ships are not going to port not picking a product and not bringing it to where it needs to go critical risk in africa in the near term so this is an acute problem with respect to transport the next problem is with respect to planting as of this week i'm going to put a couple of links in here and these links um uh nick are not in order with respect to what i'll say um but i'll uh you know i kind of put a bunch of these things out here but there is an expectation that we could see up to an 80 decline in planted acres in the ukraine and there's a bunch of really good anecdotes in this particular story about how farmers are scared about going out and planting because drones might blow them up and i mean look you're in the middle of a war zone you're not in a rush to go out and plant and so there's a lot of planting that needs to happen in order for us to have you know the expectation of the supply coming out of the field in about six months so that's kind of the second stage of the problem is a large export market for goods coming out of ukraine and russia might be the you know might we might have a kind of significant reduction in inventory as the number of acres that are planted goes down and then the third thing that i highlighted before which is absolutely still very true and i've put some data in here that you can all look at is related to the price of fertilizer so fertilizer prices through the roof because nat gas has gone up so ammonia prices have gone up potash exports are prohibited from russia so potash has gone up and so as a result we're seeing fertilizer prices shoot up and in a lot of countries what i've included here uh in this uh particular uh link in the chat and and nick on the youtube you can kind of put this on the screen but there's a guy named gary schnitke gary is the ag economist he's like the number one ag economist in the world he's at university of illinois everyone reads all his stuff in the industry this guy breaks everything down to unit economics numbers helps people make decisions about what to plant when what the economics are and he highlights the current economics for planting in illinois illinois is the you know largest corn producing state in the us and a critical supplier of of our you know national kind of uh food supply and he points out that you know as of right now um you would have to invest in illinois uh about eight hundred and ten dollars to have a 243 dollar return on corn because the price of fertilizer has gone so high so you invest 810 you expect to make a little over a thousand and these um you know these uh these these are not assuming rent the problem is when you factor in the cost of rent the average rent in illinois is 227 so a lot of farmers in illinois rent their land about half too and so for a lot of farmers it's actually uneconomical not just in illinois but around the world now where the cost of the inputs the cost of rent the cost of production exceeds the expected profit coming out of the farm and so farmers are not going to plant and so you know we're seeing kind of a major issue with um with these farmers around the world kind of making planting decisions right now that are informed by upside-down economics this is being monitored you know fortunately in the u.s the usda reported today that it looks like the price of corn is such that a lot of farmers are going to go back and plant soybeans and we're seeing basically a historic planting a survey coming out today that says farmers are in fact going to go out in the field they are in fact going to plant um but this is not true everywhere we don't we haven't done the calculus on it yet but there is a ton of anecdotal support and a ton of survey data that's coming out showing that farmers aren't going to plant the acres that they normally would plant because costs are so high that means there's going to be less production over the next year that means famine hits us in a year um that's a big problem sax wants to know why they don't just use doordash or ubereats he's to just order more food if they can't this is not what's going through david's mind right now david's mind is david is honing in he's like lebron in the fourth quarter yes there's there's you know left he's like everybody get out of the way give me just iso ball he's to do his eyes well he's about to play around clear out all right here we go 2-1 david go all right here we go so uh right as we got off air and i was defending hey listen your your mind reading biden he's never said regime change you got to give him some credit here you're you're taking mad men putin's uh you know uh version of events over our own presidents and then 12 hours later i'm on the ski lift and crazy grandpa decides to say for god's sake this man uh referring to putin uh cannot remain in power of course the white house walked us back but uh go ahead and take your uh victory lap sacks oh my god am i getting an apology here from jake out too not an apology you know i at the time i was right but you said i was it was basically pro-putin because of what i said and now you're admitting that i was telling the truth no i admit that uh biden crazy grandpa said something he shouldn't have said and that maybe that reflects truly how he feels uh right that's called so in washington they call it that a kinsley gaffe the new republic editor michael kinsley who said a gaffe in washington is when a politician accidentally tells the truth that's what biden did he actually told the truth about what the administration's policy has been yes and you know you can see this in the fact that look who's playing peacemaker right now in these peace conversations it's been macron from france it's been naftali bennett from israel it's been uh erdogan from turkey it has not been anyone from the united states we've been strangely absent and to the extent we've said anything about the peace process it always seems to be us throwing cold water on it so there's been a lot of people you know prominent commentators like neil ferguson who i quoted before and others who have speculated that the united states goal here is not a rapid resolution to the conflict but rather to protract it in order to make russia bleed in order to destabilize and topple the russian regime i think it was actually quite and the problem with that is it's very dangerous i mean just look at what freiburg just said about the food insecurity that's causing it is very dangerous for us to protect this conflict so that you know famine could be worse the war could spread it could degenerate we could we could get drawn into it somehow we want this thing to be over as quickly as possible and i think it was actually the the bite and gaf net net was a very positive thing because they had to walk it back so quickly and severely and severely that it basically it showed the whole world and you know the media administration no we really need to end this quickly we can't be dragging this thing out so i think by stating what their clandestine policy was so clearly it forced them to have to disavow it and the only people who were upset at the end of the day were these like neocons like no no no what brian said is true we should try and topple food yeah theoretically he should go but not right right now it's like which isn't it and that was actually very clarifying for us policy because yeah regime change should not be our goal i think i think i think the administration said something the effect of he was speaking as a man not as a president i mean let's i mean let me be honest about biden i mean they they don't know what he's going to say next i mean he's his co i i mean i don't mean to you know speak ill of anybody but cognitively this is a huge gaffe it's a huge mistake you we're we're trying to resolve this thing and then you give putin exactly the ammunition he wants oh look it's regime change see and i think what we may have here is two crazy grandpas one that wants to put the ussr back together and one that wants to be the person who ousts putin neither of those is what the world wants it's a real bummer that we are kind of um on the second stage you're just idling around looking around while these other countries are sort of creating a you know almost like this new world order around us that's it's about yeah we played our hands very we played our hand very badly because we keep intervening in all these countries where there's no upside i mean i keep talking about it all of these wars where we spent trillions and we got nothing out of it you're a piece nick we like it i'm just uh i don't see he's pieces i'm a realist first of all i do like peace better than war um but i don't understand the point of going to war when there's no vital american interest that's been jeopardized our security is not jeopardized our economy is not jeopardized in fact us protracting the war is going to jeopardize those things so well i don't get what american policy is designed to achieve or has been designed to achieve for the last 20 years we've just been stumbling around the world making all these like virtue signaling statements about values and then meanwhile we end up like bombing the hell out of these countries well the middle east was for clearly loyal afghanistan those were about oil that was our vital stance what were we doing they're trying to build a new state a new new sort of democracy in afghanistan it was revenge that was legitimate that was a legitimate reason to go there which was to get osama bin laden that was the just cause whack but you know what once and and you know what we should have got him at torah instead of outsourcing absolutely to the locals that was a total screw-up huge mistake once that job was done we should have been out of there out of there absolutely what a what a misadventure uh what do we have do you have any thought sacks on like the end game here because it does seem like putin is getting exhausted and maybe he he gets the win i think we know his concession is gonna be it's it's basically ukraine's gonna be neutral they can't be part of nato they get some security guarantees from the west in exchange for that crimea is part of russia it that's a fata complete it happened in 2014 and then the last part is what they're really fighting over which is this donbass region where you've got russian ethnic speakers going up against ukrainian far-right nationalists how close and they can't agree well both those sides are willing to fight so that's the issue and look the truth of the matter is i think it's going to result in some form of independence for these disputed territories of donetsk and luhansk right i mean and but the reality is the united states of america doesn't have a vital interest 37 days into this is it going to end in under 60. suggested zach suggested the right approach i think a month ago which is let all of those people vote just have a plebiscite have a referendum create create a referendum let them vote let them be self-deterministic and um that may be the most reasonable middle ground for both sides to say okay let's give this a shot but you're right if you could achieve a cease fire if you could get a ceasefire here worst terrible end this yeah if you could get a ceasefire have the un observers come in and minister an election crimea there's no doubt which way crimea would go i don't know what would happen in luhansk or the nets i think they probably would go independent so let's just do a vote it'll be about self-determination not appeasement and let's find out that's what we should be pushing for yeah people getting to vote on their future well crazy idea i mean it got to end i mean it's gotta end in month two this is becoming super damaging for putin right i mean these economic sanctions philosophy giving there's a story um that was on msn it's like day 37 do you realize that russia is 83 so his approval ratings have gone up we thought not you could say it's fake or whatever but apparently this is a reasonably decent polling operation um this is a poll by levada center an independent pollster in moscow uh apparently his polling his poll numbers were 69 in january they've gone up look russians will rally around the flag just like what about the resources and they're suffering in that country and they are suffering but the russians are very good at suffering j cal it's their national pastime you ever read yeah no not foreign actually i would much rather watch the next marvel movie or a kurozawa film i am not interested in yeah listen my whole speech was about the fact that russian diplomacy could have prevented the situation last year that's not to say that we caused it it was it's putin's decision to invade it's his war the bloodshed is on him however more effective diplomacy could have defused the situation a year ago and we totally blew it we just totally blew it and this is going to hurt us this i mean look this is one of those things that the administration thinks doesn't affect them but you know what when our economy goes into a recession because this is a straw that breaks the camel's back it voters are going to take it into consideration you know we do we do hire people in many many industries to do their job and the people that are hired to be diplomats their job is to be diplomatic and to find compromises all right everybody it's a time to wrap here uh some exciting news on the conference uh front palmer lucky of andrew technologies building weapons and systems and defensive systems is going to come to the event he's not uh he's a fan of the pod apparently he's a big fan of david sax's so we're going to talk about the military and just as a general concept um i have a theme i was going to float by y'all i think a lot of the talks and a lot of the the zeitgeist is around the problem i want to solve so i'd like you all to think about that i think this will be a celebration of people who are trying to solve important problems in the world so what are you solving for is going to be the i think the theme of the event what are you trying to solve for and so free break if you can give uh maybe a little talk chamoth david i would be great if the four besties gave a little 15-minute solo talk we're gonna have a lot of these solo talks position hey here's what i'm solving for and then conversations about sovereignty do you know dalio you should get dalia i think he'd be great yeah i don't know and captain wood looks like i think kathy wood's coming too but by the way there's a new video that dalio just put out which is like the 45 minute animated documentary version of his brother again really good i watched it i haven't watched it and i thought it was really great it's all about how empires rise and fall and it's pretty clear that he thinks we're a late stage empire and he talks about a lot of the things that we're talking about on the show and i watched it this week i thought it was acceptable yeah i thought it was really i'm listening i'm halfway through look at you guys coming around you're going to listen to me you're like you have to watch it on youtube because his animations are excellent very nice yeah it's very accessible i mean incredibly incredibly good highly recommend yeah i mean look i i agree with you all right why don't you guys get dalia on the thing let's get him yeah so dalia reach out i know we know you're listening so i think the question to ask dalio i think he is actually i think he's fan of the show i think the question to ask dalio is how do you revitalize a late stage empire that's right that's a good that is the question question can it be um well can it no can it be done i think it's the real question all in summit may 15 16 i think can is too theoretical i think it's more how would you do it yeah yeah if it's possible what would the path be and it's got to be something about building the pie not shrinking it that's for sure uh may 15 16 17 the conference is the 16th and the 17th 625 of 700 tickets allocated if you'd like to apply for a scholarship go ahead and do that it's not going to be a bro down the ratio has congrats to you jason for really pushing uh the diversity and yeah getting a lot of scholarships and women and people of color it's good thank you yeah really really really um great to see so many people applying if you didn't get a response back for your application you'll get it by april 15th that's going to be when we tell everybody if they're officially in or out but we have been increasing the ratio it was organically 90 95 male female and now it's uh 65 35 so we're really making progress on that front uh so it's not going to be a bro down sorry sex it's not going to be a brow down it's going to be diversity here diversity equals power sex i hope there's diversity of ideas too yeah okay well there you have it folks uh four the rain man david sachs sultan of science can't wait to see one one third of my besties tonight thanks a lot guys yeah i'm i'm showing up i mean you got to see you're the one over three well i mean these guys you got to remember you could these guys would have to be true you could have their drivers translator well these guys would have to have their drivers nick beep the name yeah these guys would have to have their drivers drive them 30 minutes and then wait for them outside and then drive them home after they've drank in five thousand dollars worth of your wine it's it's a little bit overbearing what are you gonna pour tonight uh oh it'll be some really good stuff uh probably some like older sasakaya i'm thinking 85s but freeburg um if you come i can also make some tempeh tempeh give me the best tempeh it's good for the family it's good for the planet what is tempeh it's soybean fermented soybeans it's delicious you know what can i can i tell you what i really what i think of it yuck yuck yeah but i mean in fairness your chef always makes something exceptional for freeburg when he comes to dinner yeah so it's always you you're always a generous host and your chef is always get get your get sacks driver and calm down send the help send the heli up the marine to grab me free burgers come come come just get a driver sucks when do you land uh late late and i am go on tilt come on tilt well no no no no like 3 am or something oh 3 a.m my god that the game's over by then all right see you later besties love you guys bye bye bye bye bye let your winners [Music] and they've just gone crazy besties [Music] your feet we need to get mercy's [Music]








hey everybody welcome to another episode of the all-in podcast your favorite podcast and a lot of a lot of topics on the docket including well we'll get to that in a minute uh tons of stuff to talk about not just politics but a lot of tech news you do sound really hungover today jkl you sound like an old man that's been smoking cigarettes for three weeks you sound wrecked how big was your night last night admitted i didn't go that big a scale of one to charlie cheat it was like a six there's like a martin sheen in his 30s what does that mean one to charlie we had a couple of beverages i'm sorry on a scale of one to charlie sheen i don't think i've ever been past the one in my life so what is a six a six is like you know paris hilton you know in her heyday or like lindsay lohan in hollywood in the 90s it's like you know like a good time but not crazy mm-hmm didn't they have to go to rehab let me tell you something charlie sheen cannot say it was just like lindsay lohan wait lindsay lohan the one who went to rehab like five times like what are you talking about yeah that's a 6. i don't want to know what seven is [Music] [Music] joining us of course the queen of quinoa is here the thriller from mamilla valley he puts the eye and anxiety he got his degree from his google pedigree the sultan of science david friedberg with us again all right next up of course the czar of arr he perfected the flywheel with his boy peter thiel lps don't be nervous because he's only investing in software as a service the world's biggest the rain man himself david sacks he's waiting that might stick i don't know i feel like this might be heading towards kind of like a high school talent show kind of uh episode but yeah go ahead and finally the king of spaxx himself the guru of growth he puts the dick in dictator he's going to upset her with his sweater mouth probably hopped here all right boys i kept letting the audience know i can't keep this up every week yes yes it's become a very anticipated new feature of the show it is it's a new feature we you know i forgot we had like wet our wet your beak and you know all this stuff and all these things and flows we come up with absolutely come up with new things um all right listen uh just a quick programming update all in summit sold out um basically it's going to be a great show we got about a dozen speakers lined up uh all kinds of great folks and uh three great parties i want to highlight monday a sunday night will be the poker tournament that's going to be our good fellas godfather kind of theme dressed to impress the family night number two monday night is going to be our havana white party where your best linens and whites and then closing night party on tuesday night is going to be our miami vice big 80s party neon and t-shirts under suits it's going to be a hell of a lot two million 999 700 people don't give a about what you're talking about right now there's like maybe 300 people that are gonna go to this party that you're throwing and 700 tickets i think there's gonna be 700 tickets issued and there'll be probably 400 people at the party so they'll be pretty good parties uh-huh we're in the party business here at the all-in pod well i mean the world needs some good parties in my opinion it's going to be three back-to-back grade parties and the theme of the conference is the problem i most want to solve in the world or the problem i most want to see solved in the world so we're asking every speaker to think about that and we're going to kind of talk about the world's biggest problems and then who actually wants to solve them the world needs more parties well that's that's what i'm doing that's my that's going to be my 10-minute talk my ted talk i've been i've been watching the wework show have you guys been watching it on fabulous tv plus yeah like elevating the world jared leto is so freaking good in that character by the way yeah it's incredible he gotta get it like elevating the world's consciousness as the mission and then just throw parties is the way to do it i feel like you're you really got that vibe like yeah it's aspirational you can motivate the world's consciousness with your with your summits i i told bill pocketing millions of dollars it's not gonna make a profit whatever profit it makes it's gonna go to chamot's star chamber 50-person conference he's doing with the all-in brand so everybody gets to leverage the brand yeah first you did it saks with your call in now i'm doing it with the summit chamat's gonna do with his thing tanking i'm not gonna do it coming soon from freedberg the all in munich special lose weight like your besties he's gonna the it's it's the all-in brand that allows you to lose weight in the following way he brings his best vegan chef to you oh yeah he spins up some tempeh garbage tempe and vegan shake your favorite chamato it's double yuck right yes you vomit after you eat it you're you're in a caloric deficit for the month that that person refuses to leave your house boom you lose everything's solved you lose weight they're like hey want some quinoa you're like no and then you lose weight no that's pretty good give me a cotton give me give me my olive infused beef please the olive infused beef no i'm sorry not all have infused these beef only ate olives guys right and then we murdered them okay and have a party let's go we need to get some morels and some chickens and make some yesterday we had morels shawn made morels wait a second for you so good so good the morel season has started everybody enjoy it lots of different news this week you guys appeal you guys appeal to the common man the morel season has started morals aren't that expensive tempeh is more expensive than both quinoa and morels 100 that vegan is way more expensive than normal people listen we have to elevate the world's consumption of steak and meats um i think a good place to start is we've been talking by the way by the way have you guys ever looked on the back of any carton of oat milk how much chemical nonsense is in that stuff yeah that would really be can that really be good for you no you know what i want oh my god give me where's the oat milk that's just oats and water doesn't exist it doesn't exist it's like soy laxative xantham gum like is that stuff can't be good for you you know saks drinks and a 12-ounce glass of milk with every dinner they just drink something with the almond the almond milk at like the whole foods riddled with sugar and all this other nonsensical chemicals as well man i mean i mean people trash milk i get it but like uh and as if you're lactose intolerant i understand you're in a pinch but why go to an alternative milk that is just riddled with just all of this terrible terrible stuff you know saks used to love to eat brie cheese so much that whenever we'd have a party somebody would do whatever the breed walks with the with the wheel of brie he would literally eat an entire freewheel sugar no they would put the brown sugar on top they would melt it and sacks free brook saks has eaten an entire brick of bree in front of us what was the origin of your brie obsession sacks stanford i've been at stanford at some point the last guy i would think that would eat bread what's the matter you just don't have i mean what about cheddar what a great american cheese no you just prefer the french huh yeah yeah you still got that fetish for free i gotta go yeah we got to do is that fermented kombucha stop stop this is just plain iced tea sometimes it's just good to be normal unsweetened oh oh you're back on trying to catch up trying to catch up okay here we go listen we've been talking a little bit about the contraction in tech the growth stocks uh having their multiples um lowered and we knew this was coming but um it's been a horrible week uh for large companies uh starting the layoffs we knew this was coming we predicted it probably six months ago fast.com is a one-click checkout startup fast.co they announced they're shutting down on tuesday this after the company grew to 450 employees and generated reported 600 000 in revenue i think that their employees could have made more money if they did one doordash a day delivery at its peak fast was burning 10 million dollars a month according to reports i think the information got most of this information while only generating about 50k a month in revenue their 102 million dollar series b was led by stripe in january of 2021. company raised 124 million dollars in total also better.com which we talked about you remember they had their uh horrific cringeworthy founder lay off a bunch of employees over zoom um and they laid off 900 people december 1st 3 000 people on march 8th according to techcrunch for the 5 000 remaining employees on april 5th better.com offered corporate and product design and engineering employees the opportunity to voluntarily resign in exchange for 60 days paid severance and health insurance coverage better ceos vishal garg uh hopefully i'm practicing that correct noted the uncertain mortgage market conditions of the last couple of weeks have created an exceedingly challenging operating environment for many companies in our industry and then going to go puff which you know i had the founder on uh this week at startups and he's a pretty good um you know like pretty realistic about the margins in that business they're making a modest cut of three percent of their 15 000 staff seems like a reasonable thing to do given how the market is changed but again their valuation was absurd 1.5 billion at 40 at a 40 billion dollar valuation in december chamafi predicted a lot of this uh and that people would have to sharpen their pencils we had a discussion about this you know the the good times r.i.p what's your take is this the the beginning of the end this the middle where are we at in the cycle and what's the reasonable thing for founders to do here i think uh so you we probably should take the the macro and then boil it down to the startup so at the at the macro level i think that we're playing a very dangerous game of chicken with the fed and you can kind of summarize it in the following way which is that you know three or four months ago we only thought that there was going to be a handful of interest rate increases and increasingly what has happened the market has remained so resilient that the fed has sort of put out more and more data as the data has justified them being a lot more aggressive and it kind of crescendoed this past week where they basically said listen you know we're going to move by 50 basis point increments for the foreseeable two or three rate hikes and we're going to start quantitative tightening what does that mean that means that instead of basically printing money and coming in and buying securities from the market right so what happens when they enter the market with money that they literally do print and buy your bonds they're giving you cash in return and typically what that has led to is the inflation of all assets right equity assets have gone up bond assets have gone up because there's just nothing else to buy when quantitative tightening happens they reverse that and what they're going to do is about 95 billion dollars a month of the opposite action which means they're taking money out of the system right or in this case what they're going to do is uh they're going to let a bunch of maturities roll off and not rot not renew them okay so why is this important well it's important because you know we're still four percent from the highs so we have seven percent inflation we have all this crazy stuff happening we have a war you know going on we have uh massive price issues we have supply demand issues and the market keeps shaking it off so i think what the fed's going to do is get even more aggressive you're going to probably see you know a lot of 50s maybe even a 75 point hike you probably are going to see them you know even ratchet up quantitative tightening until there is a bit of a bloodletting in the equity market they need to see that the markets crack and so they literally need to see what percentage draw down or just to go sideways what do they need to see in order to look or is it inflation coming down a couple of points well the problem that we suffer from is that they're going to look at the highest level indexes right they're not looking at single stocks and so when they like when you and i think this market is down four percent we don't feel that because some of our companies are down 50 and 60 right but that's because we're all focused on high-tech growth but they look at the broad indices and the broad indices have held up really well and mostly it's because you know if you look inside the s p 500 40 of every dollar is you know apple amazon you know microsoft etc tesla so we're in a situation where i think until the feds see that there's a massive trading of liquidity which means like you see these indices crack big time 35 3600 in the s p they're just going to keep ratcheting things up as it comes all the way down to our companies in silicon valley and tech what that means is like you have to start planning for the worst and i think the worst means that there's an 18-month period where you cannot raise money on your terms you have to raise money on the market terms um and so if you're not a position to show good growth over these next two years i would encourage you to just get your balance sheet in order to wait it out saks nuclear winner is a possibility here markets for startups raising money again what saying could be on the terms of the capital allocators what what's your advice to founders what are you seeing in the boardrooms that you're on the board of and if you were running one of these high-growth companies for the past year what are the first two or three things you do i mean the first thing you got to do is look at your burn multiple i mean how much are you burning relative to how much incremental air are you generating you look at fast they raise 120 million what like a year ago they're out of money now so they burnt 10 million a month like you said here's the crazy thing if they just slammed on the brakes three or four months ago when we were talking on the spot about the coming downturn they could still have 30 million dollars in the bank that's a lot of money the only reason it doesn't seem like a lot of money is because they've been burning 100 million over the past year but objectively 30 million dollars is a growth series b which is actually a lot of money for a company that only has a hundred thousand in revenue so they could have saved that company if they had slammed on the brakes three months ago and rationalized the cost structure and they didn't so they hit the wall at 100 miles an hour who's responsible when something like that happens david because you we've all seen it what is this suspension of disbelief that creates this kind of stupidity that i mean that's what it is i mean you've got you you've got people who are kind of drinking the kool-aid and there's nobody advising them to stop or if there is or not listening i mean look paypal had this situation back in uh 2000 the year 2000 right after the com crash we were burning 10 million a month like fast we had no revenue and no business model okay we had said the service would be always free we had four months basically of life and we pulled up on the throttle and what we did is we basically introduced paid accounts we started charging transaction fees and we caught the we cut the cost structure of the company and we made that last 40 million dollars last a lot longer than four months it lasted until we could then do another fundraise the following year and we were able to then raise with good numbers real revenue a business model et cetera so you know and that was because we were just paying attention to the changing environment the world had changed from sort of the pre-dot-com crash you know 1999 your business model didn't matter your margins didn't matter revenue didn't matter none of that stuff mattered all that mattered was growth but by you know mid-2000 everything had changed so you have to be attuned to what the fundraising environment is looking like and if you're a high burn company right now that's not generating a lot of revenue to go along with it you better slam on the brakes and rationalize your cost structure before it's too late david tell me like what do you think is going on in this board meeting i mean like this is a group of incompetent incompetents i don't even know who's on the board because stripe led two rounds i think and so you've heard of it david that you you and listen we all love stripe it's a great company it's it's a legendary company but one of the reasons we don't like to have strategics is maybe they're not thinking the same as a proper capital allocator and for them this is peanuts right exactly no look the the reason why it's strategic investor sorry guys i think the reason why a strategic investor invests is because it's strategic for them i mean it was in stripes interest to try and back a winner in the whole e-commerce checkout line sort of payment space and so they did that and i don't even know if they had a board seat um and so no one was really but i don't i don't understand that strategic decision because i i suspect the rationale somewhere internally in stripe which is pretty flawed is hey we can't do it ourselves because if we did we would be competing with our customers but picking a winner and putting 120 million dollars is tantamount to the same thing so i don't understand i mean it doesn't make any sense right and stripe raised money at a what 9 500 billion dollar evaluation so look it all flows down from you know the the frothiness at the peak no i'm saying i think i would have it would have been much more credible for stripe to say this is a critical piece of the infrastructure and value chain and payments that we want to own so we're just going to go and put some of our better engineers as like a you know side project and see if we can tack away at something that works i mean i i think a lot of people would have adopted it but i guess to okay that's interesting i mean those are some good investors um there's there's on the board index and who else according to crunchbase stripe was on the board a business development person from there index was on the board and dom the founder uh and uh looks like brian sugar uh who i know uh who's an angel investor and a founder now but who knows if that's outdated information encryption you guys remember when philip kaplan used to run a website called company absolutely a friend of mine yeah do you want to tell the company story take out for all the people that have no idea well i mean basically what happened was dot com the dot com world was imploding all the employees didn't have a voice there was no social media at the time there was no blogs at the time the only thing you could really publish on the in the world was like a geocities page you could put up a home page if you knew how to do html there's even pre myspace um and so a friend of mine phil kaplan who does a very successful company called digital kid now started company and it was a message board and what he basically let people do was he would write three headlines one sentence each kind of like before reddit existed where you just put a one-line hit and then there was comments underneath it might say this company we just got an email this company's laying off people and he would beat all the news stories to the layoffs because he would just run with any email that came in and then people would detail and savage the management of those companies underneath it for malfeasance and explain exactly how ridiculous the spending was in that era where people were burning money like drunken sellers i think this time around it's probably important for employees to understand a couple things one is like who doesn't know what they're doing right so like companies that are making layoffs those are those are happening they shouldn't get punished for that but you got to think like the fiduciaries that are ripping this money and i mean do you really want to be the person that goes to work at a company that's backed by these folks in round two i mean that's not a signal like like the opposite has always been a signal right meaning when mike moritz makes an investment we all pay attention because we all think wow there's a picker you know and he did that with stripe and with so many other you know great companies and so the likelihood of an employee wanting to work for a mike mort's backed company or mike morick's governed company is very high right same thing with gurley you know same thing with a lot of a lot of really really good investors john doerr but the opposite should also be true then because if it if you really want to work for a peter thiel back company you should probably not work for one of these companies where these folks who are just completely absent are also governing the board because that just means like nobody knows what's going on we haven't had proper governance for a long time in silicon valley so i mean i think that's what we crashed we crashed and the dropout were in some ways about incompetent boards both of those tv shows no i mean i definitely see this um you know i think you guys know the the incentive for a traditional venture capitalist that that that maybe isn't um you know motivated by improving their craft but they're motivated you know incentivized primarily by making money is to to raise more capital and get more deals and as you guys know like every venture firm has maybe one or two superstars and then they fill out the ranks and hire a bunch of folks who are maybe not superstars or they don't pay as much attention you know it used to be maybe a vc would sit on a handful of boards and now it's like you're the board representative for 12 companies and that's a you know you're not going to be able to provide quality time and service to and support to the ceo and the company and more importantly as you guys point out like not provide good governance and governance isn't just about are you signing the docusigns as they come in to approve stuff but it's about actually critiquing the business strategy with the ceo at the board discussion critiquing the spending reviewing the financial plan making sure that everyone's aligned that this makes sense in this funding environment to continue to do this work and i don't see that a lot i don't know about you guys but i see a lot of vcs either pandering to the ceo because we have founder culture hysteria in silicon valley where it's true the best founders make the thousand x returns and that's it but that doesn't necessarily mean that the rest of the businesses um should be left to their own vices just because there are a few um ultra successful founders that there are a lot of businesses that actually need governance in order to achieve outcomes and i see that lacking heavily in silicon valley because the vcs are more incentivized to raise more money to make more investments and then pay less attention and just go raise the next fund well i think i think you said the key thing there are really very few star pickers in our business um it takes decades to really prove that out and and those popular but those people that are real pickers i don't think put up with they're not just pickers like so john doerr was deeply involved in google in the early days like you're right i'm i'm simplifying our job but what i'm saying is our job okay at the end of the day is we're picking okay and then once you pick you got to do the work if you pick poorly and you do the same amount of work it doesn't matter nobody's going to remember you yeah and what ends what ends up happening is the vc flushes the deal because it's not going to be the 100 bagger they don't pay as much attention they let the thing right into the sunset and they're moving on to the next thing but there is still a duty and a responsibility i think to the shareholders and the employees of that company to you know do what sacks mentioned which is can you reduce burn under these circumstances and can you actively engage as a board member to encourage leadership to do that and that doesn't happen but you said the key thing there are few practitioners that really have the gravitas to actually enforce those decisions so you know there's a reason why in during the great financial crisis there was only one organization that even had the courage forget whether it was right or wrong at the time to even write the r.i.p good times deck right it was sequoia nobody else dared to even put that on page let alone give it to all of their companies knowing that it would leak lest they'd be wrong and the reason sequoia could do it is they're looking at a 40-year franchise and saying the integrity of our franchise is at stake we need to keep doing what we've done before and what it did i think in that case was pulled along a bunch of folks that were not as good as the top few folks and it helped reorganize because if you see the three or four years after that gfc deck sequoia flushed that whole business right there's an entire turnover of that team and so i think what it speaks to is and we talked about this in a few episodes ago if you're seeking out aum you're going to hire a very different kind of person than if you're helping trying to help build companies and the difference is that when you're trying to raise aum your customer is not the company the customer is the lp and what the lp wants to do is be able to write their investment memo and not get fired and the way that you do that is by pointing to the team and saying well this person worked at this company this person was a vp of that company and it seems credible but between but being able to invest and being able to actually be a good operator is so different look i'll also say one thing that's important you know i don't like this celebration or sorry the the mockery and the entertainment that comes from failure i i thought company like i was young when it when it was out and you know i would read it and kind of giggle at the stupid companies they got funding you know but to me it's not like the kind of thing that could should kind of be funny or or laughed at or even to mock failed companies i mean it's cynical i think the capital that's available in the markets today that wasn't that that's not what company was i don't i don't think it was people taking pot shots as much as there was a lot of that oh yeah there was a lot of that that and because yeah there was that time did you admit but would you admit in fairness that there was a lot of people telling the truth oh yeah yeah totally no no but but but a lot of it was like this mockery like can you believe this even existed yadda yadda and the cynicism i think you know kind of um you know it's it stales out the opportunity for for capital to support you know new new ventures new initiatives like this you know i also think that these businesses that today are looking to raise capital that are um you know let's call them good businesses they have a good opportunity they're going to be challenged in a marketplace where everyone is cynical um and i'll say like scarcity breeds success when there wasn't a lot of venture money and um there were only a you know kind of a few investments that could be made each year there was a decision-making process that says you know look how valuable could this be versus this other opportunity that i could invest my capital into that says okay the best opportunity wins and gets picked and gets capital in a world where everyone was raising a billion dollar second fund or a three billion dollar fourth fund and you suddenly had an influx of 100 billion dollars of venture money in a year it's a lot like what we saw in crypto markets which is an extraordinary explosion in highly speculative bubble assets and a lot of these businesses maybe shouldn't have existed in the first place too much demand for the stock of private companies uh and all the hedge funds that came into it all the mutual funds enough supply of great founders and serious teams that are working hard on this i think with the case of fast i agree with your general sentiment about dunking in the case of fast what you had was a founder who was on twitter every day tweeting about how great the company wasn't giving startup advice while he was taking none of it and should not have been giving any of it because they didn't even have product uh market fit lesson learned you know you know you know who should be criticized the next person that backs that guy that's it yeah you know that guy he's got a very interesting history actually as well i think if they've done any colleges they didn't do any diligence on him apparently he had two companies that were kind of major red flags and i think the diligence issue sacks is one maybe you are having a similar experience to me on the early stage we were seeing deals last year close in a week um we normally have 30 days to vet a deal and maybe a week or two to get our diligence wrapped up sometimes these things overlap but it's what was it you know historically a four to six week process and then it went down to a four to six day process and then people were meeting with you one day and saying they're closed the next were you did you feel like over the last couple years people were doing proper diligence or not and what impact did diligence have on any of this you know certainly i can't speak to what our competitors were doing i don't think our diligence process changed much we would just have a mentality of when there was a deal that was urgent we would drop everything and focus on that deal and get our work done and it can be done quickly although it's easier for sas companies because the metrics that you're looking at are so standardized it's just a it's an easier process what's the most important thing in diligence in your mind what is the like bullet that like people can't the silver bullet thing people can't fake probably off sheet customer references so the first thing we do is focus on the on the metrics right and the the financials the sas metrics all that kind of stuff but then you want to talk to customers and you want to understand the value they're getting out of the product and ideally they're off sheet customers explain what offers just means that you know you frequently ask a founder to give you customer references those are on sheet references the off sheet references are the ones that you find yourself that they never gave you so like the easiest off-shoe references to do are when your own portfolio companies are using some other like piece of software and they tell you about it so no you know that it's a totally non-conflicted situation so that's what you're looking for so one of your companies is using stripe they tell you how great stripe is they tell you what's good about it what's bad about it but right references you're giving so it's sort of like back door references if somebody tells you here's the references you can do the same thing on founders too you can have on sheet and off sheet references for founders and you can do it for vcs yeah but but look i think um i think it's probably a little bit unfair to blame the board of this company too much because the reality is that vcs don't have the leverage or the power in this business i mean it's found this this whole construction of the industry is set up around founders and at the end of the day it's up to the founder to run the company and they get to do what they want unless they do something criminal otherwise they're gonna be able to do whatever they want and hold on boards generally are very differential to founders and if the founder is not willing to listen to advice what are you going to do about that well that though this is but this is the point you're making i think is not right you think that if peter thiel gave some advice to slow the company down that this guy uh would have not taken it of course he would have taken i don't know i don't know about that and we would have to consider it if mike morris actually said it he would have had to consider it i think what you're actually speaking to is in hold on in the rush to put so much money to work we've elevated people who don't understand what the job is to do the job and if they're not credible of course they're going to be ignored we all have ignored stupid board members you've done it too david but even you know let's let's actually look at yammer as an example there were one or two of us that you would talk to pretty consistently you didn't talk to all of them i would always seek out advice look a good a great founder a good founder always seeks out advice no question about it but look this idea that it's governance versus advice i mean the problem with it being governance is all the institutional incentives for vcs are to be pro-founder so no one wants to jam a founder by making them do something they don't want to do well i'm just saying that's that's the way it is no to be clear that became a competitive tactic that emerged as more venture capital funds were raised and more venture capital was raised from lps prior to that there was a scarcity of venture capital and vcs could be could have good governance and not have to have this whole pro founder model that became the thing that founders fund and andreessen and others kind of proclaimed as being core to their advantage and the reason to pick them over some other vc who's going to meddle in your affairs and by the way both are true there are most vcs as vinod has said publicly add negative value and i totally agree with him on this because they many vcs particularly the ones who aren't you know valuable and don't really have much to add try to add stuff try to say stuff and they just you know create negative value in the process but on the other hand the whole pro founder model led to the the wework and ubers of the world that you know i think that's right there's a trader there's a trade off i mean look i remember in the 1990s the default was that the founder just got replaced right like as soon as the company's successful you hire a professional ceo that was just like rules rick schmidt i mean even the mighty google did that yeah no i mean that wasn't that by the way it was pretty much less than the point i was trying to make which was like so much of john doerr's influence was in getting larry and sergey to take ericon as ceo and i really do think that that was like you know a critical move that created probably the that created the most valuable company uh in history uh right and you know it's it was an important imagine if you had one of these founders fund and by the way you know as you guys know i'm very close to the guys at founders fund and um but but imagine if you had a founder's fund type approach where you said look larry and sergey are the founders they know what they're doing let them do it as opposed to the john doe nuance of let's make sure that we think about the development of this company successfully over time and then convince larry and sergey through a bunch of meetings and riding bikes and whatever else they did with eric you know to like and then and then what about jim breyer didn't he bring cheryl over to facebook i mean like there's a lot of these stories of the really um you know the vcs that really change the trajectory of the business through their work right and but look all i'm saying is the the the good vcs can still have that influence but it's in the form of advice rather than governance right look we just don't call the show no you're right you're right it's it is it is advice but but for example governance as an example in in in every board that i take the first thing that i say is here's a template i want i'm not going to ask you a bunch of stuff but i just want some transparent reporting and the first page is always how much money at the beginning of the month how much money did you burn you know how much equity did we give out how much is left in the pool simple basic checks and balances right where you're not asking all kinds of crazy questions you're just like all right how much money are we burning how much dilution did we take now tell me what we've done and those are simple elements of governance way before you get into advanced level setting what's the speed of the plan what's the elevation where are we at what's the altitude and when you ask people for this today yeah i don't know anyone that doesn't do that i'll be honest like yeah anybody that doesn't do it honestly is being that's not what we're talking about i don't know anyone that doesn't do that i mean i'm talking about i would love to see i would deck and to see if that first page is that page the first page and by the way you know where i learned that from from sequoia and kleiner perkins because back in the day what i saw from founders was oh this is the first thing i have to report on i was taught by founders when i was a when i was a principal at mayfield they're like this is how you do the job and i was like great thanks i mean i was you know sitting beside these guys that were old hands at doing it and that's how i learned this business through that apprenticeship but there was governance and advice and the governance is just about being transparent about how much money are you burning and so you can't you know to david's point if you had just seen that data even if you take those board decks by the way because you have these information rights i don't know about you guys but we did it we did it as well you take the board deck you circulate it to your other partners there's lots of times where i see board decks and companies where one of my partners are on the board and i send them an email of like hey here's some bullet points of things to think about that i've seen before et cetera et cetera you don't think nobody at stripe or index could have said uh you're burning 10 million dollars a month and there's no revenue so the point is that data isn't there 30 or 40 million in the bank give me a break guys so this was a whole a cataclysmic failure at the advice level and at the governance level and all i'm saying is it's a good lesson for folks to learn absolutely yeah so let me point people's attention to two articles i wrote that i think are relevant so first we actually published an article on the sas board meeting deck that we would like people to use and obviously they're free to use it or not to jamaa's point right up at the top as a contact center we need to know what's your monthly burn and how much money is in the bank and that and then we just divide those things to create runway we don't like looking at projections for runway totally we just look at how much you burned last month and how much money you got in the bank they were down to 30 or 40 million dollars burning 10 million a month somebody should have like thrown up a red flag and said better slam on the brakes right now because you're gonna be out of business in three or four months so so that that's that's sort of piece number one the other piece was an arc i wrote a couple years ago called blitz fail which is how not to go off the rails because a lot there's a lot of literature out there about blitz scaling and a lot of startups think they need to scale as rapidly as humanly possible and i wrote this piece about how fast-growing companies that raise lots of money at high valuations basically go off the rails and they end up imploding and there's like 11 reasons why this happens i sort of categorize them one of the biggest ones is founder psychology you have a founder who believes that things are always going to be up and to the right it's they they it's funny they're always described the same way described as visionary charismatic and the word crazy is often used but it's crazy good and then when everything goes to all of a sudden the word crazy means something pejorative and bad and you know the problem is that you know these characteristics of being highly visionary and charismatic they also can be combined with an unwillingness to listen to advice and so you know founders who have those qualities they can be a good thing but they have to seek out advice from people who've had experience otherwise they're going to make a mistake and hit the wall being delusional is you know what you need to start these companies like i'm going to beat these incumbents i'm going to change the world a little bit of delusion is good but not when you're looking at how the runway right like that's when you need to be pragmatic i think um you know there's a term of coachability you know how how coachable is this person as a ceo as a leader and i do think that coachability goes hand in hand with intellectual curiosity i mean if you look at the collisions patrick collison and how much breadth he has and some of the topics he's interested in and the things he writes about it indicates to me a high degree of intellectual curiosity and people who are intellectually curious generally are very humble because they're constantly seeking things they don't know and they recognize that they don't know a lot of things and in that same kind of mentality they are willing to recognize that other individuals can have good points of view that can inform their perspective and they're willing to change their perspective and i think that's a really key key thing that if you look across the the range of successful founder ceos that scale to 100 billion plus valuations for their businesses that to me is one of the more common threads uh is this kind of intellectual curiosity which translates into a coach ability which translates into an adaptability as and and being willing to take advice and so your board is a tool not kind of a governance structure sitting over you we think the less you are like that the more you are likely to feel like you're bored of the governance structure and umbrella sitting over you telling you what you can't do i don't think that's what governments means by the way well government's meant to it's meant to look out for the shareholders that's the job right sure but but to act as a fiduciary doesn't mean to like tell the ceo what to do this is my point like yeah i'm just saying it's it's not i think i think he's right about i think freeberg's right about how boards are often perceived by founders i think there is an increasing uh let's call it a hollywood director a hollywood auteur mentality towards vc jaycal on the all-in podcast right well it's basically it's basically look there there are certain incubators out there and accelerators and whatever who teach these young founders that it's all about their vision and anyone who stands in the way of it is basically interfering with them totally and they they are the author like a hollywood director and you got to stay away from those suits the studio guys right ever that's the mentality they're trying to they're teaching them an adversarial mentality an adversarial mentality and look there are to chamas point there are plenty of vcs who don't know what they're doing they have no useful advice to offer but the better mentality to teach a founder would be like look it the world is so complicated and building a company is so complicated it's going to be 10 times more difficult if you don't seek out advice so go find board members who will let you ultimately do what you want but will still give you the advice if something's going wrong and what was true at one point in time when paul graham gave this advice and he set up y combinator you didn't want to say their name but it is paul graham had a terrible experience in his company with venture capitalists so he set up that wartime stance between founders and the investment community and you know founders fund became the antithesis of the traditional venture funds and they were going to be founder focused so but that advice then might have been true and now it's not now we've sung the pendulum too far the other way we did two things because we saw this ten years ago when i started seed investing and then when i started building positions of over five percent i just said to founders if we own over five or ten percent we should have an option of a board seat and we'll do board seat we'll do board training with you we'll just teach you we'll take like here's some decks that we've seen from other you know here's some decks that are available and we'll show you what a board is like and then i would have three founders come two would sit on one's board meeting and i would do three back-to-back board meetings bring your counsel bring your founders and sit in on the other two board meetings and we'll have a little socratic discussion about what was good about each board meeting we did board meeting training as a proxy for venture worthiness later on and when those companies did go out to the adventure and they had an esop and they had board minute meetings they just looked more impressive to the venture community so i know people say don't do a board it's not cool it actually turns out doing a one-hour board meeting four times a year six times a year even as a seed stage company it does differentiate you to the venture community i find all right moving on and speaking of boards elon bought a uh chunk of twitter last week a nine percent stake and he's joining the board uh that makes him the largest individual or the larger shareholder um individual or institutional uh he brought the shares in uh march twitter ceo parag agarwal uh tweeted i'm excited to share we're appointing elon musk to our board uh and then jack tweeted in support i'm really happy elon is joining the twitter board exclamation point just to give some level setting here uh in q4 of 2021 twitter had 1.5 billion in revenue up 22 year-over-year they've really been starting to ring the register over there uh daily active users are solid but modest 217 million uh daily active users 38 million of which in the us 179 million are international and their stated goals uh for q4 of next year 2023 so in a year and a half they want to have 315 million and they want revenue in 2023 to hit 7.5 billion again they're on a 6 billion run rate so i guess that would be an increase of 25 percent uh just general thoughts on uh and elon obviously has been making uh some twitter suggestions uh for the product saks you worked with elon at paypal thoughts on what this does for that wasn't why you're laughing it's like such a funny transition sexy work with elon and paypal worked for it i'm sure i'm sure he's gonna have some great product ideas but what this is really about is free speech you know right before elon announces he is doing polling asking the twitter user base whether twitter was succeeding or failing in his mission to be an open town square and open marketplace of ideas something like 70 said they were failing at it elon on many occasions has spoken up for free speech he believes that twitter's historic mission is as an open town square and i think he's going to bring that emphasis to the board and it's a great thing now i think the person who had the best take on the reaction to this was mike solana and he had a few funny tweets about who does he work for is he a founder's fun guy i think yeah i think he he works for peter or founder's fund but he's got a he also writes a great news sub stack newsletter kind of like a blog post called uh pirate wires it's worth checking out is he's a pretty in addition to being a pretty sharp analyst he's actually says a lot of funny things too he's iconoclastic and yeah yeah he he he'll he'll swing the sword yeah so the way he put it is that you know elon joining the board has all the worst people on twitter furious they think that this guy might actually say free speech and for authoritarians that is an existential threat and then he added um i don't get what the problem is guys if you want censorship you can just go build a new social media company and do censorship there it's a free market thereby turning on its head everything they've been saying which is you know when the people who the authoritarian the authoritarian people who love censorship whenever anyone complained about censorship they would always say well just go create your own social network you know we're free to do whatever you want whatever exactly well this is this is the free market acting in a way they don't like which is finally somebody who believes in free speech is one to stand up by the largest stake in twitter join the board i mean this is fabulous i think it's really fabulous i think it's pretty amazing yeah and the stock went up 30 percent what do you think yeah i texted you guys in the group chat i think that if he is able to make free speech cool again he'll he'll actually do more doing that than potentially through spacex and tesla and that's already saying a lot because free speech really is this fundamental principle of democracy and it's been decaying we don't know the implications of a large technology company keeping free speech as a principled pillar of their reason to exist right because we have seen free speech kind of decay and we've seen sort of you know random decision making that seems arbitrary by a lot of these technology companies and you know the payments companies freebrook was mentioning visa and mastercard earlier in the group chat but all of these things can change on a dime if elon makes free speech cool again and figures out a way to make that a principle that everybody can embrace because then if you really believe in that then you go to the next logical conclusion which is what david has said for forever which is the only solution to you know speech you don't like is more speech and then that creates a surface area that i think you can technically maneuver around so meaning what are the real problems in all of this speech creates it creates a you know content moderation issue right it creates a a spam issue and it creates a sort of wisdom of the crowd's ranking rating issues so misinformation comes to mind yeah but that's that's the wisdom of the crowd's ranking rating issue in my bro so i guess the point is that you know if he can get the twitter employee base fundamentally on side of this idea of free speech as a principle that i think is enormous because you know that none of the other big tech companies will ever even do that and the capital structures of those companies will never allow a single strong voice like his to enforce that idea so this is the only company where that could happen and i think you know we want to see what this how this plays out i think it's a really really big deal all right freeberg yeah i'll tell you what i think changes facebook twitter even google all acquiesced to significant external pressure over the years i've said this in the past i believe the founders of those companies are all philosophically fundamentally philosophically aligned with the notion of free speech and absolute freedom of information you know enabling truth-finding over time and the um the edge cases of those platforms ultimately um identify and uncover ways that they can be used against what you know many would consider kind of the the betterment of society and as a result they acquiesce to external pressure that drives some of these censorship decisions and drive some of these these behavioral changes by management but i think that if you concentrate the ownership of those businesses and rather than have kind of a distributed shareholder base meaning the public markets were the largest single shareholder in twitter to date uh has been jack dorsey at 2.3 percent he actually serves the shareholders and the shareholders ultimately want to see the stock price go up and they ultimately want to see the business make more money and as a result they don't have the same sort of you know the the stakeholders there have kind of a different set of alignments over time you know they're not necessarily the same long term uh or focus meaning does the philosophy come before the money and i think as you kind of concentrate ownership you have the opportunity and the option now uh to you know make make those sorts of decisions that you can't make when you're broadly unstuck but facebook and google are concentrated they have a different class structure yeah so what are you talking about the issue chamoth is in those companies they're scared to death that they'll lose their employees and have chaos at work government no the issue is government employees it's pressure from above and below it's yeah it's shareholders it's shareholders and government regulators right and so in both cases to the pressure and employees it's a good point yeah i understand but i'm not sure how twitter changes any of that there it does i'll tell you why because if we look what's happened is le sometime last year i think it happened around chappelle and i think it happened because of coinbase we saw a group of folks say you know what enough's enough yeah we told you to bring your whole self to work we told you we would do your laundry and then at some point netflix was like listen you don't have to agree with every comedian on our platform there's a range of comedians and if you disagree with this one you can do a walk out you can protest you can make your feelings hurt or you can choose to not work here and then daniel kind of did the same thing he said listen at spotify we're gonna put labels on it if you don't like joe rogan don't work here and then of course we know coinbase did it and toby from shopify did it and now you have twitter doing it and when you apologize and you start listening to this very vocal minority when they're upset and they want to cancel people or they want to de-platform people what do they do they double down you've shown that you're going to listen to them they're not doing it at coinbase anymore they're not going to do it at spotify anymore they're not doing it at netflix and apple acquiesced right they're like we don't like you know antonio's book chaos monkeys and he said these three things in an award-winning book that we find or we're gonna fire him i think at some point apple's to have to say you know what leave your feelings at work and this is a company leave them at home thank you this is why elon is so dangerous to to these people is because he won't be pushed around the fact of the matter is that this whole woke mob thing it's a paper tiger they don't have the support of most the population it's a handful of very noisy voices on twitter and social media who insist on having a monopoly on the right to shape all of our narratives yeah they want a monopoly on moral outrage they want to monopoly moral outrage they want a monopoly but they also want a monopoly on the ability to basically to to define uh what is acceptable and and what what the narrative on any topic is going to be and all it takes is one strong person to stand up to the mob as we saw brian armstrong do at coinbase and the mob dissipated he took you know brian had to find another target they find another exactly so yeah elon doing this is a really big deal because again he cannot be pushed around and he is showing leadership here and all it will take to end this woke censorship is for other founders to stand tall the way that elon has and let's see let's go into the news um employees kind of gripe about i don't think he'll care what regulators gripe about and i don't think he'll care what other shareholders gripe about he'll talk about the long-term opportunity the philosophical alignment with mission and and plow forward and i think that that level of leadership is what separates some you know great businesses from others but this is a very listen there were moments of de-platforming that were earned by people like alex jones who was saying that the you know families of sandy hook were false flags and their children weren't murdered there are you know milo yiannopoulos and some of these alt-right nazi sympathizing people throwing up swat stickers you know people promoting violence or brigading on these services to attack people into docs people those people those were just cancellations d platformings from youtube in your opinion well i mean anybody inciting violence i think we would all agree should be just platformed jason look at how it's evolved we start with isolated cases like alex jones like a milo that nobody likes and nobody supports the next thing you know the president united states is being de-platform but again that's supposedly based on him inciting a crowd then what's happening today now we have entire categories of of opinion being banned it starts with code i agree anyone's exactly my point anyone who is descending and now there's invalid anybody who has a single percentage opinion on covet gets banned now anybody who has a dissenting opinion on climate change can be banned there's a story this week on cnn where pinterest have all come look pinterest is a photo sharing site i don't know no one's talking about climate change on pinterest and yet i was but then i got you hardcore i mean it just shows this censorship now is on autopilot i mean even sites where the conversation is not taking place are banning entire categories of thought and opinion because it disagrees with you know what the experts agree and j cal you could point out your alex jones case to make the case that deplatforming should be allowed the problem is as soon as you make that case it's only a slight other people point to a slight degree away from the next case and then a slight degree away from the next case and then fast forward three years and you're banning entire topics of conversation that ultimately may end up being proven to be a topic of conversation we should have had and if you look back by the way what great movie woody harrelson the people vs larry flint larry flint was a pornographer it was easy for everyone to chastise him and for everyone to say you know what let's go ahead and de-platform this guy back then and ban him and charge him by the government and at the end of the day he fought for his rights for free speech now all that being said larry flint was publishing using his own printers and selling on the street in a very legally compliant way there is a difference in having someone else's platform be the mechanism that you use to promote your voice if they choose like pinterest and twitter and youtube and facebook and google to change how their platform operates stacks i actually think that's a commercial decision made by a private company they should have the right to do that but they're going to lose users over time they're going to end up looking like idiots when they're wrong by banning certain topics that we should be having conversations about over time and i do think that there are other mechanisms for us to use the free and open internet this is why i think the free and open internet is more important than anything to have conversations using other platforms i mean and i'm i'm i mean hold on i just want to respond to david since he did you know counter my point i agree with you i think it went overboard and i think there are more reasonable solutions i think a time-based a bam would have been better for somebody like trump um and maybe waiting to see what happens with the january 6 commission putting that aside i know it's very controversial um you know when you just look at what spotify did to our podcast i don't know if you've looked at us in spotify every other episode says coven19 information here i think this is one of the best things if people want to talk about ivermectin and it's an open science and freebird you know more about it than any of us and people want to debate it why not link them to the questions credible sources i think that's a great solution i have a question yeah is there an oat milk tag on spotify yes because the service oat milk oat milk oat milk wait when you listen to all in pod on spotify there's a tag that says there's coven at 19. yeah get covered 19 information here yeah to freeburg's argument about these companies should be free to do whatever they want so i know that free bur i want to make two points about this first of all i know freeberg is sincere and genuine in that belief however most of the people making that argument are completely disingenuous about it because on the one hand they say that these companies should be free to limit speech when they like the outcome of that censorship but meanwhile in congress they're pushing six bills forward to regulate these companies as monopolies so they don't believe that they should be free to do whatever they want they believe that they're monopolies and indeed many of them are monopolies and even the ones that aren't monopolies act the same as all the other ones they act as a cartel to limit speech so that's point number one is that nobody believes this argument that these companies should be free to do whatever they want the second point is that listen the founding document of our country the is the declaration of independence it says that all of us have rights they're inalienable that means they cannot be taken away okay and in the first couple hundred years of this country it meant that those rights meant that the government couldn't take away your right to free speech but now today where does speech occur it it occurs on these giant social networks that are privately owned they're owned by these large corporations and the fact of the matter is if they take away your right to free speech on these platforms if they censor you if it's a great you do not have a right to free speech in this country that right needs to be protected the founding fathers did not anticipate that four people would be mitigating the majority of conversations online it's you know like if you're if you're taking off if you look what happened to bilo and alex jones like they don't exist in the public sphere anymore right like they've been literally when these big tech companies all get together as a cartel to deprive you of your free speech rights you have been de-person you've been digitally de-personed and they're not just doing it on speech they're also taking away your right to engage in payments in transactions to earn a living and unless we stop this now it'll keep going we have to address the giant elephant in the room huge uh which is trump uh i think a lot of this uh you know he hit its pinnacle when people were saying the the sitting president of the united states could not be on twitter that was i think we all agree ridiculous and absurd that the president who was duly elected couldn't have a twitter account but then with the january 6 and the inciting of the violence and you know all the stuff that's coming out and obviously we'll we'll see where that all winds up i'm curious what everybody thinks here about should trump or is trump being put back and reinstated on facebook or twitter and it's supposed to be a lifetime ban on twitter but if corporate governance changes and people lobby for that do we think that there is any kind of situation where trump has his twitter handle or facebook accounts reinstated and should he have them reinstated i think jason what you suggested is probably the most reasonable thing which was there was a time based penalty you know we're we're getting through we're probably what a third or two thirds of the way through the january 6 stuff so that's going to come and go and i think all roads will probably lead to a conclusion that after three years it's probably okay to let this guy back and be able to tweet i mean it's not this is not you know controversial stuff at this point you know that the current thing is moving on from ukraine when uh the topic all of a sudden is january 6 all over again and trump which it is on msnbc it's all january 6 all the time again so listen i mean this is not a justification for the widespread censorship that we've seen like i mentioned we've gone so far beyond isolated cases now it's entire categories of thought and this has to be stopped well what you're feeling on trump should he be reinstated if you were running twitter would you have done a time based if you don't like trump just don't follow him i mean but but frankly it's it's um listen i don't miss the tweets at all i don't miss the tweets at all i really don't um they were damaging your party that's how you felt my thoughts have evolved before when he first got banned i was really supportive of it and there was part of me which was just afraid that he would get reelected etc etc now come two years later and to see all of the stuff and the escalation of d platforming i think the problem is exactly what you guys have just talked about which is the person that does it today points to the person that does it yesterday who points to the person that did it the day before as the justification and so even though we don't want to draw a straight line between an alex jones and a trump and climate change unfortunately there is this line and so in general now a much more free speech because i think it's much more fragile than i thought it was before gosh your opinion has evolved and intelligent people should respond to new data i appreciate that and i was a person that you know as david said was a little disingenuous in the sense that i kind of was for free speech as long as it was stuff that i agreed with but two years later a much more on david's original camp now which is we just need to establish this as a pillar of society and not deviate and find credible voices on both sides and then algorithmically and through people power meaning through crowd you know wisdom of the crowds type stuff help people figure out what is truthful and how much truth there is because that's a tractable problem but the minute you start canceling stuff today as i sit in 2022 what i would tell you is i think it's very very bad because it's going in a really bad place free bro what are your thoughts on trump specifically because it does seem like that's a part of the undercurrent here of you know he's going to be coming back possibly going to be running again and january 6 is concerned he's got the truth social network download the app listen to what he's got to say it's rocking and rolling over there on the the truth app i heard they took it down like it wasn't even working right the uh the new thing he built but what is that what is that smack trading at was it at 20 billion or something still doing well um but look they had you know obviously a reaction a market driven reaction to the fact that he was taken off twitter and he said i'm gonna go make an alternative and that's you know certainly proving to be technically difficult but as we all know it's not technically impossible you just got probably the wrong people working on it um but if they wanted to have an alternative platform for hearing that voice you know have at it uh i don't know what else to say i mean it's twitter's decision they're they're curating their audience all these guys want to be free speech advocates but at the end of the day they're all editorializing and that's just the world we found ourselves in i hope elon takes a slight jammer to that yeah i mean it's exactly what chamas said is they're all they all believe in free speech and free markets when it produces the outcome they like but when the outcome is not what they like all of a sudden they're like whoa these companies are monopolies well and here's another opportunity if you're not libertarian and believe in like you know free speech and you know constitution like you could buy shares you could lead a group start a dow start a hedge fund whatever build a block to buy a bunch of shares and then you could get a board seat on twitter and you could have this debate on the board of twitter and if you're absolutely right you are absolutely right and you can see by the way you know small hedge funds with small amounts of capital like engine number one you know they were able to go up against it exxon and beat them so to your point jason for the people that actually want to censor more if they can organize the capital they absolutely have the right to do that and i and i think that they if they if they're able to do it they should win that's that's that's what mike solano was kind of getting at it's like look if you don't like if you don't like the the free speech that's happening on twitter go create your own social network because that's what they were saying buy the shares and have influence that's how corporations work the shares are the votes yeah freedberg update us on you know the ukraine is in month two now i'm sorry ukraine is in month two sorry for putting the thumb before it's a tough habit to break freeberg tell us um you know the second order third order effects of fertilizer and food at this point we've had this back and forth and now i think the world is starting to realize hey freeberg was right these downstream effects are going to be significant i ask you a question about these which is can the world not mobilize if these are about one percent of the calories twenty or thirty percent of the calories are in country could the world not mobilize to find other caloric sources rice fish soybeans whatever or is our system so fragile that we can't rally around sending food to anywhere on the planet despite the fact that we can fly anywhere and go on vacation for two weeks anywhere on the planet no the food system is complex and efficient but it does not have strong redundancy or malleability uh so take for example you know how do you get flour you get flour in um uh in your food from a food company that bought the flour from a miller there are mills around the world that process flat wheat into flour you can't take that same mill and process corn into flour there's different technology different equipment that's used same with soybeans and so on so when you look at how the food supply chain is constructed you know there's a local point of consumption which is a store then there's a food processor and you work your way kind of up the supply chain and there's a certain input that's required to make the output that people consume and so calories while they might be fungible practically speaking or philosophical or fundamentally speaking they're not necessarily fungible practically speaking on the ground when you actually try and plug in let's say soybeans into the milling supply chain to make the pasta or the bread that everyone consumes in tunisia it's not going to work and the same is true with rice and then the the more important dynamic force that's underway is that these markets for food and commodities globally are not controlled by government they're controlled by private businesses and there's a market for these products and so what happens is as the food supply chain threat hit countries like china and others started to stockpile they started to buy lots and lots of supply drive up their stocks and their reserves you know for fear of the famine that's about to hit us in about nine months and when they did that there was now less food available to tunisia to eritrea to egypt and so on and so we're starting to see the effects of that dislocation driving dynamic market forces where certain buyers stock up and then the folks that can't afford to step in not being able to acquire product and being left so not only do we have a local production differential that makes it hard to have all calories be fungible we're also seeing this dynamic where there's a bifurcation where the habs have more and the have-nots have less and that's going to really make this famine kind of hit home you know in a really really sad way in the months to come we're already seeing as as i mentioned two weeks ago yeah i i as i mentioned a few weeks ago the fertilizer problem driving acreage down so the usda farm report comes out they survey farmers and figure out how much they're going to plant every year and they just downgraded the number of corn acres they're going to get planted this year which is happening starting this month from 93 million acres to 89 million that doesn't sound like a lot but four million percent yeah four million acres coming out of production of corn in the u.s is an incredible amount of calories that are not going to be planted to corn and so that has all these downstream effects and again this this crop doesn't come to harvest till you know september october then it's going to get processed and it turns into food so by the time the the effects of this decision making hit the marketplace the availability of calories and the stockpiling that's going on it's like boom some countries are going to be you know they're going to have a limited budget they're only going to be able to access so much food and they can't access any and other countries are going to be fine the united states is going to be fine western europe will be fine china will be fine sri lanka is going to be a mess northern and eastern africa is going to be a mess i mean there's like places around the world that we are going to have to scramble i i don't have a real easy answer there's no simple plug-and-play here it's going to be a really complex set of problems that are going to need to be solved well sri lanka does grow a lot of its own food so they may be okay because they're in that importer right i mean they're a pretty big net importer so they make a lot of food but they they rely on imports a lot for for calories there so yeah i mean that's the case with a lot of places around the world a lot of people think oh we have farmers but most countries you know particularly in the developing world are net importers they they they rely on third-party supplies of food so sure but but a lot of what you're talking about though are not um they're they're processed foods that come into the country sacks anything to add here well i mean i think that the ukraine war is kind of entering a chronic phase i mean the sort of entering a new phase the first phase you'd have to say that ukrainians won the you know the russia wanted to topple zilinski's regime maybe take kiev they obviously failed in that now we're in this uh phase where the fighting is over in the donbass it's basically the civil war that's been going on there since 2014. and um and and really that's what it's now about uh zielinski has acknowledged that ukraine will not be part of nato so that issue is kind of off the table and so what they're really fighting over now is the status of these disputed territories in eastern ukraine and i think it's going to go on for a long time that's what you know general miley test fighting could go on for years i think it's going to become a sort of permanent feature in the background of biden's presidency and um i mean i think the good news is that hopefully the war three uh aspect is off the table it seems like the calls for us to impose a no-fly zone or to put boots on the ground which you were hearing a lot of a few weeks ago seems like that's off the table so now is this going to be a protracted i think civil war going on in the donbass uh with between ukraine and and uh russia and their proxies which would mean uh sacks correct me if i'm wrong that putin will be hobbled forever they're not gonna be a world power and his power is going to deprecate because he's going to be busy fighting this non-winnable war for some period of time which is in a way saying biden did it perfectly and checkmated him i'm saying that's going to be your assessment if this actually does go down this way that there's like a civil war going on and and putin is crippled that would be checkmate or no i think i i think that clearly the the state department's strategy here is to make putin bleed in eastern ukraine and to protect this thing and make it go on as long as possible i think that's a risky strategy because this thing could always spin out of control could it be effective is there a chance it could be effective well i mean if the goal is to bleed putin yes it could be effective bleeding putin however i don't know that that needed to be the key geostrategic objective of the united states right now i don't know i don't know because look china is our main threat china is a pure competitor to the united states russia is not our economy is 15 times bigger than russia's china's economy is about the same size as ours that is a real threat so you know there are cost to us as well there are clearly cost of putin of this but there are a huge cost to us as well uh freebird described the risk the supply chain we've had to now spend a lot more money um building up the defense in europe we're going to be pinned down in europe uh we should really be moving some of those resources from europe to east asia i mean that's really where the pivot to asia is what we thought we were supposed to be doing until quite recently now we're gonna be bogged down there and there's still risks of inflation and recession in the us and i think if we are in a recession later this year i think a lot of people in the u.s will be asking what was this all for and if you go read my article that just came out yesterday with those based on my speech is published in the american conservative look this war was easily avoidable i mean the state department could have avoided this war very easily i thought i listened to your speech i thought your points that you were very clear on hey putin started this he is the aggressor it's his responsibility but you know we do need to think about our foreign policy as a country and regime change is probably not a winning strategy for us although in this case it might it seems like it's a possibility now so who knows uh i don't know i don't think we're gonna regime change but if we do there's no reason to believe that we're gonna get something much better in every case where we push for regime change we've actually gotten the same or worse um so yeah i don't think that should be our objective um you know i look i think we have a bunch of bad options now that the war's already started the best option would have been to avoid this war in the first place and if this thing drags on for years and the u.s economy tips into recession people will look back and say why didn't joe biden's state department in the year 2021 do a much more effective job preventing this war let me ask you let me ask this follow-up question as we wrap here um chamoth uh i've been thinking about what it what should a strategic objective be for america and the number one strategic objective i could think of was uh or one of the top ones would be to build a strong relationship with india which obviously uh you know it has an adversarial relationship with china already on the border of pakistan and then obviously you know has relations with russia what would be on the top of each of your lists saks and chamoth chemical first on priority here if we're thinking fresh looking at the world with china in retreat uh sort of disengaging from the west with russia on their heels what could the united states and the west do as a preemptive measure to really solidify democracy and you know the the world order a peaceful world order i'll answer it slightly differently which is we need to put ourselves in a position to not be dependent on any country because then we can actually dictate what we think the right approach and solution is from first principles and have the courage to stick it through to get to the other side of it so there are really two things we need to do the first which we've kind of perverted unnecessarily is energy independence and we've allowed too many people to conflate and muddy the water on what energy independence means you know nobody's nobody was ever advocating for coal but you know the amount of coal that we could have burned as a bridge fuel to lng which could have been a bridge fuel to things like nuclear and wind and solar that path was pretty clear but we got in our own way we have to get out of our own way okay so energy independence i think beyond anything else strategic probably an order of magnet it is the most important thing and then secondarily there are certain areas for the future of those future economies where we need to have complete capability and know-how and the most important ones there are the specialty chemicals that we need especially chemicals that we need to basically support climate change writ large to support battery production writ large and then semiconductors get those two things completely under us control on top of energy independence and honestly we would be a dominant world power for the next 200 years on our terms so the road to resiliency saks you're now the secretary of state what are your key priorities the u.s grand strategy has always been to prevent the rise of a pure competitor who can dominate their region and challenge us for global hegemony there's only one country in the world that can do that right now to us which is china so the pivot to asia as obama said was fundamentally correct but we have not followed through and executed it and now our attention is distracted and bogged down by what's happening in europe i would seek a negotiated settlement to this war now that the zielinski government has survived putin has been unable to take western ukraine and furthermore that zilinski has given up being part of nato the only thing left okay is this is this fight in the dawn bass there's a there's an agreement already on the table called the minsk accords that could allow us to settle that meanwhile pivoting to asia yeah wrap it up meanwhile pivot to asia create a strong alliance of countries in east asia who are threatened by china we already are friends with many of them you've got japan south korea taiwan you've got vietnam create a balancing alliance of those countries to prevent china from rising to the point where it can threaten us for global hegemony that should be our main priority geopolitically great uh all right there you have it folks for the rain man david sacks the dictator polly hoppetea and the sultan of science david freeman i'm your boy jacao and we will see you all in miami may 15th 16th and 17th love you boys bye bye love you besties [Music] besties [Music] it's like this like sexual tension that they just need to release somehow [Music] we need to get mercy's [Music] i'm going on [Music]








you got like moisturizer all over your face are you moisturizing i am i'm my skin is so dry i just got over having food poisoning and i'm like dehydrated okay hold on let me get this off camera look at this guy you got makeup on it's not makeup it's moisturizer [ __ ] this is bad the reason you look like the [ __ ] [ __ ] keeper and i look spy and young and she felt because i do a little skincare routine okay give me a [ __ ] break look at him you turn off his camera because he's embarrassed about whatever he's not embarrassed i just don't need you telling that sax is in a [ __ ] good mood just a lot of 15 cents why are you so [ __ ] happy dummy well the markets are closed today it's good friday so my stock portfolio can't be down because the markets are closed thank jesus praise jesus yeah it's a good friday if the markets are closed my portfolio can't go down anymore it's truly a good friday your portfolio will rise again it needs to be resurrected [Music] [Music] nowadays he works in dna but in the 90s all he cared about was the mdma the duke of dna the titan of tempeh the shepherd of the soy boys he turns water into wine and dollars into dimes he's a fulio for coolio consultant of science himself david friedberg welcome i have never done drugs just for the record but go on no of course not of course none of your behavioral problems in high school had to do yeah neither is jason no absolutely not not this morning he's the vc who loves bree i'll sell you the sleeves off your vesti he's enthralled with green wall he eats uppers for supper the rain man himself david sacks all right thank you you're welcome dad all right coming around the bend that timepiece what does it do it reminds him of how much more money he has than you the sweater is worth six times laura piana is above his line your super villain with that 1985 sassakaya he be chillin there it is he loves spacks just like junkies love crack he's your dictator jamal poly habitat that works i'm like becoming the eminem of intros i mean i'm i'm rhyming [ __ ] it's really solid bro i gotta say i'm i'm workshopping it uh shout out to nick and one person on twitter of a hundred gave anything i'm moving into my spring sweater season my swings federal collection oh wait hold on a second i just got a call oh yeah confirmed we nobody gives a [ __ ] [ __ ] christmas he's the king of the inane i don't think it's an analogy this matters to exactly one person no the person selling you the sweaters no that's not that i i think if you took a poll on twitter there's a lot of people who silently hate it but love it i think there's a lot more who hate it uh let's get to all the news so much news going on all the news where should we start jason you know i'm trying to think about it was there any news topic this week because obviously the war in ukraine has obviously got everybody in america oh wait no i'm sorry that that's not important anymore we're on to the next thing there's only one issue elon put into bid to buy twitter outright on thursday and take the company private in a deal worth 43 billion dollars uh the most breaking news when we're taping this on fridays at 11 a.m when we typically tape this is that the board of directors you know the professional board of directors has decided they would like to get personally sued you know i mean this is the most insane thing i woke up and read this and i was like okay they're creating a poison pin i'm sorry a poison pill that's going to give twitter's existing shareholders the ability to buy more shares if elon hits 15 percent of the company at a discount champ explain the concept of a poison pill just generally speaking and then give a because everybody knows what's going on but like here we are on this whatever i don't know if this is the seventh or eighth inning of this saga or it's the second but where do you think we are in this saga and then what happens on monday and it's describe a poison pill a poison pill is basically a defensive maneuver that a board of directors uses to prevent a hostile takeover and basically the simple way it works is it allows the board to create enormous amounts of new shares and effectively dilute the potential hostile acquirer so that it becomes economically unfeasible for them to get enough shares to get controlled the way that they do that is that they basically give everybody except a person that crosses a certain ownership threshold so let's use twitter as an example so the twitter's poison pill basically says that if you get to 15 you're essentially locked out from a right that then everybody else has that effectively allows them to buy another share of stock at i think it's a 50 discount and so what it does is it creates an incentive to essentially almost double the fully diluted shares outstanding of the business and what that does is it makes it almost impossible for the person with 15 percent to then go and acquire what's necessary to get to 50 yeah there are different kinds of poison pills there's things that you can do with debt there's things that you can do with equity but that's the thing that that twitter did i think the if anybody's interested in it nick maybe you can just bring it up but you can google on wikipedia there's a phenomenal article um called revlon versus mcandrew and forbes and mcandrew and forbes was the holding company of this very prolific deal maker in the 70s 80s and 90s named ronald perlman and what happened was he was the ceo of a company called pantry pride and pantry pride made an unsolicited hostile takeover bid for revlon which made makeup and basically you know there was like 40 to 45 bucks a share the board instituted all these poison pills the price kept escalating then a private equity firm stepped in also tried to compete for the asset all along the way there was um enough shenanigans that essentially what um what what uh ronald paroman did was uh sue revlon which went to delaware court and from it basically came the current framework of law that we use in this situation and basically what it means is that board directors have these fiduciary obligations to their shareholders and in some cases these are very broad fiduciary obligations meaning do the right thing but in some really narrow circumstances all of that collapses and their sole focus is to get the best price and what a director and a board of directors typically wants to do in a situation like this is not end up in that second bucket they want to keep all their options available they don't necessarily want to sell to one person you know they're probably going to assume they're going to get fired from the board they want to stay on for different reasons etc etc and so right now what twitter and their advisors are trying to do is basically stay in that first bucket have all of the options available to them and not be forced to run an auction and i think what elon will try to do is essentially use the public pressure that's going to build and the existing shareholders who own stock at 40 some odd dollars a chance to basically get you know a 20 payday by selling it to elon for 54 bucks or 53 whatever the price was and the twitter board now will have to justify how whatever they come up with is better than this because then if they don't and they're still exercising these broad fiduciary obligations you know one thing i'll tell you as a public company director it is a horrendous process when you get sued and these guys will be in court for years and the the incremental pressure that this twitter board has is that they can be held personally liable here so i think it's getting very complicated very quickly on that note of personal liability you have directors insurance so how can that appear it doesn't cover it have there been examples of this happening yeah dno insurance is it's kind of like dno insurance is their directorate in office or is is a layer of protection that we all have as public company directors we actually also have it as private companies yeah but the the amount of coverage changes but what i'll tell you is dno coverage tends to be relatively nominal because the risk profile doesn't really ex you know include these kinds of tail events and now what you're talking about is 10 to 15 billion dollars of equity value that's going to either get created for existing shareholders or get taken away and typically what courts will do is that they will look at the amount of money and they will start to think about you know compensatory and punitive damages as a function of how much money was was made or lost and so you're talking about a realm of of of risk now for these directors that's well beyond what dno insurance will cover so when if a lawsuit did happen chamoth you have to find damages so if the board found a better offer great but if this thing goes down on monday elon sells the shares and it goes down to 30. now you have the opposite effect go ahead freebird so i'll say two things one is all in all these cases by the way the board is indemnified by the company so the individual board members i don't know if there's ever been a point in history when an individual board members had to pay out of pocket for liability associated with their actions as a board member and as a fiduciary except when they've done something to benefit themselves outside of the company now in this case the the job of the board is to use their best judgment to do what they believe to be in the best interest of creating the most value possible for the shareholders it's very simple when the stock price is at 30 and someone says i'll give you 50 bucks to say oh well obviously getting 50 bucks is in the best interest of the shareholders let's assume though that you're on that board and you know about some super secret plan that you believe in the next 30 days is going to get the stock price to 60. and your belief in that plan and your understanding of that plan gives you a good rationale for having a debate as a board that this deal doesn't make sense at 50 we should hold out until we finish our plan over the next 30 days get the stock up to 60 and then we'll see if someone comes in and says hey i'll give you even more than than 60. could be something on the product roadmap right this is the complicated point it's not just about the current share price and there was a history in the 80s and 90s early 90s when stocks would drop tremendously for market volatility reasons or very some bad news event or someone quits the board macro and all of a sudden the stock price drops and you have a hostile buyer that says oh my gosh this company looks super cheap i'm going to come in and buy it while it's cheap and i'll offer them a premium to the current share price and the share price recently may have been much higher than the price that's being offered and the board says you know what we're going to get back to that share price because the market will pick up again the things we're working on are going to grow us out of this hole and so it's very hard for us to sit here as and i know that i want everyone here on this the zoom to suspend your alliance to elon and belief that elon will do a better job just for one second and just think about the board members they've all been working on quarterly plans strategic plans etc with the current ceo and as a board for twitter that gives them a point of view that says may give them a point of view that says hey you know what we can get back to 70 bucks a share so remember it was only a few months ago twitter stock was trading at 70. the stock price dropped with market compression we've all experienced and then elon's come along and said i'll offer you guys 54 bucks and the board's like wait a few months ago we were at 70. we have all these great things we're working on and so i'm just trying to paint the other side for everyone that this is not just like a clear-cut obvious deal it's their judgment at this point that they should get more for the stock given where they think the company's headed and where the stock price will will eventually get to all right going to you sacks you heard from friedberg to suspend his belief that the greatest entrepreneur on the planet running two of the most important companies is not more qualified to run twitter than the currency yeah i'm not i'm not going to suspend my disciples let me make the case for the clear cut for the clear-cut case here sorry let me just say something he could be better at running this company this year okay he will be better jason but the shareholders don't benefit from that because he buys the whole company they do well hold on yeah they're getting 54 of cash they do not have any ownership in twitter after elon takes over that's the deal that's on the table so if i as a shareholder get 54 of cash i don't care if elon does a better job running twitter down the road because i have no interest suddenly one fact check on that one fact check on that he said he wants to bring along the deal that's the thing he said that's not actually in the proposal right so as a board member i have to look at the proposal on the table which is i got to take 54 dollars of cash okay for my shares and give up all the upside sax looks like he's gonna explode fair enough look here's the reason why fiduciary duties exist let's explain where this concept comes from there is fundamentally a principal agent problem this is what it's known as between stock holders and the people running the company so in other words the owners of the company are the stockholders okay they appoint agents managers to run the company for them but those managers can be conflicted they have an incentive not just to get the highest share price for the stockholders but to pocket personally as many benefits as they can and the whole reason why fiduciary duty was invented is to prevent that agency problem so if the board members or the ceo of the company are just looking out for themselves and trying to pocket personal benefits excessive compensation or turning down an offer to sell the company for a much higher price that would be a breach their future duty because they're looking out for themselves perag knows that if elon buys this company he is out of a job his head is on the chopping block he is fired right away elon has made that clear he said in this letter on this sec filing on thursday i have no confidence in the comp in the management of the company if i'm unable to buy the whole thing and take it private i will dump all my shares it's all or nothing for him so perag is interested in preserving his job if elon wins this battle peraga is going to have the shortest executive career since that pope who got poisoned okay to borrow a line from wall street so he is incentivized to fight this thing whether it's in the interest of shareholders or not now what is the incentives of the border i think they're the same these are guys who love the power they derive from being on this board we know twitter has enormous cultural power these guys they enjoy all the benefits they get they probably do get some compensation being on the board but they enjoy being in this very exclusive club that wields enormous power over our culture and they have no incentive to give that up and by the way how much the company do they really own you know not that much if you look at the wealth of the people on twitter's board and we know all the people on twitter's board their wealth is significantly greater than whether twitter stock sells for 60 or 70. so and and i think that we all know that these are all sophisticated actors they are all high integrity people we all personally know many of the people on twitter's board i don't think that you know look maybe there's a variety of good they're conflicted it's got nothing to do with integrity the fact of the matter but you could say the same about any board sex that it's no because it's different listen when we're on a board okay because i'm on plenty of boards we own a huge percentage of the company so when somebody makes a takeover offer to buy one of our companies we are thinking like stockholders we're fundamentally aligned you have massive skin in the game yeah we have massive skin in the game these people on the board what skin in the game do they have most of them are these directors who are disappointed and it is it's like a club these guys it's all big back scratching club these guys are all on you think they're motivated by the influence of being a twitter businessman of course the nexus of power why do they not as what this is shaping up to be is the nexus of power and who controls the people i don't even own much of twitter none of them own much of twitter i do 100 agree with sacks i've always believed what i think carl icahn said or whoever it was that the board should be represented by the biggest shareholders the the folks who actually have skin in the game the folks who actually care about the share price you know having some nominal number of shares issued to you as a board member of a public company showing up you know patting each other in the back and certainly generally speaking leads to non-founder-led companies ultimately dying um because there is no motivation and incentive and drive from anyone let me take the other side partially um i think you're mostly right um i would never join a public company board that i did not own a significant piece of right and i have never right now the reason to be on a public company board is that unlike a private company the single biggest advantage there are many disadvantages of being public but the single biggest advantage of being public is that you have a lower cost of capital so if you have an ambitious company an ambitious leader and an ambitious plan to build and compound value you cannot do it privately forever you must do it in the public markets because there's just an infinite amount of capital that's available and an infinite amount of ways in which you can raise capital relative to you being private so with that being said when you are public i think the best boards are the ones that are sort of 50 50 split between the biggest shareholders and people who are very much experts in a handful of things and i just want to be specific in a help but company board you have to have a lot of focus these days on things like governance audit because you have to attest to these financial statements right cyber security becomes a huge one because you have to disclose these risks and so i think that it really behooves boards to have a few experts who can chair those committees compensation tends to be another one as david mentioned that can be a real hot button but there are experts you can find they're not going to own a large piece of the company but they're going to do a really good job of managing those things that minimizes risk for the business so that then the rest of all of the board which are the large shareholders can really use their influence and strategic understanding of the business to build a huge equity value when those things come together you have great outcomes but i i really agree with you if you stack the board and you know we've we've had this issue public boards in america got perverted over the last sort of last few decades to being these little badges of status that people would collect and now you know we're starting to see a real pushback on what's called overboarding right where these distinguished folks will pick up five six seven boards all of a sudden that's the fastest way to make three four five six million dollars a year how can you sit on five or six company public company boards it's impossible in adding value exactly and you have a question do you think those people get appointed to boards by standing up to the ceo right now the opposite vote for the ceo so let me ask you guys a question what do you think is the right thing to do as companies that go public mature and their ownership base disburses so you know in europe and asia many companies go public families own them for a very long period of time as you guys know they're they remain significant owners they don't sell off the shares in the u.s traditionally as companies have gone public the shares the founders the original investors because we have a lot of venture capital in this in this country historically compared to other countries so those owners end up selling off their shares and they get dispersed and a long tail of owners end up owning the bulk of the shares how do you think those companies can be best represented on the board given that there isn't concentrated ownership in public companies generally mature public companies in the u.s like twitter the largest you know owner is vanguard with five million other investments and then jack dorsey he only owns two percent what do you guys think is the right thing to how do you create good alignment with board members that that could be better you know placed and better suited here well i think one of the ways that you do it is that when somebody wants to step up and acquire a concentrated position because they have a plan for the company you don't stand in the way and completely thwart that your job isn't to assess their plan because your job is to assess the dollars you're getting paid today for your shareholders and then whatever they're going to do with it it's their thing but are you getting a fair price is it elon is willing to put massive skin in the game in order to basically fix this company and get the best value we all agree but that's not about the shareholders sex like i agree with you i think elon should own and run twitter let's evaluate right let's let's let's evaluate this poison pill for a second okay so elon comes in he starts buying up the stock the premium he's proposing is something like a 50 something percent premium from when he started accumulating and 64 54 is like a 38 but a 40 from the time from the time from the time he basically made the offer and by the way the stock is going right back to that previous level if they turned down this proposal okay so he's made them a good offer okay now i think it'd be acceptable for the board to say okay this offer is attractive but we need to shop this we're going to run a process and we're going to see who else is out there if there's nobody better then we're you know why wouldn't we take this there's one thing that's left over that you didn't mention the thing that's left over you're right they absolutely have a responsibility to shop and find the best price but what's left over is their judgment that the companies no no no no get above that level they have the they have the ability and the right to do that and the responsibility to do that as a board this happens all the time the problem the board can look at the deal and they can say you know what we believe that this business in the future is going to be worth a lot more than what we're being offered for cash today the price they have some inside information okay the problem with that argument is that this is what activist firms use all the time in reverse the inverse of the argument is more powerful you've been a director with purview into all these confidential plans that has effectively caused this company to tread water for five years why should we believe you now and that argument is way more credible than actually you can really trust us this time because if you look at the tenure of all these folks you know the last sea change that happened on the twitter board was when elliott pushed to add i think two or three directions yeah but in the absence of that i think david is largely right these are status games and when status games ultimately play out over years they either play out in the stock price one one way or the other and in this case what's true is that this is a languishing stock that has largely been going sideways independent of anything that's been happening and what about the faction that less than 90 days ago it was trading at seventy dollars oh you mean during the covet bump yeah everybody was betting stocks i mean let's look at the history of friedberg it was 69 guys incidentally on japan you have to give some context january 3rd 2014 the stock was trading at 69 the fact that it got a ridiculous bump like the entire market did during the robin hood stonks you know heyday during covent means nothing right that was market beta not zero performance exactly that's exactly that's exactly what i was going to say this if you could actually point to some alpha meaning there was a strategic misstep or something that happened that was fixable a better example would be let's just say that there was a let's just say that instead that twitter instead was not a technology company but a pharma company because this example would be easier to understand the stock is at 69 and you get some interim results from your phase 3 trial people misread it and the stock tanks meanwhile the stock market broadly speaking is at the same level you could say well that negative alpha can actually be fixed because of our strategic plan but what saks just said is more true in this case in this case what's irrefutable is that there's been a broad-based drawdown in the markets there is nothing that you can point to that says this is something inside of twitter's control to get the stock back to 69 meaning 69 three months ago is actually 38 or 40 dollars today we're we're at an apples to apples even comparison so from there the real question is this 20 or 30 premium to this can you actually show a plan i think the right thing for twitter's board to do just to be very precise is the following they have to take elon's offer and they have to create a go shop i will go and try to get a better price they won't be able to and the reason they won't be able to is not a single person who is capable of stepping up with 43 billion dollars would ever get it through regulatory muster not going to happen in my opinion and anybody with the 43 billion who could buy it will never take it on meaning could comcast show up sure could uh disney show up they'll never even look at it no they're not the people for whom this asset is strategic apple facebook google can bite dance never amazon could never get it done so nina khan no brano i think that's probably right your mother but there is a chance so i just want to get 100 finish i just want to finish so from who so hold on just let me finish mafia and then so i think basically it's like elon thank you we're going to create a go shop we'll try to find the best offer i don't think any offer comes in but then i think what they can do free berk is if there is this magical plan to shoot rainbows up their ass they should actually put that to a shareholder vote and let people decide and i think that's a really fair thing to do that also allows them the credibility in the air cover to say look we actually have been working on a plan we think that that will create an amazing amount of shareholder value and we just want shareholders to be able to see that compare it to elon's offer and decide for themselves who's the white knight if anybody i heard comcast we know that big tech can't do it because alina khan and then we'll go on to the next topic and the next nuance here sacks do you have anybody a financial player anybody who is a dark horse in your mind somebody you know i think it could be disney jack is on the board of disney there's a lot of relationships sorry go ahead they tried to buy it bob iger said he bailed on it listen i think there's a lot of companies that could be interested in twitter and i think you you create the period to shop it to see and by the way listen name one sacks i think this administration does not want to see twitter become a free speech company again and so the political winds will blow towards letting i think twitter be acquired by a big tech company even if it means big tech gets bigger so i think that i think they will put lena kahn on pause to allow google to buy this company if that's what it comes down to you're kidding me your conspiracy theory is that one again will you take 100 odds against that i'm saying if it comes down to it i don't know what i'm saying you're saying biden's going to whisper in lena khan's ear put your thumb on the scale and let google buy this thing i'm just saying that the dems can own it the libs can i'm saying if it was a choice if it was a choice between what david's saying is my enemy's enemy is my friend and so instead of having elon's stated goal i guess what david is saying is instead of having elon's stated goal of having a free speech platform at scale exist on the internet which they may believe is even the bigger threat to political power they'd rather it go into the hands of companies that will acquiesce to them at least on the margins but no question about it would tell lena khan to put her thumb on the scale champion of two evils you believe that conspiracy from their point of view i do not personally but i am not but this i feel like i'm on amazon radio but go on yeah listen yeah where is my team what is this where's my tinfoil like and by the way i just want i just just to go back what is this all i just sent you guys hold on one sec i just sent you guys the revenue chart for for twitter it may not be that impressive relative to enterprise software companies and others but i i i want to be really clear i am not arguing against this deal i'm trying to give you guys the perspective so we all have a really kind of honest dialogue about this why this board may actually stand on their own two feet and win with shareholders by saying you know what look our revenue has been going up we're continuing to grow revenue we're continuing to grow usage on the platform we've got all these products that we're working on there's a real reason that we're going to make more than 54 dollars a share over the next 12 to 18 months as we start to deliver this year's numbers and we start to deliver these product features that we've all been sharing and talking about in the progress we've been seeing and that's the that's honestly i think the most likely kind of middle ground here is that this board has enough to stand on by looking at the fact that it doesn't matter the stocks gone up and down what matters is that they've been in their minds steadily improving the business and continuing to improve the business and it is an iconic asset that the market should own not a single person and yadda yadda and i think that's going to be part of the case let me make two points first the problem with freeberg's argument is that there's no limiting principle to this any board at any time could always claim that they've seen the magical plan and therefore they can reject the bid you're right by the way that's the problem with it and particularly in this case we have to look at the track record of this management team which barely exists but also this culture at twitter okay this is a company that's language for years the culture look this culture a decade this culture has been so inept that in response to elon's takeover offer they gave all the employees a day of rest because no that's a reoccurring monthly thing they haven't yet no they don't did it boys were so stressed out the employees were so stressed out they told them to stay at home and take it easy okay this is this is a you don't know the emotional labor it takes to deal with this this team is weak okay and it's soft okay and elon would give the whole company an enema and fix this thing and that is why they don't want him taking over yeah you are 100 right but but that's right but this is why this is why you should not let this board and this ceo invokes some magical plan that they don't have that they never came up with and they would never come up with because it's just a big excuse so they're not out of a job okay but now let me go wait i never got a chance to make the second point let me respond to the tinfoil hat thing so listen what is this story really about it's about free speech it's what it's about for elon he said in this takeover and then at the speech that he gave at ted that listen this is not about economics for me twitter needs to be the open town square it is the marketplace for ideas we're going to make it a free speech platform we're going to open source the algorithm so people know when they're being canceled they know why they were taken down is that algorithmic was that a human intervention this is what it's about freelancers it's also what it's about hold on it's also what it's about for all the elites for everyone observing this for everyone who's criticizing it listen look at the uh look at the reactions we haven't talked at all about the hysterical reactions to all of this news that happened i mean there was a fantastic uh tweet here well business insider said that elon musk's attempt to buy twitter represents a chilling new threat billionaire trolls taking over social media this is one problem back in 2013 business insider's headline was billionaire jeff bezos washington post buy marks a fascinating cultural transition in america so these guys are completely hypocritical when it's a billionaire that they like they praise it when it's a billionaire supporting free speech they oppose it that's what's going on you had jeff jarvis with this insane professor jeff jarvis yes saying today on twitter feels like the last evening in a berlin nightclub at the twilight of wymar germany i mean somehow these people think that the re-institution the restoration of free speech is somehow like the the end of weimar germany and then i think probably the best example was this tweet by max boot where he says that for democracy to survive we need more content moderation i.e censorship not less so in the warped mind of all of these elites and the media the corporate media they think that for democracy to survive they need more censorship it's the worst thing the democrats ever did is give the republican party free speech that was our issue how we gave it to you guys it's just insane by the way this is your bias in evaluating this deal i want to point that out you you talk about the board's bias but you do have a bias on on and that's not really the question at hand the question at hand is fifty four dollars the fair price to pay for this company no i know but it is also about free speech there is another motivation at its core that's not that's not that sorry i i agree it's not about the deal but that is why elon's buying the company i agree i agree i agree he's not doing just pointing out that we all criticize the board and we all criticize them for not taking the deal we're motivated generally because we want to see the deal happen we want to see elon doing i want to be i want to be very clear couple things first of all the stock is basically the same price it was in december of 2013 right right so what happened in the market during that time it went absolutely up and to the right in a violent manner right so if you had a strategy to not grow and you deployed it could you actually achieve this performance so i'm just saying that's just an objective fact that we have to keep in mind whatever whatever has happened has collectively not worked and it is it is systematic meaning the underperformance is not a quarter it's not in a month but whatever has happened here collectively inside this business has not been working for nearly a decade okay so just getting all the emotion out that's a fact right okay and so at some point people will say well the devil i don't know is better than the devil i do know because the devil i do know is destroying money for me at a horrific rate which if you look at how the s p has compounded since 2013 versus now i mean my gosh if you had done a spread trade of long vsnp and short twitter you would have made a fortune how about long tesla short twitter well i'm just trying to give the just the general market now i'm just trying to give you the general market math right forget even any individuals right and look freeberg it's not just ideological here i think we all agree on the correct economic thing to have happen here which is that the twitter board should run a process they should see if there's a better bid out there if there is you play for the bigger bid make elon come up on the price okay but if there's not a better bid elon's offer is the best deal on the table i think you take it that's what economically should happen but it's not going to happen and the reason it's not going to happen is not because of superior economics or a magical plan it's going to because the the board members on this country club they call aboard their interest is to stay on that board perog's interest to stay as ceo and all the elite observers and the media all the people denouncing twitter i'm going to give you guys numbers to want censorship to remain in place that is what's going on give me one second i want to ask one question okay fredberg you have a lot of bitcoin you have a decent amount of bitcoin some bitcoin bitcoin's trading like 40 000. if i said i'm gonna buy out all your bitcoin for 45 000 would you take it well that's a it's a different situation because you can't you can't make an offer for that and by the way here's the difference there's no principal agent problem in that context i know it's a fully decentralized course but you have a point of view on on bitcoin i no forget about the structure i'm i'm coming to you and i'm saying hey sax i want to buy all your bitcoin for forty five thousand what's your answer it's trading 40 that's not that's right that's not a share that's not a share so then put it put it to a vote yeah i'm trading i then put it to a vote right let every single shareholder decide then put it to a vote and we'll see yeah and by the way freeburg there's no limits on your ability to go on the open market and buy bitcoin so if you do want to try and acquire 100 of bitcoin go on the open market and acquire it all sorts of limits people trying to build big positions exactly exactly so go do that but there are huge limitations i just wanted hold on there are big limits on the ability of elon to go on the open market and just keep buying up all of twitter now with this poison pill now this poison pill they've stopped it do you agree with the poison pill freeberg see jkl hang on i want to explain why that is because this is really important from a corporate governance perspective so people understand what you're saying is right but the job of the board is to look out for the interests of all shareholders particularly minority shareholders people that own a small stake in the company so if someone came along let's say a private equity firm owned 60 of a public company the board can't just act in the interest of the private equity firm they have to protect the smaller shareholders and so their job is to say is there upside for the smaller shareholders that their vote should matter more and that's why we have a board to have that judgment debate and to decide and i'm not arguing against you as much as i'm explaining what goes on in the lawyers okay meetings with the board this is what they're telling i think they're saying your job is to look out for all shareholders so elon can go out and buy a bunch of shares but if he doesn't have thirty percent of the shares the board has to represent the interest for those thirty percent right that's how it works i think i think what that but what also works and what normally good boards will do and i don't know whether twitter will or will not do this but i'm assuming these are you know they'll do the right thing here um because we do know most of them um they should probably get a fairness opinion i'm sure goldman is doing evaluation as we speak but again when you factor in what's happened to this stock over the last decade and when you factor in the market beta today it's i think you're going to have a very hard case to make that there is a path to an outcome that's a lot bigger in an obvious way here and i don't think that that's going to pass a lot of muster and so the the the problem that this board will have is justifying the alternative of not taking this i think it's going to be harder than you think yeah and i think it's going to create an enormous amount of backlash where you know there's a probably a lot of shareholders that would probably want to get out you have to understand like why are vanguard and all these guys owning twitter they have to own it through these etfs that they've created and that's right that's right they don't necessarily have it they don't have one they don't have a point of view on the company right i agree and so you know they're out to just basically so when you really boil it down how many concerned interested shareholders are there well he's elon is clearly the largest there you know and then after that it's probably only 30 or 40 percent of the total outstanding equity i bet jack has a really i bet jack is the linchpin and what's going to happen here you know his point of view on this transaction and whether or not elon should be the steward of this business going forward and whether this is a fair price for him is going to sway a big part of how this process is going to go jack owns two percent he law owns over nine percent yeah but my point my point is i think jack's going to be a big opinion setter in that board discussion and they're i think they're sympatico and they're friendly so just to give you guys a number to react to here uh 2021 revenue is 5 billion they have 8 000 employees back of the envelope 625 000 per employee in revenue uh just looking at google which is the greatest business ever created perhaps in terms of efficiency as we've talked about they have 135 000 employees revenue is 257 billion which puts them at uh to close to 2 billion 2 million per employee how many people sacks on an operational basis does this business actually need to run efficiently 8 000 yeah you could fire half those people or more that'd be absolutely no impact to the business in fact they probably run better because right now they probably got too many meetings happening with too many people we all know this that company so culturally has been broken for a while elon comes to you and says you're my guy you did yammer you're in charge would you run it would you take the scene of course you would participate now guys come on nope wrong you take the job for 10 percent you're a liar would you take the job for 10 no i'm done operating companies i'm sick of it what if what if your funds got like doing real work wait hold on hold on i think i think i think this is time i think this is time where we where we can share i'm too old i think it was six years ago five years ago i did approach twitter with uh another large investor but it was more of a friendly activist thing and david was our nominated ceo breaking news but now after that meeting which which was a little heated their vp of engineering and cto quit the next day i remember yeah that was very funny what just that the concept of reporting into sax they quit they raged made this point you know uh startups are like the nba i mean you get to a certain age you're just you know it's you're too old i mean you're the coach you you'd be [ __ ] dark guys it's flattering it's flattering but i'm done i'm done operating i'm so sick of all that wow exactly who do you i go on think calls a couple of times a day it's a great life zach elon can't run it he's got a lot going on who do you think should be the actual ceo the day to day ceo there well i think elon would figure i think he would go in and figure it out i mean he is obviously an extremely but who would be well he's got a lot of people he can probably plug in there you know that my understanding of the way that things work at with tesla and his job now spacex is he's got some terrific young talent who he appoints these sort of project manager or product manager positions yeah and they and he's got like 20 of them reporting to him and they run the company doing a whole sequence of projects in parallel right so he has like a bench a deep like elon is the new ge back remember when ge when all the talent used to go there yeah elon's got so much incredible talent on his bench he could parachute in some amazing operators there and clean up that place let me tell you it'd be incredible the ai team on that self-driving team which i've met and i've seen their work like you know in private and it's so impressive that if he took one of the ai people working on self-driving and dropped them into twitter i'm one they would solve the bot problem the spam problem in 30 days with one and if god forbid he sent three they would solve it in the weekend the fact that they can't solve spam and bots and other meshugna going on at that company is uh crazy right he would fix that by the way there would be less um sort of uh there would be less uh problematic content on that site with elon running it why yes there would be less harassment there'd be less harassment because he get rid of all the bots he'd impose who's doing the brigading it's all these bot armies the problem is they don't want the bots to go because the only sign of life in that business is spammers and you know all these fake accounts being created so they're just scared to take that 20 hit but the site would be cleaner without it but but look jason i really think that part of the problem with our conversation today is that we're viewing this whole elon versus twitter thing purely in economic and to some degree operational terms when really i think this is also an ideological and cultural battle or struggle all right we'll go to that let's do it and this is why it's really captured the imagination of the public there look what is the if you were to sort of zoom out 30 000 foot view the big struggle of our time politically and culturally is populous versus elitist okay that's the big battle that's happening elon is one of the rare billionaires who's sort of anti-elitist he pokes fun at their pieties all the time this is why they call him a troll okay he wants to restore free speech somehow the elites are now on the side of censorship like max boots said they believe that in order to protect democracy they need more censorship what they really mean is to protect their control over democracy they need censorship why because they're greatly outnumbered there's more populous than elitists so if the more democratic this country becomes the more they are going to lose power and be kicked out that is why they are so fiercely resisting the restoration of twitter as a free speech platform it means the end of their culture the the axios headline encapsulates that to a t um i gave you guys the link nick you can show it the world's richest man someone who used to be compared to marvel's iron man is increasingly behaving like a movie super villain commanding seemingly unlimited resources with which to finance his mischief making i mean what a like are you really are you serious this is the same guy journalism i mean this is the same guy that's that's doing more on climate change and has been doing it two you know 20 years ago when it wasn't popular and satellites but i i said that and space travel i and i said this before but i just want to say it again i think if he does get a control of twitter and there is a strong reliable moral force for free speech i think that's actually going to be his biggest contribution to society because independent of all these other things you know we want sort of this political philosophy of democracy and capitalism to roughly work together and i think it sits on top of this fundamental idea that you can say what you think without retribution and it's only there you can actually seek out different opinions and try different ideas and say things and most importantly make mistakes and right now we we have such a high cost for making mistakes that it just shuts so many people down and out and if he does that that's actually a really big deal i think uh globally you know what that axios headline could have stachem they could have said elon musk spends significant portion of his fortune to restore trust in public square by open sourcing but you can open source hold on open sourcing the api and allowing transparent um moderation no json that's what he said in his ted talk jason they can't because they lose power if elon wins and gets control of twitter right exactly look the the the corporate corporate journalists like axios they don't make a lot of money what they have is some degree of status but more importantly they have influence that's why they do those jobs and the fact of the matter is and their influences and ha enhanced when other people don't have the right to speak and the reason why elon is a super villain in their eyes is because he's gonna give the people their right to free speech back that is what this is really about and they are adamantly opposed to that now 10 years ago 20 years ago every member of the press would have defended the first amendment they saw freedom of speech freedom of the press as synonymous and fundamental to our republic today they don't believe that anymore history has been inverted glenn greenwald actually had a great paragraph about this um if i could just i know you just said green wall yeah look i mean i'm a glad you all stand what he said is that somehow these elites they somehow inverted history so now they believe that it is not censorship that is the favorite tool of fascist tyrants and authoritarians even though every fascist and death despot in history use censorship as a key means for maintaining power but they instead believe that it is free speech free discourse and free thought that are the instruments of oppression so that is what it is about but but the the irony is that these elites now believe in the use of authoritarian tactics to preserve their cultural power that's that's the battle i think they're conflating harassment on a platform or hearing opinions they don't like with with you know like actual censorship there's going to be harassment sadly in the world and you can build tools to mitigate that i mean one of the things i don't understand you know i don't know if you know this feature they added last year or so where you can say only your followers can reply uh you know all these people who are complaining about harassment i never see any of them say my followers can reply if they did they would never have anybody reply who they didn't want to reply the problem would be solved okay lots more to come on this topic i want to just get [ __ ] up topic for us wow well i mean it it it's it is the perfect topic for us because you have freedom of speech you have markets you have governance i mean it's just everything entrepreneurship i just want to end with you know we're here 30 days from now what is your majority case what is your majority probability here of what happens give it a second what is the stock trading at and who's running the company in 30 days sax your first here's what's going to happen this goes back to my tinfoil theory i think one of two things is going to happen okay first of all elon is going to be thwarted by these folks he's not going to get control of this company they're the vested interest in stopping him by the board by the new ceo and by the corporate media and and the political elites is too great they will find a way to stop him okay and one of two things is going to happen either the poison pill will win and twitter's stock will be down in the dumps 30 days from now it'll be the same price it was when 35 around that price it's going to be back in the dumps and to jamaa's point all these board members are going to be sued justifiably so because they did not pursue the best deal of the company or there's one other possibility that they will find a buyer for twitter and that the way they will defeat elon will be to find another buyer at you know the same or greater price and they will place twitter in the hands of another company who they regard as culturally safer because that company buys into the regime of censorship and it might be disney it might even be google i i'm telling you i think that if google were the company to step up the administration would ultimately support that deal rather than elon getting the company and i think they would number one to stand down in that instance and let it go through okay lena kahn you have that we will find out and i'm telling you in 30 days we will find out how rigged this game is and how deep the corruption goes because they will do anything to stop elon from acquiring this company even if it means violating their fiduciary duty or violating antitrust law okay there you got it alex jones position let's go freebird i mean i am not what is the majority case in 30 days i'm not as conspiratorial as sacks i don't think that this is your first part yeah i think that i think that we have a board of rational actors i really do i think that they're going to do what they think is in the best interest of shareholders in terms of price per share i think that's how they're going to operate they're all super smart super ethical high integrity people on that board i now would i like to see elon own and operate twitter personally yes i would why well i think he's gonna be a better operator and he's gonna make that product better i think he's gonna make the business better i think it's gonna be better he's gonna he's gonna have a much more rational view on uh moderation uh that i i think has been lost over the last couple of years and i think he'll innovate in ways that we haven't seen in that business in many years so i i'd be excited for him to own that business as a user of twitter that's awesome but i don't think that i think the board's gonna act rationally they're going to try and find the best price they're going to reject his offer i don't think he's going to up the offer significantly to the point to get it done they're going to go out and run a long strategic process three months from now we're still going to be running that process that process is not going to be done no one's going to have a real answer elon's going to trail off and do something else and this whole thing will kind of fade into stock will be trading where in three months 35 okay bucks a share of 30 yeah what is the majority case here 30 days 90 days from now i think the the 30 days is we're going to kind of still be here um i don't think much is going to get figured out in the next 30 days yeah in the next 90 days i don't think you're going to see a better offer i don't think anybody wants to buy this dumpster fire because you have to understand this dumpster fire is twofold right on the one hand you have a whole user usage bot spam harassment problem and then you have an internal you know issue around culture and monetization and all of this other stuff and so you know you have to be really prepared to step in and deal with both of these two issues in a really definitive way i think that that i'm not sure that corporate boards and companies and ceos have the stomach for all of that so i don't think there's a better bidder but i think within 90 days they're gonna probably first try to reject it i'm not sure that that's in the best fiduciary interests of shareholders in fact i don't think it is and i think to reject it would be more a sign of ego than a sign of logic and then i think they are going to get sued and they're going to be embroiled in lawsuits for years so no sell happens the stock languishes again stalemate disaster well i think by saying it look i mean if you look at the stock like a simple stock market analyst would say whenever there's a merger announced right at like x price right like look at microsoft and activision that's a better example you know microsoft announced that the stock was at like you know 57 58 a share microsoft says we're going to buy activision i think it was for 95 a share right and if you notice the stock hasn't gone to 95. now typically merger arb merger arbitrage what happens is that the stock goes to one or two dollars of the acquisition price right away almost immediately or it goes to within five or ten dollars or five or ten percent and then it bleeds towards the m a price as the deal gets closer to certainty so when there's a big gap what the market is voting is that the deal is not going to happen and so when you look at the gap microsoft activision it kind of says it's going to take a long time and there's a risk that it doesn't happen similarly if you look at this twitter thing why didn't it go to 53 bucks a share it's because a lot of people think that the board's not going to do the right thing agreed the fix is in it's so conspiratorial saxophone obviously do you listen to alex jones the fix is happening in plain sight freeburg jamaat just said it why is the price listen when a deal is going to go through the price goes right up to like below that price the price is well below the reason the price isn't going up is there is no buyer who wants this asset it's going to be years to come out no no no no jason jason i don't think there's you should hire who wants it even if you thought that there was another buyer that was going to come at a higher price the the the money good thing to do is for people to basically buy that equity to basically bleed into the acquisition process i get all that yeah yeah wow the fact that that it didn't move at all in my opinion is a concerted belief that the board is going to reject the offer god even if there was another offer and and what they didn't want to do is buy the stock at 50 have the thing all of a sudden get announced as you know we're not going to take it elon dumps his shares all the people that bought the stock at 50 hoping it'll go to 54 would all of a sudden lose a lot of money because the stock would instead be at 34. so the fact that the stock basically didn't move is essentially the market's way of voting this is a head fake we you should take the offer the board's not going to and the stock's going to tank back to its other its original price my prediction is the board uh tries to fight it stock collapses nobody thinks it's going to get done elon lowers his offer and he wins it by the end of the year and gives him a lower offer you didn't like check out always with the opportunity now we're going 49. that's very michael corleone yeah now the offer is 49. and it goes down two dollars every quarter until you guys acquiesce the end it's trading at 30. i lower my offer jason if you want to if you want to just finish with this little code of the the the revlon story it was actually kind of cool forsman little comes in to try to basically give like a white night bid and what ronald perlman did was basically say i'm just gonna you know top tick every bid he he was pretty baller he's like i'm gonna top kick every bit so horstman would be at 51 and then you know peroma would be at 51.50 they would go to 54. 55 you know and and so he was always and he exhausted forestman little and eventually they just threw their hands up they said we can't we can't do this anymore yeah i want to i want to make a couple of movie recommendations real quick because i i tweeted a couple of things there the gate there's barbarians at the gate and wall street and you know i tweet these things and they get no likes so i think people just don't watch old movies came out they came out in the 1980s movie club is one of the all-time great movies probably the best movie a business has ever been made all of our stuff you're saying wall street is yes wall street is marginal is pretty good i really like margin call but yeah i agree barbarians at the gate was better booked was it was a tv movie with james gardner it was good yeah it's worth watching the book is excellent the book is focused next level i gotta go eat lunch everybody love you besties love you guys back at you hey everybody we decided to split this epic episode into two parts one two parts so we get you all the elon twitter discussion out as soon as possible for your friday night viewing pleasure stay tuned for episode 76.5 this part two coming out in just a few hours we're going to talk about the global food crisis china's plan for food storage geopolitics including the french election and we got a bunch of all in summit talk everything is heating up so stick with us [Music] and they've just gone crazy [Music] besties [Music] your feet need to get back [Music]








all right what oh I'm doing this again all right listen it's a two-parter you listen to the first part now this is the second part episode 76.5 if you will this is our first ever two-parter part two of our two-parter you already listened to part one of episode 76 that's Elon and Twitter lots of details there and now we're gonna cover some more topics including the global food crisis China's plan to stockpile a bunch of food geopolitics while Around the Horn French election Germany Etc and then we'll go into details about a little bit of the drama and details pageanty parties poker all the good stuff of the all-in summon coming soon okay enjoy the show everybody [Music] [Music] there's uh still a war raging but uh I wanted to get an update from Friedberg on the food crisis which he um predicted very early for a lot further fertilizer prices are still climbing like crazy there's been some food rioting in China which I think is a separate issue Hill educate us in a minute Sri Lanka so what is your theory of what we're going to do from here Friedberg because I think we're all waiting for this shoe to drop and I think you predicted this is something that we would experience into the fall and into next year so when are we going to actually see these food riots occurring and then as China's food rights have anything to do with this or does that have to do with a yeah I would put the Chinese food riots as kind of a separate localized supply chain problem related to the lockdowns got it but we're definitely uh you know I think I mentioned last week the USDA planting report showing in the U.S how acreage is being reduced on corn and and and we're seeing this around the world where acres are coming out of production or less fertilizers being used which means Less Foods being made so everything that we predicted I mean this is a slow train a Titanic into the iceberg that we're watching right now and it's going to continue for nine to 18 months so you know one of the questions that people are now asking which I said you know would become a really critical next step in this crisis is how are we going to bridge the gap in calories where is the food going to come from and how are we going to feed Nations that are almost entirely dependent on Imports that are running out of food or out of food so I've mentioned this in the past the whole world runs on a 90-day food supply which means roughly 25 percent of the world's calories are in storage right now but that's not the case uniformly so some countries like Tunisia and Somalia Ethiopia have close to zero calories in storage some countries um like uh the United States are roughly you know 30 40 percent of our you know annual consumed calories are sitting in storage China is a complete outlier for yours China has been stockpiling food and at this point china has a hundred and fifty percent of their annual consumption of food in storage so they have supplies that if all food production and imports stopped in China they would be able to feed their population for one and a half years that's an incredible supply of food so as you look around the world to places like Sri Lanka and places like like Somalia that are struggling to figure out how are we going to bridge this gap on calories that's about to hit us Egypt's about four months of food by the way and Egypt is dwindling they cannot get the food um Out of the Black Sea so China is going to be one of the very few potential solutions for Bridging the calorie Gap over the next year and I have a strong prediction and a strong belief that because of that China will use it to maximal leverage and we will see over the next year an incredible amount of Leverage and power being accumulated by China because of transactions that they're going to start to enter into to bridge the calorie Gap around the world so in the Horn of Africa for example there has been this continuous presence of China trying to give themselves a military base trying to take a um some influence over local media and there's been this kind of push and pull with the you know certain populations around whether or not we should kind of embrace China locally and I think that for example the the food crisis that we're seeing emerge in Ethiopia Somalia Eritrea Djibouti is going to be resolved by China and China is going to end up gaining influence gaining military presence and establishing a more permanent foothold in the Horn of Africa because of the position that they're in of strength with all these calories and the and the need in these regions that's not just there Sri Lanka other parts of Southeast Asia even Western Africa Northern Africa China is going to show up and they're the only country that can show up the U.N the world food program they're going to do everything they can to shuffle calories around change Food Supplies but I do think that one of the things that everyone's going to be watching and it's it's a slow roll this isn't going to be some one big deal and everyone wakes up over the next year while the U.S is you know trying to do everything we can to maximally imposed sanctions on Russia China is slowly turning the crank around the world on the influence that they are going to gain because of this food crisis and the absolute um uh you know Surplus that they have locally and the ability to export that Surplus to support needs around the world and it's not going to be free it's not going to be cheap so I thought it was worth highlighting what we're seeing and I shared a couple of articles with you guys and with Nick articles that no one is paying attention to and this isn't some conspiratorial oh my God there's some dangerous thing happening I'm just pointing out one of the things that's happening as we talk about you know the great change in power the shift in power globally that's happening it is happening in a very significant way this year given the Surplus that China has the dirt that many countries have and the inability for the U.S to really adequately respond to the food crisis that that's emerging um and so I thought it was worth bringing to everyone's attention there's a lot of little articles that support this point I shared them with you guys you guys can put them in the show notes and and put them up on YouTube and whatever um but I think this is going to become a macro Trend that we're going to wake up to in six to nine months and be like whoa what the heck happened you know how how did China get so much leverage around the world and it's it's starting now that's what happens with every war you know we all we go in hot you know we it's you know raw raw we're all gung-ho and then at some point in time we're like wait a second why do we do that you know and you know and look there's no shortage of of neocons and liberal interventionists who are all saying this war is wonderful for us because it's reunited the American Alliance and the Western Alliance and that this has been this war is a good thing for us let's keep it going let's bleed Russia let's topple Putin let's deep stabilizer regime they're in favor of protracted conflict that I've been you know warning against and what Friedberg is saying is the longer this conflict goes on the more of these disaster scenarios are going to materialize what are you what is your take on how crippled Putin is right now David just objectively and again you're not a fan of Putin is the ship like I mean this does not look good for him um it feels like he can't and he's losing all his tanks I mean this seems like I don't know anything you don't know in terms of you know I'm just a consumer of information but I tend to think that we are overly optimistic in the west and look the war's clearly gone very bad for Putin but this idea that everything that magically we're going to get regime change in Moscow we're gonna get Gorbachev 2.0 that that is that is an objective worth protracting this war for uh I tend to think it's going to be a mistake I mean that that's now doesn't mean I support Russia's Invasion I've said it's illegal it's a crime it's a violation of international law it's a humanitarian disaster but what I've supported is a is a uh negotiated piece a settlement that we try to get as quickly as possible that is clearly not the administration's position on this they want to keep this thing going and you know this idea that that a long war is good for America's alliances I would disagree with that because you're already seeing all over the world now people are starting to object to American policy you saw it with India and India is the world's largest democracy they should be on our side they definitely should not be on China's side because they have a huge they're not late intention but China and India are both de facto on Russia Asylum than this Africa and large parts of Latin America India would like to have oil they would like to maintain their relationship with Russia and they did not support the denunciation of Russia they would like to see this conflict and large parts of Africa would like to see it end Latin America basically all the victims uh if there's a famine in the world in six months like Friedberg is saying they are all very worried about this all of them have expressed concern with the American policy which seems to be to protract this war okay Freeburg you have to go do your talk at Berkeley congratulations and we'll see you next time thanks for the contribution Tremont any thoughts on the um CPI we set a record that seemed to have gotten lost in the the haze of Twitter I learned something really interesting that I just wanted to share with you guys um so there was a big CPI print obviously but there was a report probably not many people read it but it was about uh home equity and the takeaway was that since 2020 Americans have taken to 430 I think the exact number is 427. 427 billion dollars of home equity out of their homes and effectively spent it so what it what it started to make me think about was if you look at all of that home equity plus the stemi checks plus the unemployment insurance checks that starts to explain I think why the labor markets are so tight and why people haven't gone back to work they are just no motivation because there's just so much money sloshing around for them to basically not have to be forced to do any of this stuff that they don't want to anymore and I think the the thing to keep in mind is like that's also what's gone into the stock market it's also what's Driven up the price of used cars new cars all of the stuff I just think that kind of like starts to paint a picture of CPI that's really important which is that it's probably a little bit more transitory than we may actually think because when you exhaust all of that extra money there's not as much inflation to be had and I think most people are now forecasting that inflation is really going to taper off and the big warning sign that everybody is sort of you know marching towards is you know too many excessive rate hikes between now and the end of the year could actually push us into a real recession and we were talking about that before but the probability is now sort of like one in three whereas before I think you know David and I sounded a little bit crazy when we were talking about it so I just wanted to put that out there as something I learned this week that I thought was really important participation rate peaked at 67 68 percent but half a trillion dollars I mean half a trillion dollars of actual spending in the economy that's a ton of money to be absorbed right if people have a couple of hundred grand in their bank account who own homes or whatever there's no need to go back to a job and if you don't feel safe because you maybe still have some coveted fears you don't want to commute or you're just out of the Rhythm for two years and you're like I'm kind of enjoying skiing or whatever you're doing whatever your jam is maybe there's no there's no rush to get back you'll wait until you you'll wait until you exhaust all of that yeah this is a this is and then we're not as we talked about we're not letting people into the country at the same time so you still have 10 million job openings if that flips that would be economic activity that would be helpful in flighting fighting against a recession correct I mean I I think that that we're probably going to have a a quarter or two contraction it's probably going to happen sort of at the late end of this year beginning of next year just the real question is how how high are rates between now and then and again I think the setup isn't very good which is that the investors in the stock market are playing chicken with the fed and you know they're just at the beginning of a rate cycle and they haven't been able to impact any real forms of liquidity in the equity Market and so I think they're gonna they're going to attack that and the only blunt force instrument they have is rates and so you know you could see rates of three three and a half percent and that's going to impact a lot of stuff and the problem is that you know uh it's going to be after the economy has slowed down because it's going to be after a lot of these you know fake savings if you will um have been depleted yeah well we're seeing some pressure come off as well the car shortage is kind of ending and wages have raised so that it seems like they're in in this you know Confluence of events certain things are starting to work themselves out are you hey can I tell you something else I was I was in Washington uh this week the number of people that listen to our pod it is incredible people in Washington care about our views on politics it's incredible I've heard that feedback too yeah it's really really really special we've we've stumbled into something pretty cool and the fact that it's like must it's it's it's uh it's must listening it's must listen it's like a Sunday weekly show you just get a different perspective from the tech sector and capital allocators that maybe you don't get on us you know beat the press or something yeah but just to follow up on that inflation point the economic Point Jason if I can so please so look the main reason inflation is going to go down in the second half of this year is because inflation is measured on a year-over-year basis and you remember about a year ago is when inflation started but you know around this time last year inflation was only two and a half percent then it reached five percent by the summer then by the end of the year was almost eight percent so as we sort of lap last year's inflation rate we come up against you know you're copying against uh 7.8 number last year so I don't think inflation's going to get any better we're probably looking at roughly a 12 percent you know official two-year inflation number so in other words since Biden took over as president you're looking at probably 12 to 13 percent of total inflation as measured by CPI and that is why even though the headline number will come down later this year I don't think the American people are going to feel any better about the situation you can almost predict that gen sake or whoever replaces her at the podium at the White House briefing room they're going to be touting these lower inflation numbers at the end of the year but it doesn't mean price levels will have decreased prices will still be very high when people go to the grocery store they buy meat or bread or what have you it's going to be very expensive and I don't think people are going to be feeling better off and there's going to be a lot of negativity going into the November election for this Administration and also I think it's going to impact consumption I mean if you're going to a gas station and you I mean I drove the minivan to LA and it's the only electric it's only non-electric car we have we happen to drive it because we had a number of people that was bigger than the X and uh it was like shocking to buy seven dollar gasoline and obviously I can uh would stand you know filling up but I could see people saying you know what maybe I'm not going to make that incremental trip or you know you start looking at some of the prices yeah you know for taking a trip or flights I don't know if you've looked at flights or hotels like things are starting to creep up that it's like super noticeable and that's got to affect consumption and then that what would be what would be part of those negative two quarters right shamath I mean the role of people stopping consuming and just saying you know what yeah it's too expensive right now just I'll stay at home and watch Netflix [ __ ] it you know I'll cook pasta tonight you see that happening already yeah people are starting to balance the balance sheet just looking at the balance sheet and saying you know what what's a way I can you know cut some expensive items off the you know I'll ride a bike they're going to take less travel because you know the cost of airline tickets have gone up because the cost of the jet fuel has gone up it all it all ripples through the economy um but I think the thing is that when when the FED gets involved though they get involved in you know in a Brute Force way let me make a prediction right now if we're we're definitely headed into an economic slowdown I don't know if it will meet the technical definition of recession but very high negative quarters of growth yeah you know very high chance I think of recession like jamas said towards the end of the year if this war is still going on and we get in a recession Look Out Below I think this President will be in Jimmy Carter territory he began the year at 38 that was in reasonably good conditions of Peace time if you know and I tweeted at the beginning of the year in January I said that you know this is you know you're at 38 that's with peace and prosperity Look Out Below if we get recession and War that's what it's looking like right now so um you know I think this is things are looking pretty pretty dire which is why I keep saying it you know the policy this Administration should be to try and find a settlement to the situation in Ukraine to this War I know that we didn't start it Putin started it let's be clear but if there's an off-ramp here we should be seizing it because we got real problems back home in America and the administration should be focused on our economy and our problems Europe is going to be the canary in the coal mine on all of this because I think they feel this uh pretty severely and I think there's a a lot of exhaustion amongst European governments and leaders when you start to listen to this rhetoric to kind of you know find a way to end what's going on over there because the they're gonna see a pretty meaningful recession I think yeah absolutely much more much more so than we will yeah and if you look if you look right now what's happening in France Marine Le Pen is surging unbelievable against macron I don't know if she's going to pull off the upset but one of the major pillars well actually here's what she's running on she is saying that she has been focused on inflation and cost of living and she says macron has been distracted by being America's basically lap dog puppet whatever on Ukraine so she's saying we need to focus on the French economy and she's also saying that we as France should set our own follower policy and not be so differential to the U.S she says that this protracted war in Ukraine and all this hot rhetoric coming out of the bite Administration about war crimes and destabilizing Putin and toppling him and putting him on trial at the hay that is not in French interest that's what the Americans want to do but it's not what we should be wanting to do we need to end this war and I'm not ready to say she's going to pull off the upside yet but she is clearly articulating that message because she is finding purchase with the French electorate based on that message and you're going to hear that if this war continues for three months and six months and Europe goes into recession you're going to start hearing uh politicians all over the European continent saying the same thing and questioning American leadership and why are they are dragging this thing out the the thing that's the scariest thing about the French election and I'm not sure how many Americans uh paid attention to it but just to maybe summarize in a very quick nutshell you actually had this really interesting Dynamic of three candidates one was what would be considered far left uh Jean-Luc Menasha one far right marrying Le Pen and then one that was very Centrist Emmanuel Metro and what's crazy is both of these two were you know 22 plus percent of all of the votes it was just that Le Pen and macron were one and two and so they go into a runoff election and you know malshawn was very clear he was like under no circumstance should any of my supporters vote for Le Pen but it just shows you what's happening which is like France which is you know sort of coming undone under this populist fight um is probably uh a canary in the coal mine for how this stuff could play out in other places and it's kind of scary it'd be interesting to see what happens in Germany as well as they look at this enabling of they were able to hold the line they you know they still have a center right government but you know in Austria for a while that wasn't the case in Hungary it's not really the case um so there's a lot of countries at least in the Eastern Bloc of of Europe where you've you've seen a tip in One Direction or the other um it's not unreasonable to think of that in France it could tip in One Direction or the other fortunately in the UK or unfortunately however you look at it it's still really a two-party system um for the most part I think so I don't know we're in a really uh precarious moment in world history I think yeah by the way I want to talk about one thing that I talked at the end of last year I talked about just a very random thing um about you know uh visa and MasterCard and how you could short them um or you know like basically like the payment networks we're gonna start to get you know dismantled this year it's really interesting to see I don't know if you guys have been really paying attention to all the activity that's been happening in payments over like the last literally 90 days I think has been really incredible up into you know just today you know visa and MasterCard I think are doing the single dumbest thing they could do by being a duopoly which is Raising prices especially into an inflationary moment which just lacks complete knowledge and sensitivity of the moment so damp economic activity but also creates the incentives for disruption sure right because then the gap between you and your next Killer's competitor becomes more obvious and again in capitalism you compete away these advantages and I just think that uh the setup is becoming more and more obvious for the shift in payments I just think it's quite interesting so Dick Durbin actually today basically is going to create a big you know hubbub in the Senate around these increasing Merchant fees which will eventually spill over to Consumers there's some talk that you know uh I I what is it called zelly uh is that how you pronounce it zelly the the the the the inner Bank payment system people were talking about them converting that to becoming a more substantive payment system and then this week I was able to see a little bit under the hood of you know Solana pay and that's really exciting so it's all coming I think like uh it's like a swarm of activity uh to dismantle these payments businesses I just wanted to just give the 90-day update from our from our discussion in January all right everybody uh we will see you may 15th 16th and 17th in Miami for the first all in Summit now sold out no more tickets available there's a waitlist but we're not going to be able to get to anybody on it sorry you can sign up and we'll make sure you know about next year if there is a next year this might be a one and done kind of situation three amazing parties Sunday night is our poker tournament for charity the top uh it's gonna be a sit and go format if you win your sit and go you go into a sit and go bake off and then you get to sit at the final table with the four besties the winners are going to get to make a donation to the charity of their choice uh paid for by the besties and Sunday night's party will be the Goodfellas party Monday is going to be the Havana White Party bring your linen sacks I know you got a whole closet fall down there and then uh Tuesday night's our Miami Vice party here are the mock-ups this is the first time I'm seeing it yeah it's a little reveal there's a lot of work the copy I didn't write we're workshopping it it's just we we got a little uh what do they call that like a mood board it's a little bit of a mood board here is your wet your beaks party for Sunday night it's gonna be a good Fellas theme should be a lot of fun it looks like Good Fellas it looks like Goodfellas we're gonna keep working on it uh wet your Beats probably not gonna be the name of your party but that's Sunday night and then next up is our Havana White Party despite all the [ __ ] you take uh you do such a good job with this [ __ ] thank you and then we're going to have this this social club I apologize but I think this is complete dog [ __ ] this one the first one supposed to be Buenavista Social Club you're just a heathe and you never saw that the first one is so good this is horrendous well I don't even know what is this picture of but it's it's a it's a theme on the Buena Vista Social Club it's it's not the right image but we're workshopping it like I said but yeah that's gonna be a Havana White Party everybody's gonna wear linens on Monday night and that's going to be at a beautiful space like I said this is just a designer coming up with ideas and then of course we're gonna have our Miami Vice we're going to rent a couple of um oh that are like Miami Ventures and so that we are and so that should be our at 420 Bitcoin Street your best 80s dress for Miami Venture so it's gonna be three parties that is uh that's hot I think it's gonna be uh three great parties you have to but everybody's gonna have to get three great outfits so linens are easy Monday night Jake out your your thighs look really big in this photo well this is fat Jay cow this is not 167 Jacob this is 198 Jayco on your left leg you can't tell where your bottom part of the leg stops because I'm sitting in a stool in that picture they got but yeah but it's like you have no knee it's just like one big shank like yeah well you know what it's when you're fat and you got fat suits you know everything's listen I'm looking at pictures of myself why didn't you guys fat shame me more that's the question I have you guys should have been good you really look incredible and then yesterday when I saw you I was like holy [ __ ] this guy looks really fantastic look there's no knee there it's just there's no name it's like a snake it's like big shank you know what when you're a fat guy you get fat suits you just try to you know and now I'm having to rebound look at that fat face zoom out oh my God zoom out zoom out look terrible flat hair looking nice no you look good I look fabulous let's go with this one let's go with this you look great yeah we're gonna redo mine I want all the photos done of Vin Jay cow for the inspiration don't no double chin what are you doing you work for me okay where's my neck now I got a neck again I found my neck everybody there you have it folks so uh I'm sorry if you did not get into the all in Summit but we've got a great lineup of speakers and events planned no press because well we have the same distribution but we will the Press will be able to see all the talks so all the talks will come out post event on the all-in feed so for the 10 days after the island feed you're going to get a show every day and who are our confirmed speakers at this point oh my Lord so many good ones hold on let me pull it up here Keith of a boy Palmer lucky is coming uh oh good so that's confirmed that's awesome yeah we got that confirmed he's a big fan of Saxy Pooh the new website's up by the way and it looks beautiful wow look at this so we have uh Ryan Peterson uh Nate silver Brad gerstner uh Claire uh vickel who is amazing uh Mar hershon Palmer lucky Keith raboy Joe Lawrence oh you got Antonio to want to speak Antonio is now coming out of a shell Antonio Garcia Martinez you should get um we should get some foreign policy folks too I mean well if you guys wanted to do any [ __ ] work you could help me out here I thought this was just a grift you were doing I didn't know it was serious now I mean I may have to help yeah no you're going to be proud of this well here's the thing that I'm going to be most proud of is the format I have come up with a new concept of a format I came up with a theme question that people can choose to answer or not but the problem I want to solve and it could be the problem I most want to solve it could be the problem I want to see solve the problem I'm thinking about people will go up in most cases and give a 10 to 20 minute call it a Ted style talk a solo dolo talk where they kind of talk about what they're working on in their lives then they come and sit in a chair with two besties on either side and then the four of us engage them in a conversation while we're talking we're gonna have maybe five slides that producers will put together of data points Etc so we all get educated we pull up the slide and then there'll be you know 600 people in the auditorium 100 people in the simulcast room we will take one question from the audience or two questions if we have time with each segment and so you're going to get a lot of bestie action but stimulated by bestie guesty positions and I think this is really what folks want now if somebody doesn't want to give one let's say Palmer just wants to talk well we'll just talk with Palmer um and so there's going to be an option I told people you could your position paper your position statement could be five minutes it could be twenty so I want to do something on uh natural resource scarcity and National Security so uh Jim latinski the CEO of MP materials a H you just all you got to do is email me the person's email address or introduce me and we'll set it up so we'll we'll do something on like the supply chain of like Rare Earth and lithium nickel and so and then here's my other idea so I I told everybody that the problem I'd like to solve there is energy Independence for America perfect so then do I still need to email you now just a moment but here's the thing we're doing I told that I just I just told you the yeah we have Nick we'll take a note yeah um to remind you um to get the email addressed here's what's gonna happen so you don't need me to email you uh I mean we don't want to guess the email if you have it and you know them I mean I know you want to do the least amount of work but I need to get a producer's fee here I don't know you guys got to outvote Freeburg putting that aside I'm fine with that too thank you then three because that's how all in media is working now it's just going to be votes well why don't you sign the LLC agreement did anybody sign it yet I was going to review it can poison pill freeberg put in there but I'm not signing this [ __ ] till I have two lawyers look at all the Freebirds got a poison pill in there I don't know about you guys but I just signed any random DocuSign you know I wanna speak you know here we go in the last 30 days yeah so I'd like to get I'd like to get professor John meersheimer to speak he's uh that'd be great yeah he's a professor at the University of Chicago he's been there 40 years he's the leading he's a leading theorist you could say of the school of thought called realism oh yeah and foreign policy and he has a track record of being right about all of America's foreign policies right yeah so he's the guy who talked about it exactly what do they call that the mono dual try more nucleosis multipolar you're beautiful he has a critique he has a critique of liberal interventionism which has been the dominant fantastic foreign policy since the end of the Cold War it's what got us into Iraq Afghanistan Syria Libya he predicted all those things to be fiascos he also predicted that our policy of constructive engagement towards China would ultimately backfire and be a disaster and he has a very contrarian critique right now of our policy in Ukraine that's gone viral yes on Twitter and it's gotten like 10 million plus views he'd be an incredible person to to come speak well here's what's happened while we invite people you know we we invite some people they don't know the shall we knew other people and they're like oh my God I love the show I'm there what's going to be interesting is the next 30 days we're going to talk to each person about what they what topic they really want to you know double click on and then we get a pair people so you might have teeth for a boy and Antonio you know you might have Tim Urban and Joe Lonsdale ever and so hopefully we can find a little Dynamic maybe people don't agree maybe they have you know opposite positions and then we're going to then have this great Socratic dialogue with everybody and I think it's going to be a very fast paced type thing and then hopefully the speakers sit in the VIP area and then I'm going to have a runner there with a microphone or I might do it myself so you know I might have Keith for boy on in the morning in the afternoon he might want to chime in on Joe lonsdale's talk I run up to him with a microphone Etc so we got probably we're gonna do two hours in the morning three hours in the afternoon so it's 10 to 12 so you can sleep in or come for coffee if we stay late playing poker every night it's going to be a gentle wake up 12 to 2 is a nice lunch healthy three to five nice con I'm sorry two to five three hours of nice content then you get a little break you go to the parties at the end of the parties you never know a poker table or two might be pulled out and we play a little cash game who knows anything's possible so poker could be all three nights I don't know you know this depends on the degeneracy level um but I think it's gonna be a fun time I'm just asking nobody go ham on Sunday or Monday night please Tuesday night you wanna have a little extra curricula you want to go a little late Davey that's fine I want everybody in bed by midnight Sunday night Monday night no crazy all right so what are the dates to sing again okay it's Sunday Monday Tuesday Sunday Monday of what of what uh May 15 16 17. okay oh my God oh my God oh my God what a [ __ ] show so many speakers out there it's in a month it isn't yes that's why I'm busting my ass on this okay uh Jake All I'm gonna introduce you to letinski so we can uh and if anybody we could use a couple more female speakers people of color I'm really trying to keep it diverse and have a lot of range of speakers a lot of uh David Stan said yes early you got the Joe Lonsdale should get Keith or boys they all like want to support David's team I could use a couple people maybe with the posing viewpoints so we're trying to keep it a little white Bari Weiss may come we're trying to work on bar oh that's good yeah we should go we can't make it I wanted to have Bari and Kara Swisher it doesn't seem like that oil and vinegar is going to happen can we uh can we get Glenn Greenwald but that's right right you're getting you're getting further further to the road what I would like to have is somebody that's another kind of right guy I would like your definitions off Jason these definitions don't mean anything anymore okay they're independent critical thinkers they originally came from the left they're not like huge fans of unbridled capitalism but they're more on the populist side I would appreciate it particularly Peter Thiel who's the you're the one person who can deliver it since you guys are besties bring us Peter Thiel the guy spoke at a goddamn all right give me give me a list I'll invite Glenn I'll invite taibi I'll invite Peter oh great audience we could have a protest outside these are the most interesting people exactly Peter teal is the most interesting for sure I like Mike taibi actually I'll give you that here's the problem here's the problem here's the problem with getting the people on the other side is that the people on the other side again it's not right versus left anymore it's sort of populist versus elitist and you already know what all the elitists are going to say and they're too afraid to be on stage with people on the other side but I mean I think that you're associated with Peter Thiel it is a little bit charged and triggering for certain people that's huh yeah exactly that's why they don't they don't believe me I mean that's they don't I mean people are like how could you be friends with David I'm like because we love each other we're friends like we're besties and they're like well but you disagree it's contamination by association but that's okay that's I mean David that's what they're trying to do to me right now I'm getting the back Channel how could you do this with David sacks and I'm like because he's my best friend that's why that is popular is we have four people who are friends who sometimes disagree with each other the reason you can't create the show any more friends right I'm not giving up my friendship with David the reason you can't create the show anywhere else is because those people think they get contaminated if they even have a conversation with somebody on the other side of things but you don't get that on your side correct you and saying because we're in electricity we're intellectually confident we don't believe in shutting down the debate right we believe in free speech the other side they're authoritarian yes because they can't defend anything they just cancel people they've lost the art of persuasion I think they've given up their position would be they've given up trying to reach you you just don't get it they've given up trying to reach you and I'm like don't give up put up a fight if you disagree with saxophone it's not about reaching me it's about reaching all of them yes all the people out there watch the debate they don't want to engage the baby because they can't win the debate because they don't know how to pursue is cancel people and I own you half the time okay if he's good I think so January 6th we're gonna release the January 16th tape you're like MSNBC that's all you got we'll let your winners ride rain man we open source it to the fans and they've just gone crazy [Music] besties [Music] it's like this like sexual tension that they just need to release them out there we need to get Mercies [Music]








brian armstrong what's up bro what's up how are you good to see you it's good to see you as well yeah jason just pinged me yesterday and he's like why don't you just come on as a guest randomly and i was like okay great let's do it it's so good i'm really excited to hear what j cal's intro is for you oh man yeah you guys keep you keep getting watered on this ride [Music] [Music] hey everybody welcome to episode 77 of the all in podcast less than 30 days for the sold out all in summit and uh there's a wait list but uh sadly i don't think we're gonna get to anybody on the wait list we've got a great great episode for you i thought i'd bring a bestie guestie in but not tell my bestie so we'll see if they can figure out who's coming on the pod today uh but let's get the intros over with he's investing in sas at different stages coming off a miami bender for the ages doing shots with her boy and vanilla ice the rayman is back he's twice as nice david sacks everybody how are you sir how was your adventures uh with vanilla ice yeah i'm still here you're still here and so vanilla ice uh that costs sixteen hundred dollars to get him to show up what is cost to show up for a party that's about 10k i think it's about 10 to 20. no a little bit more really a little more and did you go on stage and do ice ice baby with him i didn't but uh there's some like teenage mutant ninja turtles type dancing around with him whatever it was interesting it was interesting people liked it it was fun it was fun oh very nice very nice and you're still in miami for uh whatever tech week okay so he won't eat your meat but i'll take your mdma he's very interested in your dna when he's in the lab he's in heaven he hasn't been the same since that rave in 1997 the lord of the laboratory the sultan of science david freeburg how are you sir that was my favorite one i like that one yeah you peaked in 97 yeah at about 2am you were peaking at about 2 a.m did you say he doesn't want your meat but he wants your mdma yes he wouldn't eat your meat but you shout out to uh producer nick who really crushed it this week ah his bank this one is too funny it's hard to keep it together for these sometimes this bank account would make a crown prince jealous his knitwork collection is overzealous when he's on cnbc he makes a scene the last time he did leg day was 2019. the supreme leader of spock's the dictator himself i've been actually spending a lot of time working out on my legs really i have been working on shoulders and chest and my legs have always been diesel i will be doing a shirt off selfie this summer jkl it looks like you have not uh bought new shirts since you lost all the weight because that shirt looks about five sides too big i bought this one halfway through the weight loss and now it's still too big so i got another slimmer i got the slim fit no i got the normal fit and then i got the slim fit from peak to now you've lost what like 50 pounds 213 pounds was my peak like four years ago and i was 167 168 the other day yeah so whatever that is 45 pounds it's awesome something i feel incredible i started running again and you know i did 40 days of skiing this year and i'm gonna take up kite surfing i think this summer i want another sport to do you know in the summers are the people around you annoyed at your increased energy levels yes people who work for me are annoyed uh i'm sleeping better uh everything's just going better i highly recommend everybody you know just try to lose some weight a lot of options out there for you including munique all right we have a very special bestie guestie today he's a lean mean crypto machine who sort of looks like mr clean if you need some tokens you know who to call satoshi has his picture hanging on his wall his nft game is never lacking if you talk about politics at work he might send you packing the king of coins the tycoon of tokens who is he brian armstrong riot armstrong armstrong you guys got it brian armstrong's with us hey brian how are you what's up y'all you could have gone vitalik uh at the first part but we became brian by the office part anyway welcome to the show brian uh we've obviously talked about you a whole bunch and you've been on this week in startups and i think you know while the fell is here uh but thanks for for joining the pod thanks for having me this is awesome i i listen to your show every week oh thanks for that so i guess you know the the topic we all have talked about a whole bunch is um work and keeping people focused at work you took a very bold step which toby at chopin i think followed and you said listen if you're coming to work our mission is crypto can we stop talking about every other thing in the world and and just stay focused on that and i think that was maybe was that a year and a half ago you did that everybody wants to know uh how that worked out for the company so maybe you could tell us what it was like to go through that because i mean you were a target for for a period of time we all thought seems reasonable and then how has that actually impacted day-to-day life for the people who decided to opt into working at a single focused coinbase yeah so i would say you know short term it was quite a painful transition i think it created a lot of consternation there was you know some folks in the media decided to go call a bunch of people who left the company and you know write hit pieces and all that kind of thing and frankly you know about five percent of the company opted into the exit taxes package so there was some teams that were short-handed a lot of people had to work extra time to fill in the gaps but long term i think it turned out to be an incredibly positive decision for the company i do think there's a lot of companies in silicon valley right now and probably elsewhere is that you know the ceos and the management team almost feel like they're being held hostage by the employees and i feel for some of these organizations you know sundar probably has an incredibly difficult job right now we saw that that video from microsoft i think last year with with satya and kind of was with people talking about their hair color and stuff and they don't feel like that they can really lean in and move the company in the direction they want and they're they're fearful of kind of all these internal dynamics so you know i think there's probably a better way to do it than what i did which is if you're starting a company today just make that clear up front i didn't make it clear up front and so the company culture started to diverge and drift and i had to kind of realign it which was which was a painful process if if i was doing it over again i'd probably just set that as the expectation up front and then there wouldn't be this you know public awkward realignment but yeah i think i'm i'm really glad that i did it i think coinbase has been very productive since then and we've been able to attract a lot of the best and brightest people from some of these other companies that are like i don't want to be in those companies anymore i want to work at a company where we just focus on the work and the mission because that's actually important so i'd say it's been positive brian i've always talked about this as being like the difference between a hard culture and a soft culture where hard cultures are companies that really define what they do and what they don't do and what they spend time on and what they don't spend time on and sometimes what you don't spend time on can relate to products sometimes it can relate to things outside or externalities to the business do you think that that's become kind of a trend where you know soft culture in silicon valley is more about like appeasing a very fickle employee base and as a result you kind of aren't as clear about what you're not going to talk about and are going to talk about and suddenly the troops rule the day and things get kind of sidetracked and productivity goes down i mean can you talk a little bit about what you've seen you know with other cultures around the valley and how that's kind of affecting work and what employees are choosing to go to and not go to yeah so i think you know ben horowitz always talked about like wartime ceo peacetime ceo and frankly you know i'm kind of a conflict avoidant person right i never thought of myself as like wartime ceo we're just like we're all going in this direction let's go go go you know i never really thought of myself like that but i think what i'm trying to do now is find the happy medium between these two so you the company should have a really ambitious mission and then i think you as a ceo you do have to say no to things which are off track from that you do have to part ways with people who are not helping raise the talent bar in the company and so in some ways you have to be i guess hard in that sense but i don't think it's it's not like you know we're only here to make money and it's like it's bonus time or you're out or whatever it's like we actually have a much softer culture than that i think in silicon valley which is most of the missions of these companies are trying to do great humanitarian efforts and they're trying to improve the biggest problems in the world and so people sign up for those because they want to have a real impact and you know we take time to like go for exec off sites and we walk in nature and you know we have like coaching we do all this touchy-feely stuff so i think it's kind of a mix of both is the right balance i don't think of myself as like you know a wall street hedge fund or like the most touchy-feely culture you can imagine why do you think companies now have sort of veered into this place where they have to kind of appease these fringes on either side did you spend time trying to figure out like how did we evolve there from just being mission focused to having to deal with all this other stuff yeah i mean one theory i have on this is that in silicon valley especially pre-pandemic we were all it was so competitive to get talent right you know google and facebook they were just kind of one-upping each other on like higher and higher salaries and so i i know as a ceo of a company that was rising at that time i felt incredible scarcity like i had people leave to get out who got better offers and it was like a real issue and so i was doing anything i could to retain people and keep them and so if if an employee said hey i want you know another flavor of water in the kitchen or whatever i was like okay maybe we should do it right but i think you know during the pandemic we removed we moved to remote first as a culture the the talent like the talent we could get opened up by 100x of people all over the world who were really hungry and like frankly thankful for these jobs and that actually changed the scarcity mindset a little bit to say hey you know if you don't want to be here that's fine we can we have other people we can go recruit and hire in who really are going to value it that's probably just one piece of it it's a much more complex issue than that i think one other one other thing is that you know like google and facebook i think kind of made this a common trend in the valley where companies would host these open mic q and a's on every friday or every two weeks or whatever and it was almost like a town hall it felt like a democracy right and in a democracy like the leader you know works for the people they're elected by the people um but what got very awkward was at these open mic q as it became you know this kind of like hostile thing of like how can we make the person squirm and let's ask them these difficult societal issue questions that aren't actually related to the company and what we're all building and you know i think that was actually a mistake in silicon valley we've since gotten rid of these open mic q as because it really encourages people i'd say one we were like 150 200 people everyone was on the same page everyone was asking good questions once we got to like 500 700 people it started to feel like there was a little bit of an us versus them and then you know the questions got very off track and i i realized at a certain point this is not a democracy i want everyone's input i'm not going to rule like with an iron fist but ultimately you know i'm the ceo i need i need to help guide this company in one direction and force the hard decisions not everyone's going to like them so we're not going to allow people to do grandstanding open mic stuff there's just a little bit of a risk for that you know 99 of people don't do it but even one person does it and it kind of creates the snowball effect so we got rid of the open mics people can still submit questions but they're there nobody else can see them we read them ahead of the q a and if there's a good theme in the questions we address it but you can't like grandstand with an open mic i saw this um so it was in twitter nick maybe you can find it but it was like this general that had commanded all of these different battalions and he was talking about what it was like in all the different theaters in which he's operated and he basically said you know eighty percent of the men and women that served for me were just absolutely incredible you could always rely on them a hundred percent of the time they were a hundred percent aligned and then he said there was fifteen percent that was wishy-washy and what they were looking for was how you managed and dealt with the five percent and the five percent of folks were always trying to push the boundaries and try to figure out where the escape valve was or where the exception was or you know whether they would be grandstanding or whether they tried to break a rule and he said his entire energy was focused on keeping those folks extremely focused and on point or out because that was what solved for the fifteen percent because the 80 would be fine but if you didn't deal with the 5 the 15 would go crazy and then the 80 would get dejected and it just kind of the whole thing would rot and it was a really interesting reminder that there's these people that come into these companies almost with the desire to see these companies go sideways or just waste their time which is completely counterintuitive because you think you join for the mission but they don't all the time and to be fair you i think told people listen you you could as a group of people off hours create your own you know uh dinner party and talk about whatever topics you want this is just when i'm paying you to come to work for those eight hours you know on the company servers if you're using slack or whatever you know communication platform you're using let's just stay focused on getting the work done so this could be a viable enterprise but you were fine with people if they wanted to self-organize and do that on their own time correct you weren't saying you can't have political beliefs you can't care not care about blm or some right-winger that was one of the biggest um sort of misnomers or miss characterizations yeah exactly deliberate mischaracterizations about the policy is that it somehow silenced people or prevented them from you know taking positions on issues or donating to causes they cared about the policy never said that it just said that while we're in the office together on coinbase time we're going to engage in coinbase's mission and avoid fractious debates that divide us yeah that's right and there's a time for those debates and it just might not i think a lot of this has to do with slack i'd be totally honest yeah when people are in a slack room and they're frustrated and people can have valid frustrations like there are things in the world that are horrible and yeah you want to talk about it and yeah you build friendships at work it's completely understandable that people would want to blow off steam and but just people have to look at slack as not an aol chat room it's not reddit it's not aol chat maybe you could talk a little bit about electronic communications and then i think david has a follow-up yes i agree with you slack i think you know it's an amazing tool but it does start to turn into social media once you get more than i don't know 500 people in a room or a thousand people a lot of ceos i've been talking to we're all trying to figure this out because we still think slack is a net positive to productivity but it has a huge negative in terms of just both distracting people with lots of things popping up all the time but also these kind of social media flame wars that emerge and mob like behavior so some of the things i mean we've been trying is for instance if we get any kind of a slacker room that has say more than 500 or a thousand people we'll often try to limit it so only you know you can you have to be a vp or level 9 and above can only post in there and other otherwise it's read only so we're trying to you know dunbar's number is 150 people right you're trying to think who who can you remember everyone's name and have some sort of group affinity with them and any too much above dunbar's number we try to like cap it so it's a read-only chat room but i think these tools need to keep evolving and i hope some i know there's a couple startups you all might have funded some of them um that are working on this yeah there's an actual neat feature you can do in slack now where like that level 9 person can post and everybody else can post in the thread like you can reply to the thread but the opening salvos and thread have to be started by somebody in that sort of group so but slack definitely needs to double down on this i also think they put that random room in there and you put the random room it's like basically waving the flag like it's random put stuff in there i think you got to delete that if you're running i tell all startups delete the random room and tell people do not post memes and jokes david you had to follow up one thing i was going to say is so brian i agree with everything you said the the one place maybe where i would nitpick in a way that gives you a little more credit is you found a coinbase back in 2012 right yeah so if you had created this policy on day one i don't think you or anybody could have predicted that these issues would arise the way they have i remember 2012 was the year i sold my company to microsoft we never had to deal with any of this stuff and we were using we didn't have slack back then we were using yammer very open culture people could communicate on anything we never had sort of hyper activist employees the word woke didn't even exist yet and um it just wasn't an issue so it would have required you i think to see ahead so many years and i think what's happened is over the last several years there's been this drift towards you know employee activism inside these companies i don't think it's coming from both sides of the political spectrum to be honest i think it's coming from the sort of hyper woke employees and they engage in petitions and letter writing campaigns and threats of boycotts and they sort of hector and mao mao these ceos to basically give in to them and we've seen it at apple the way that the apple was pressured to fire antonio garcia martinez and they gave in and now they have a letter writing campaign every month and you just saw it in florida i think bob um what's the name of bob chapter business i don't think he's going to survive the year after what just happened at disney and it's because he gave in to the employees took sides against the you know governor in florida and the legislature and they just ripped away disney special privileges in florida you saw it at netflix where ted sarandos was sort of malmowed by these employees who want to cancel dave chappelle he ultimately stuck by chappelle but only after groveling to these employees and so i think we're seeing these issues did not exist even five years ago i would say and i think the reason why the coinbase story is so relevant to a broader audience and what you did with your policy is so relevant is i just think every company is going to have to make a decision sooner or later or on where they stand do you give in to these petitions and mobs and boycotts do you allow unlimited activism inside the four walls of your company or you take some sort of more neutral stance where you say listen we're all going to leave our politics to the door so we can effectively work together on the company's mission i think every company eventually is going to have to either be coinbase or be apple you're gonna have to be coinbase or be disney you're either gonna have to give in to the mob and suffer the consequences or you take the short-term pain of doing what brian did and you basically realign everyone around the mission and a year later you're very happy with where you are the good thing with netflix and disney though is that they're going to be very clear examples of the business impact of getting distracted and i think that you know brian took leadership but the business impact at least from the outside looking in was not really measurable obviously he felt that the team felt it whatever they did and that business is working but it wasn't done as a public company pre and post so the counterfactual is hard to measure in the case of disney and netflix it's really clear to measure right meaning in all of this confusion netflix has completely botched their business model in all of this fighting now internally inside of disney not only are they going to lose essentially a fiefdom inside of florida but it's going to have repercussions with respect to taxes with respect to debt with respect to the quality of the service they can deploy and that will eventually flow through the business and that will be measurable by investors and i think david uh i think probably what i think which is a slighter sort of more modified version of what you just said is in the next few quarters i think ceos will actually be better equipped to numerically point to why taking brian's path is the value creating path for shareholders and for stakeholders and the cost of getting distracted quote unquote can be really expensive if you if you are a for-profit company and you also have the option to run your company and say you know what we care about this issue a whole bunch we really care about human rights here we really care about communications and freedom of speech and i'm gonna run twitter as a freedom of speech company and everybody has to align behind that if you believe in censoring this is not the right company for you if you believe in policing speech or you're uncomfortable with uncomfortable speech uh or speech that makes you feel uncomfortable you don't have to work at twitter so it's not like you have to you know do what brian did and say hey we're just you got to decide on this you're going to have to make a decision and be international about it i think it's the higher order bet no my i was just going to say my only point is in the absence of intentionality jason you'll slip into one realm or the other and not really know what you're trying to do i agree with you and my only point is that you'll be able to measure the impact of unintentionally slipping and sliding around yeah versus picking a course and sticking to it let me ask you guys a question if you're an individual and you want to affect social change where is the forum in the theater that you think you would go to first you spend most of your time at work and um maybe you don't have as much free time to go march and protest in the streets and if you did no one would pay attention to you there anyway so saks like i know that you'll probably have a point of view on this but like if you're giving a 19 year old who has a strong point of view or 25 year old who has a strong point of view about something that they want to see change in society what's the right forum for them to have their protest and to make their voice heard i think that companies are a great change agent i think we all do being in silicon valley creating startups we all believe that startups are a great way to change the world those startups have missions brian's company has a mission around crypto and ex and um expanding democratizing access to the financial system based on crypto elon has a company that is accelerating the world towards sustainable transport and sustainable energy he wants to make where i equip a little bit with what jason said about free speech i think elon wants to make free speech restore its place back in twitter's mission so it's not like a separate thing it's actually like should be very core to what they do i think that there's a mission-driven company out there for any young person who cares about that issue right and if there's not if there's not a for-profit vehicle there's a 501 you can go join a nominee or star wars or start one exactly donate money to a cause you have the whole weekend you got me you can write a blog post what i don't think would work is when you have people who don't who aren't really mission driven their mission is whatever the current thing is and so they're just kind of like oscillating from the the one the cur you know from one current thing to the next current yes and every three months there's an issue du jour that that you know they care about more than anything else in the world look there's not going to be a company that can accommodate that sort of fickle activism brian can i ask you a question are there um any um systems decentralized systems that uh kind of give individuals you know but you viewed interesting models that give people the ability to affect social change um in a way that kind of historically may have been more of a hill to climb where people can kind of aggregate resources and aggregate a voice in a way that can kind of affect outcomes and do we think that that kind of becomes a mechanism for social change in the future you're making me think of dowels and things like that but i think a lot of that is kind of unproven like daos are probably good ways to get new kind of governance systems in place for allocating capital or maybe even managing a city or or a society but like you know i kind of agree with david i think the best way to affect change right now today is for young people is start a company or join a company i think young people are sometimes a little enamored with like becoming an activist but i think fundamentally that's you're sort of giving up your power by saying like well they have the power and i don't and so i'm gonna speak truth to power but i think you know some there's context for that historically whether that may have been more true but i think today a lot of people they have more power than they realize and if you go start a company which by the way companies are decentralized too you can have lots of little companies all over the world um they're not like you know monolithic usually and so if they start a company they can have a good impact i think on the biggest issues out there and i think over time as well the way that you have real impact is that you prove yourself in the market of ideas to have a high reputation and to be really reliable and that is not something that you can just overpower you know because you're 19 or 20 and you're really upset by something at some point you're going to have to really invest your time and dedicate yourself to something that you really really care about and then the world tends to move to the good ideas so i think part of like what we also need to remind folks is that this is a like if you want to make real sustainable change it's hard it doesn't matter in which area you pick it is just really hard but if it's really worth it you should give your life to it but what i think people push back on is the more superficial forms of just virtue signaling and saying yeah in this moment i really want to pretend i care about something but when push comes to shove i'm not really willing to take the next step i don't i think that most people find that very unreliable yeah i think a good question to ask for somebody who purports to really care is like what do you care about that's not currently in the news you know that's not like the hot thing that everyone is basically obsessed with well and then how are you changing it and what is your plan to change it over the next decade or two like you have yeah because it takes it takes it takes many years to effectively create a startup you know five years ten years and so if your issue does yours is whatever's in the news you're not going to create that kind of change you know i do think there are a lot of similarities between mission-driven startups and political movements you know i wrote a blog post called your startup as a movement where i basically say that you know good marketing is about evangelism it is has everything in common with what good political leaders do basically they critique the status quo they tell you what the world likes looks like today what the problem with that is and where the world needs to get to what the solution is and then how they're going to deliver that solution so you can i think as the leader of a company be very mission driven you can bring about that change you want to see in the world you just have to attach a business model to it if you don't have a business model you're just collecting donations let's build on that brian what is the stated mission today of coinbase yeah our mission is to increase economic freedom in the world and if for people aren't familiar with that term economic freedom is kind of an economic term like gdp but it looks at the measures of different countries of the world and looks at factors like are their property rights enforced how stable is the currency how easy is it to start a business you know is there corruption in bribery prevalent and things like that and what's really cool about economic freedom is that basically countries with higher economic freedom um you know like singapore and the united states and ireland they tend to correlate with all kinds of things we want in society not just better economic growth but even higher self-reported happiness of citizens better treatment of the environment better income for the lowest 10 in society gender equality all that stuff yeah gender equality and then yeah countries with net low economic freedom you know cuba north korea sudan these are some of the lowest they tend to have you know even things we don't want like higher corruption higher war higher infant mortality so it's basically when i read the bitcoin white paper back in 2010 i had this thought eventually that was like maybe cryptocurrency is this unique moment in history this unique technology that allows us to inject economic freedom into the countries all of the world especially now that more and more people have a smartphone and we can basically put good financial infrastructure good property rights you know global trade a stable currency into 200 countries all over the world as one small group relatively small group of people and hopefully it has all these positive downstream impacts so that's the mission of coinbase when you look at the regulatory environment uh it has been far from clear what's allowed here in the united states in fact you had a pretty um strong lee worded tweet storm back in september of 2021 some really sketchy behavior coming out of the sec race recently story time maybe you could talk a little bit about the sec's approach to cryptocurrency versus securities xrp comes to mind and knowing your customer you've obviously taken a very conservative approach to what tokens you uh put on the platform and then you have competitors who are offshore who it's kind of yolo anything goes um what is the current administration doing right wrong and what needs to happen here in the u.s to for us to be competitive in crypto while still protecting citizens from you know being bag holders yeah it's a big question so you know as a startup you're always trying to thread the needle here you don't want to wait too long for clarity because sometimes these things take five ten years and so you'll just never launch a product but if you if you're too aggressive you can blow the place up and so what we always did in the early days of coinbase is we said we want to go do what we think is going to be required in the future go get licenses go do kyc go go do aml anti-money laundering and so we tried to basically do the right thing go and talk to these regulators practically now the u.s has actually been pretty forward thinking on this i'd say every year we get more and more clarity so coinbase is now a very regulated financial service business you know i can go through the whole list we have a license from the cftc a federal regulator we acquired some broker dealer licenses which the sec regulates we have money transformation licenses we're a bit licensed in new york et cetera and that's just in the united states so we're in many many countries around the world so how do we get more clarity well one thing i'll just say is it's actually better for there to be lack of clarity than to be clarity that is um punitive or bad so it's good that there's a little bit of lack of clarity as long as it's not curtailing the industry but would be even better is to have clarity that does provide that right balance of good consumer protection you know make sure that there's a fair level playing field for all the players and then it allows innovation to flourish and so what's good now is that in the us um you know dubai administration put out an executive order recently kind of asking all the different agencies and departments to come back with a clear plan and they did recognize the potential innovation in crypto in that in that executive order which i was really pleasantly surprised to see um so what's happening now is that there was a little bit of jockeying i think there where the sec said hey these all look like securities to us and i don't think that's quite true you know the cftc is regulates commodities while some cryptos are going to be commodities i think here's here's what i'm realizing is that crypto is going to be many different things it's not just going to be one regulator doing it so you know think about cryptocurrencies like bitcoin that's pretty clearly a commodity or ethereum right like many of these are ethereum commodities that probably should be regulated by the commodities regular the cftc now if people want to raise money for their company a security token that should be regulated as a security by the sec that'd be great to have more clarity on that let's have we would love to keep working with the sec to make that a well trodden path that any company can go raise money and that's how it would get listed on an exchange like ours and we could register as a broker-dealer or whatever license is needed um separately there's also some cryptocurrencies that are going to be currencies like stable coins and you know maybe the treasury should regulate those and finally there's going to be cryptocurrencies that are none of the above they're artwork or something that's probably shouldn't even be regulated and so the us with various financial you know international bodies like g20 and fatiff and all these imf are probably going to put some policy papers together we're going to eventually end up with some kind of a test that says is this cryptocurrency a commodity a security a currency or something else like artwork and then maybe maybe five more things we haven't even thought of that it'll end up being in the future what would you make the test for this is a utility token versus specul speculative uh security because that seems to be the one that's really hard for people to figure out if 99 of people are buying a token on coinbase because they want to see it appreciate and they want to see it gain value and only one percent are using it for the actual utility of it is it then a security is it by the percentage of people who use it how how would you as the the you know the leader in this industry you know uh actually define it what's your definition yeah so i think look i i don't want to be presumptuous here i think that we can we can put some policy papers together but i don't want to be you know it's the policy makers job to come up with the policy so i don't want to step on anyone's toes but that being said i think there's some existing case law out there like you know the howie test is something from a long time ago we could probably build upon that so the howie test kind of says you know is this an investment in a common enterprise with an expectation of profit and that would make it that would make it a security so there's a lot of pieces to that you know is it an investment well if you're just giving the tokens away i guess people aren't investing right is it a common enterprise well maybe if it's decentralized and you don't actually control this entity like um you own you know less than a majority share or something maybe then that's not a security right or if there's not an expectation of profit people are using it for something so every startup right now in the space has basically had to hire a bunch of expensive lawyers to go tease apart these old old rules that some of them were created in like the 1930s you know before the internet and everything and try to understand where they're falling and so i think building upon that howie test but it could be something that includes a commodities definition something or currency definition you know i think we should basically it's on us and the other crypto companies out there to go hire a really smart lawyer who has drafted legislation before and a bill and actually get a draft of it out there and then we can start to circulate it with various policy makers and get their feedback and maybe they take it and run with it maybe they say thanks we have it we've got it from here but that's our next step freedberg saks jamath would you go with the howie test um or do you have thoughts on how to how the government here in the u.s should say this is a security this is a utility token i think what the eo did was basically kind of give people enough regulatory safety in the sense that something reasonable will probably happen in the reasonable future so that people could keep building and iterating my big takeaway in the last sort of like nine months is that this thing is now too big to fail and the government basically has to just find a reasonable framework to enable something because the alt the the real big issue jason would be if they did something crazy and now you know retail would just get completely smoked because i think they are the what do you think is reasonable i think congress has to basically pass a sensible set of legislations that clearly demarcate exactly what brian said this realm of stuff goes to the cftc this realm of stuff goes to the sec now you guys go and implement and if left to their own devices those two will use these arcane laws and try to negotiate amongst each other who should be covering what but they can't arbitrate that decision and so as a result nothing will nothing reasonable will happen um so i think that's what has to happen congress has to get together and write something reasonable freedom you are building companies at the production board every year you build a couple of companies you have to go through securities law you have to you know raise money from accredited investors you do it in the traditional way but you must be looking at crypto saying well i could launch conor munich whatever project and have a token associated with it and raise money and raise it globally or start a dow what do you think is a reasonable way for people like yourself who are playing by the existing rules to be able to embrace this new technology and these new platforms and paradigms i think how should the government handle it well some perspectives important which is you know go back to kind of the 1920s in the united states and there were pre-1920s folks would go around and tell tall tales about interesting business ideas or business concepts or things that they were going to do with if they got a bunch of money from investors and investors gave them money and they didn't actually deliver on what they said they were going to do and they got swindled and there was swindle story after swindle story that you can read about and we saw this even with the ico craze of a few years ago right where people tell a tall tale you expect some value or some asset that you're kind of putting capital into that will pay off over time and there's a swindle behind it and that's really the origin of securities laws in large part is to protect the individual from being swindled to protect the storyteller that can take money away from people and figure out how to kind of rip them off and create a set of laws that the government can then enforce through the risk of imprisonment against doing those things the challenge becomes when there's this more thoughtful way of running capital markets on the other side and how do we actually resolve to some medium ground here i'm not sure that you're gonna have as quick of a resolution to say well let's go back to the old way where anyone can say anything to anyone they want and anyone can put money into any project that they want because the role of the arbiter is to protect those from being taken advantage of if 85 percent of those projects are great and 85 percent of the investors are intelligent to know what they're doing it's the 15 it doesn't matter it's the 15 that the government is here to protect and that's the reason we have an institution called the government is to create systems of protection for those who are otherwise unable to protect themselves now a free market libertarian might say we should have at it but the problem is we all have them we all feel as a group at some point a moral obligation to protect those who are unprotected and that's why these systems emerge over time and that's why these institutions exist that's why the government exists and it's why these securities laws exist and so it's difficult to assume that we can just go back to the kind of you know um uh prototypical days of you know let me raise money for anything with any story without any regulation and assume that it's going to work out well because all it's going to take is a few of these stories before you have folks standing up in congress saying this is unbelievable we can't let this happen anymore let's go shut down the miners let's go shut down the data centers let's go after every asset we can and by the way they will because look at what just happened with russia the way that governments can kind of coalesce around digital systems now and make significant change and block things from happening i don't know if there is a world where we can assume that even with a free and open internet that these systems can truly be decentralized given the reach that governments have and it is going to be in my mind i've said this in the past kind of the great tension of the 21st century socially is the decentralized systems that really want to challenge what we believe to be a lot of overreach that's happening by governments against the government's believed role to be protecting those who are who need the protection and so i don't know that's a very long-winded moral statement well i mean i think it's a very interesting one brian what do you what do you think of this i get it these are complicated issues right we want to balance protecting people but we also want to not have the government be in a position where it's picking winners and losers and so you know you just because something is legal doesn't make it make it a good investment i guess you know you could have you could have owned netflix last week or something like that and you guys might talk about that in a minute but look i think we all want to get rid of fraud right so if you commit fraud meaning you lied to investors then that should be a crime right like we i want to i want to work with anybody in government to go put that make that stuff not happen the danger is if we ever get into a place where we say well only wealthy people can now invest because somehow there's an accredited investor test that's inherently exclusionary i don't i don't like the accredited investor laws if we ever get into a place where the government is saying you know well you have to you have to have xyz criteria and a person with this many years of experience on their resume and then now we get into like the government sort of designed by committee to pick winners and losers and that's that's inherently flawed because you know a lot of true breakthrough innovation they look like bad ideas at the beginning they're the kind of things that a government body would never invest in or put money into right so that's the inherent tension we have to worry about we're protecting people but not putting the government in the role of picking winners and losers sacks you have any uh input on this sort of framework you are investing traditionally in stocks but you have also um allocated some money to multi-coin capital and other folks who are buying tokens and then you have to distribute them and you have to deal with these downstream legal issues how are you dealing with them and then what do you think is a proper framework here in the u.s for protecting consumers while allowing innovation i think the big picture framework that we have is correct which is you kind of have this dichotomy between security tokens and utility tokens so security tokens basically it's a token that's issued that it's basically like a share of stock or a fractional ownership in some business doesn't really have a lot of functionality associated with it that's kind of an end run around the securities laws they should be treated like securities on the other hand though there are a lot of tokens that are issued as part of creating a new kind of technology network and those tokens have real functionality and if you were to subject them to securities laws and impose kyc and accreditation you have to go through all these oops just to add one to your wallet it would destroy the potential functionality created by these systems so where there's real utility like that i think the government should foster innovation by having a lighter hand don't subject them to securities laws and really what entrepreneurs need in the space are some safe harbors some really clear lines around what would trip them up and and have them cross over from utility token and security token so they know to avoid those things so they can continue innovating on their core project i think that's well said i i have uh three ideas brian i want to run by you number one a sophisticated test for investors in crypto and in startups so just like you get a gun test or you know you test for a driver's license we come up with a way for people to become sophisticated they take a simple test maybe it's a you know whatever number of questions and then second maybe some safe harbors around the scale of a project so any crypto project under 10 million can be an experiment and you know it's kind of like no need to have rules people just have to sign a disclaimer a waiver this is an experiment then things may be between 10 and 100 million you implement kyc and maybe throttle the numbers those are some good ideas for when you're talking about the bucket of security tokens if you want to start imposing those kinds of rules on utility tokens you can't have a functioning network with like all these sort of friction well hold on but if then if the project gets scale then you just have to file a little more have a little more kyc and then finally the founders of these projects they can just launch them and disappear they have no director-like duty to the project do you think there needs to be something similar to directors in corporations so just three ideas there that i've heard other people talk about or i've been thinking about right those are pretty good i like those actually i mean the nice thing about a driver's license test for financial literacy is that it doesn't measure how much money you have so it would allow smart you know aspiring people who didn't start a lot of money um like a lot of us to also be able to participate early on in these which would be really great um yeah i think it's you know some kind of a safe harbor or sandbox provision i think is is a really great idea as well and lastly yeah i mean if you were able to um basically i think your three ideas are great so those are good i think that they're good for securities but i mean should if you just want to buy gas on a blockchain to run your program or you're a user of a application that's being run on a blockchain you just want to buy a token for gas do you really have to go through all these like kyc type hoops hopefully not especially if it's if it's a utility i mean self-custodial wallets and dapps or decentralized apps are this huge area of innovation that you know you wouldn't want to like imagine if the us government had said you need to come in and register to make a website or something like that that would have been a terrible thing for innovation globally so and you have to remember too that a lot of this is going to flow to the country with the most permissive laws so a lot of governments around the world not the most permissive but the most well structured that balances all that all the pros may be clear yeah the thing that i would just add to this though is that there's a lot more than just aml and kyc guys that has to happen for this to be a functioning ecosystem we average i think one hack a week in the crypto ecosystem right this bean stock happened like just a few days ago that was almost 200 million dollars last month axe infinity what was that almost 600 million dollars so there's a lot of stuff where in the in the normal securities world like if you're a director of a company and you don't have these adequate procedures and brian you live this every day where there's like an audit committee and there's somebody that shares audit that has to go and think about information security and blah blah and all these disclosures have to happen insurance but all these disclosures are really about actual work being done if you don't do that work and then you get hacked you're actually liable right there's no version of this in a world where it is a little bit of the wild west so that stuff also has to exist this is what i what i mean by i actually think congress just needs to kind of like update the set of laws that actually allow the cftc and the sec to do their job to include this and say now go and incrementally figure this out because even if you get the aml and kyc stuff right then there's all this other stuff where you know these folks that had they're basically you know all this all this value deprived who do they go to to try to get the money back you know in in the case of axi i mean this is it's an incredible thing but like you know they went to andreessen and they raised a new round they're like we're just going to make everybody whole but that's insane right that's like not you can't expect that to happen with every single project every single company it's not going to be possible yeah well i think a couple things will happen i mean in the s in the custodial world of crypto there'll be more regulation there already is right like we we have a new york trust company that we get audited for various um control environments and safety and things like that but in the self-custodial world everyone is going to start to be in control of their own assets and i think that you know the tools are getting better and better for that like you know social recovery of keys if you if you forget your password and these kind of smart contract wallets and so you know both are growing um and i think in the future people may actually start to take more responsibilities for storing their own wealth if they want to choose to do that and that'll allow them to kind of access a broader ecosystem of things let me ask a question brian uh everybody seems to be very concerned about tether you i don't believe participate in the tether ecosystem at coinbase is that correct uh well we're not participating directly but we support as many assets as people want to use and that is one of the ones that we've supported people to deposit and withdraw in coinbase they've been um banned in new york they've had uh regulatory action in canada uh people are concerned about their attestations or lack of clarity on their commercial paper what do you think of these stable coins getting very big and maybe usdc seems to have it pretty tightly covered but there's all these concerns and regulatory actions against tether is that a big nothing burger or does it concern you that there's a lack of transparency into their holdings yeah so i would say you know some of the early stable coin efforts definitely didn't have all their ducks in a row from a reputational point of view you know i'm not i'm not an expert on tether my understanding is that there have been some investigations and enforcement actions which have required them to go in there and clean up some things and um you know our our digital asset listing group kind of looked at a lot of this in depth and made that judgment called that where they where they were and where they are now but yeah i do think that we're seeing the emergence of new groups like you know usd coin is one of those that i think has some better controls around it and there's actually a bunch of um stable coins now that are decentralized you know die and fracks explain what that is and why it's important well so okay so it really comes down to trust i mean you know you can trust uh you can decide to trust something like usdc that has kind of audit requirements and you know a big four accounting firm come in and look at it and things like that or you can look at smart contract code and you know thousands of people around the world can look at that and there's an inherent bug bounty if you find an issue there and if it hasn't been found then you can start to think about trusting that now i think stable coins like like dye and others they've been able to create these um relatively complex systems that have sort of um that one asset which is intended to be stable but another one which is sort of the collateral and you could imagine various black swan events where you know the peg would get broken and things like that but it really hasn't happened yet in die and it's shown a lot of resiliency which i've been very impressed by there's one actually one other um type of coin which i think is even maybe more interesting than just wrapping a fiat uh like a dollar or a rupee or something like that because frankly you know the dollar is seeing a lot of inflation you guys have talked about it many times on this show so do you really want to have a stable quote stable coin that is inflating you know eight percent a year exactly there's there's some new coins coming out which i've been really excited to see which are i think you know biology calls them flat coins but they're basically looking at the consumer price index and they're trying to basically have flat purchasing power and assume that the dollar and various fiat currencies around the world are actually going to go through more inflation that's a pretty cool idea and you can do that in a creative way on a blockchain by having various oracles which are these sources of truth and if enough of them you know 51 of them tell you the cpi we think is this this year it can kind of keep keep pace with cpi which is a really cool innovation i think thank you so much for brian armstrong for joining us for the first hour and now we'll continue on with our netflix discussion brian's fantastic he was very honest he answered a lot of questions very honestly and he's a super fan of the show that business is a great business that business would be a great business he's thoughtful we like somebody who's thoughtful i really think that the challenge that brian faced a year and a half ago and the policy decision he faced is now being faced by every ceo across america and that's the broad relevance is you know what are they going to do do you see this this quote by the mcdonald's ceo the former mcdonald's ceo ed regency on wednesday said companies have no business being in politics and has launched a new advocacy coalition to fight woke corporate politics he said corporations have no business being on the right or the left because they represent everybody there and their sole job is to build equity for their investors wait the people who make fileto fish are not gonna chime in on ukraine anymore yeah but but think about that because that actually is a pretty radical it is a line in this end yeah he's standing on brian's shoulders let's be honest i think you know the ceo of mcdonald's i mean that's like a big you know traditional fortune 500 type corporation and they're saying like we're not doing this anymore well you know what they were more than willing to do it if it scored them points what they realized was it's going to be a never once you engage that you're never going to be able to disengage from it all right let's pivot over to uh netflix they reported a drop in net subscribers for the first time in 10 years uh and the stock dropped 35 market cap from 155 billion to about 98 billion according to bloomberg as of wednesday netflix was the worst performing s p 500 so far in 2022 stock down 63 year-to-date ackman uh dumped his entire stake and booked a 430 million dollar loss and a large part of this was because they didn't hit their 2.5 million or so uh target uh increase in subscribers and they in fact lost all seven hundred thousand russian subscribers as part of uh boycotting um uh russia because of the ukraine war what do we think is happening here is this a bellwether chamoth for something more important going on or is this just netflix not executing well i think there are there's a macro thing and then there's a netflix specific thing the macro thing is that we are learning the broad sweeping impact of apple's privacy changes in my opinion you first saw it flow through into facebook's earnings and basically them saying this is going to be really tough and you had netflix even if you add back the russian subscribers basically spend almost 600 million dollars in the quarter on customer acquisition to effectively they would have generated 500 000 subscribers net of churn right which was still about a million and a half under where they needed to be so the point is that i think netflix in some ways was a little bit of a canary in the coal mine for the the shrinking um effectiveness of online advertising and i think that's why you then saw two days later facebook got taken to the woodshed in two days was down you know now it's down i don't know 15 20 percent google i think has been down a lot today it's just getting absolutely smoked relative to the market so that's the macro issue which is i think um it's really hard for these ads to be as effective as they used to be and it's only going to get worse because google has also said that they're going to implement a lot of the same versions of what apple did inside of android so customer acquisition is going up so if you look at then all the companies that have to live and die on cac it's going to be an expensive road that's the macro thing i think that not enough people are talking about i think the micro thing inside of netflix is that you know people churn out of a service when there isn't enough value and i think that's the most basic explanation of why so many people are leaving netflix is that it's not that valuable so when you're spending 20 billion dollars a year on content but people more than ever are leaving the service you have to inspect how much are you really spending in these areas and what is it actually creating in terms of like library value you know disney plus i think has gotten has done an incredible job in a much shorter period of time apple after only a few years wins the first oscar of any of the streamers right beating netflix even though they've been in there and spent a picture for best professed picture but i'm saying yeah so when you put all these things together uh i think netflix probably has lost a little bit of the script but they're also suffering from a really macro headwind which is the advertising business is broken i would imagine that like total subscribers to streaming services and if you were to add up total subscription service dollars it's probably growing a lot oh for sure netflix's relative share is going down because the quality of the competitors is improving so much even companies that are not able to deliver like cnn shut down cnn plus this week after investing 300 million dollars in trying to build out the service i mean folks are putting serious dollars behind these projects um and so the competition is fierce and they've got deep content libraries behind them i personally think hbo max is the best streaming service now awesome followed by disney plus followed by maybe a mix of amazon netflix and um you know uh prime and so like netflix's relative value is going down because there's so much other content when i'm kind of thinking about what to watch i'm looking at disney plus i'm looking at hbo max and i'm like hey you know what should i watch tonight and then i look at netflix netflix doesn't have a monopoly in content anymore and so when i've got limited dollars i personally looked at this after we were texting about it i subscribed to seven streaming services right now and if i didn't care as much about how much i was spending per month i would probably cut three of them and netflix yeah you're you're also then highlighting the second i think macro thing that is actually equally important maybe even more important which is you know the the first rule of capitalism says that excess returns will always get competed away so you know netflix had the run of the place where they were an effective monopoly totally and now when everybody else woke up and got religion they decided to invest and they've created some really compelling content and so all of those returns will now get spread across seven or eight or nine competitors which means that just by definition mathematically netflix can't win the way that they used to and the network advantage in the streaming model is content and consumers so you have better content you get more consumers you spend you get more money from consumers you spend more on content at some point you get diminishing returns in that network model and now we're seeing those diminishing returns hit netflix they haven't built advantages in search and discovery or in other words social sharing or other features into the app or into the service that will give them more of a lock-in value because all i'm doing is buying con is watching they're also three times elsewhere they're also three times the price of disney plus and other services so they're in the competition space people are starting to look at and go is this worth you know a disney and an nbc or is this worth a hulu and an nbc uh streaming service sax you had some dad well i mean i agree with that i would just add one factor to this which is what elon said which is he said the woke mind virus is making netflix unwatchable i mean the quality of the programming has gone down i mean netflix used to be really good i can't think of like a show now that i watch on netflix and i do watch hbo max right now and disney plus because they got some shows that i like so i think somehow the programming people on netflix have gotten out of touch yeah are they pandering to that audience sax do you think and you know similar to kind of how disney ended up pandering and do you think that there's broadly this kind of media problem of trying to pander to the wrong audience i mean they almost threw chappelle off who's the number by far the number one comic in you know in american comedy and they absolutely would have thrown chappelle off and done what a lot of those employees wanted if they didn't have such a big deal with him if he wasn't such a big deal no i think they held the line pretty pretty there's a lot of groveling there's a lot of government i think they've reasonably heard the concerns of their employees and said we reasonably disagree can i ask you guys look yes maybe but what i'm saying is that that episode revealed that the people are doing the programming in netflix obviously are like they're not like i think they've lost touch with where most of the country is i will give a shout out i have not watched a series on netflix in probably a year ozark no no no but i will give a shout out to never have i ever which mindy kaling created she's amazing and that series is incredibly funny and poignant and cool and awesome but outside of that series i cannot think of a single reason why i would actually pay for netflix let me ask you guys a question so going back to because you know there was the whole disney panda hbo max however oh my god so good the whole industry is suffering this problem do you remember this we don't even watch it anymore this is the question i have for you do you guys think that there's a difference culturally in the management of the media company so let's go through them warner media disney netflix amazon and do you think that that cultural difference may create an advantage and success do you think that warner media is operating hbo max differently because they're culturally different yeah because they're culturally different culturally different they have no and for or tours hbo has always sucked for years they got a few good shows now it's it's more like they've always been for tours they always have gone of the director the vision of the writer and taking a lot of risk when you hear that hbo logo i agree they have some really good shows right now but until the last couple of years it was like pretty dismal business but i mean i too freebrook's point you know that netflix i would say i would say disney has marvel and that's why they have marvel and star wars and that's and that's kept them extremely relevant and the advantage disney has is the uh re-watchability of their content i don't know how many times your kids have all watched moana my kids have watched i've had to watch moana 107 times already let's hear it let's start yeah and and you're welcome yeah you're welcome and the um and the star wars content as you guys know you could re-watch star wars and marvel i mean like the the content is very different right pixar movies too you can watch 100 times over that's very different content hbo max is thrilling and engaging and doesn't feel like it's pandering hbo right now is operating at the next level i mean so many good shows it for me but netflix was five years ago so i understand but we're not talking about the past we're talking about here today netflix went with these very big deals with big celebrity names and you know i think they just lost their uniqueness in terms of taking so they went with adam sandler no offense to adam sandler fans and they're doing a lot of reality tv now and if you look at hulu like dopesick and then the dropout if you look at apple tv ted lasso we crashed uh and then you look at hbo max with just uh you know euphoria by the way yeah even even i like i can actually can you imagine euphoria is it on netflix it would never be on netflix it would never get made it would never get made on netflix they don't want to take risk hbo is like for adults it's paid and they're going to take risk and disney doesn't can't touch that i think hulu is a sleeper i mean hulu's great have you guys watched the series called the great on hulu no it's about catherine the great it is incredible i can't believe my videos i can't i can't open my subscription so i'm watching severance right now that's amazing it's like really like you know by the way i started paying for youtube tv so that i could get streaming cable oh yeah that's my number one my number one watch thing it's youtube tv because i don't know do you have youtube without ads yeah you i do youtube right now it's such a great way how do you do that right youtube red or premium youtube premium it's cool it's nine bucks a month tomorrow you can afford it you see no ads on youtube ask your assistant to ask her assistant to sign you up and and you won't have to watch ads on youtube are you functionally not able to use the internet now i actually have people that do it for me do they type in your email password for you yes yes you're like how does this work and they're like there's a person right there netflix if i can't get the mouse to work he's got the vp of product from questron who lives in a little shack in the house next door who comes over and uses the remote for him yeah thanks for tuning in everybody for the dictator himself the sultan of science and david sachs we have a jam-packed agenda my god the summit is going to be amazing let's just do a little recap here of what's happening um we've got some pretty great speakers ryan peterson nate silver uh claire vickel uh brad gerstner uh palmer lucky's coming elon's coming keith reboy's coming joe lonsdale tim urban wait do you see elon's coming oh is that what it says on the website yeah he's on the website now elon musk he's coming nice of paypal uh antonio gracias i mean we've got uh just an all-star uh kind of very bullied there and i think uh glenn greenwald and matt tybee are coming yeah that's gonna be amazing and so it's gonna be really great all right everybody uh we'll see you next time on the all-in podcast bye-bye [Music] and they've just gone crazy with them [Music] besties [Music] your feet we need to get mercy's [Music]






is there going to be an open mic night in we were going to have you speak friedberg but we realized you're not capable so we want the show to be entertaining yeah it's not that's not personal freak you guys are missing out i'll tell you guys what makes my stand-up comedy so good oh god here we go oh my god we're back on this jesus christ it's my creative sensibility so if i have some time to prep and write my script and read my own creative insights yeah okay bring one joke next week jkl for all the time we've spent together on this podcast you know so little about me it's so it's so depressing i gotta be honest well you know here's the thing about friendship it's a two-way street you gotta open up a little bit we gotta go out and get drunk one night [Music] your winners absolutely rain man david sacks [Music] just want to give a shout out to this guy andrew lacy okay okay shout out he is the ceo of a company called prenuvo oh yeah can you just flash it on the screen prenuvo i went to pre-nuvo and what they do is they do a head to toe mri scan in 45 minutes and they use a bunch of machine learning and image recognition to help a radiologist interpret these mris in real time beside you it's a service that you have to pay a few thousand dollars for there's a location in silicon valley in redwood city and a couple of others and we mentioned it but the reason i'm bringing this up is he sent me an email yesterday and he said i just want to thank you and the besties for mentioning prenuvo because we had a bunch of people come and he said we found no less than 11 life-saving diagnoses 11. 11 people 11 individuals listening to the pod pot saves lives went to pre-nuvo after hearing about it had a head-to-toe mri found you know all kinds of issues from a brain tumor and brain cancer to stomach cancer and other things and uh was able to get the care that they needed amazing anyways i just want to give a shout out to him for for doing a lot of really important work and for the folks that are listening that have some money set aside and can afford to do this i would just really encourage you we have no financial stake in it nothing other than we are users of it but uh check out prenuvo.com and uh shout out to andrew and his team there okay here we go three two let's start the show the war in ukraine has him insane in the membrane and biden's new disinformation council is gonna have him detained to calm him down from tanking solana he started smoking that marijuana you know him as the rain man he's here again david sacks how you doing have a good week yeah not bad all right uh well big energy this week huh okay in high school he had no friends but thanks to the pod undergrads are in his dms all forms of steak he's a persian he's the vanguard of all the virgins the keane the sultan of science david friedberg wait i missed like half of that because chamomile is laughing so hard i can do it again do it again do it again let me try from the top now in high school he had no friends but thanks to the pod undergrads are in his dms all forms of steak he's a persian he's the vanguard of all the virgins the queen of quinoa the sultan of science david just for the record there's no undergrads in my dms but i appreciate the intro all right we'll check all right in three two he's right before freakburg is tweaked and the show hasn't started i think i'm taking over intros next week okay i'm at least gonna do j-cal yeah please by all means next week you do mine you're a comedian who has a chance to prepare in advance and think your thoughts go ahead big boy give me a week you got it okay yours next week let's see these latent stand-up skills in action yeah absolutely he's been hiding them from us yeah i don't know a lot of stand-ups who hide their ability you know the funny thing about hiding something and not having something from the outside end they look the same you can't tell a difference sorry jake i'll go over to you okay he's dropping annual letters in luxurious sweaters as far as respects go well it can only get better the dictator himself jamal polly can i i cannot comment on the spell oh my god i mean this is getting brutal who's writing these oh my lord all right everybody it's been a big week uh did you did you read my annual letter any of you three i i saw your no that's a no i get it i get it i reviewed the table where you listed all your results and i actually sent it to my team i was like this is a really nice way of summarizing you know a firm's results over you know a long period of time because you had every fund and your totals and uh and all the key metrics well can i talk about that for a second yes you know what's what's incredible about what you're saying saks is i i was interested in a bunch of other funds that i'm invested in and their returns and then i've also seen a bunch of leaked fundraising decks of all kinds of other firms from growth stage to crossover to pe and it's incredible that they are not standardized right some people only show gross irr some people show net irr some people don't show the total value of the paid in capital which means you know if you have a hundred dollar fund what is the total value of all of its holdings some people don't show dpi which is distributions of paid in capital which means okay for every dollar you've taken in how many dollars have you sent up if you don't show all of them what was shocking to me is how much you can kind of hide and play and manipulate the numbers and one of the most crazy things that i saw is that there are these late stage funds that write into their fundraising decks that what they actually use are lines of credit to juice irr so what they do is if they're about to do a deal they'll actually get a loan from a bank put that money into a company wait until it's about to get marked up and then what they do is they actually call that original money from their elbows and pay back their capital call line of credit so what does it do it inflates irr but this is why if you do if you see the other numbers it still shows that it's kind of like you know not doing much of anything so if you ever see multi-hundred percent irrs or high huge irrs with zero dpi and a marginal tvpi it's folks that are playing games to trick lps just a heads up that is so weird so what you're saying is just to summarize for people in the world to understand hey we get judged on the rate of return each year so if the stock market does seven or eight percent we're expected to do triple that so we've got to hit 20 25 each year now the clock starts ticking when the money gets called from the lps the partners correct and gets put into the company so if you invest in your tour of your fund you pull the money down from the lps you put it into youtube whatever it is what you're saying is they will take a loan against that future money from a bank at an absurdly low interest rate let's say one percent or two percent correct they make the youtube investment then two years later youtube has a price round that marks it up 20 x then they put your cash in in year three of the fun year and pay back the loan now they've paid two percent two years in a row but the thing's gone up 20 x correct what a that's that's dirty well so it's it's dirty enough that the sec has actually now introduced legislation it was in february that basically is going to try to uncover all of this nonsense and so you'll have to be much more transparent so the format that i used in my opinion is the most transparent way of not being able to hide the cheese you show all the critical elements together in a simple table that will make it very obvious who's playing games and who can actually make money so there is a um semi-legitimate version of the the loan thing which is um you know where this comes from is a capital call loan so you know we're making a bunch of investments throughout the quarter a million dollars here for a c deal 10 million for a series a you know it's happening all the time you don't necessarily want to hit your lps with capital calls for every single little small investment so we do is you get a capital call line from svb or something like that and then you do one capital call per quarter and so they will loan you the money for you know one two three months but it's not for a year but the but the reality is if you have a reasonably well developed infrastructure you have a cash forecast of what deals you may or may not close with probabilities and so you know what the weighted amount of capital you need to have on your balance sheet is so i agree with you to have a small amount at the edges to pay for expenses to pay for salaries while you clean up at the end of a quarter completely reasonable but if you're making you know five or ten percent commitments into a company and you're using this as a way to basically create subterfuge and hide i i think that that should not be allowed yeah yeah the number of capital calls is annoying for people yeah yeah anyway i did share that table with our team to because i did like the format quite a bit i i think we'll start reading it this weekend it's very hard for funds who are not performant to use that format now yours you're you're you are very highly performant so you can use that format but i don't think people that have not returned money or or have fake paper markups can use that format because it is too simple yeah yeah i i at the end of the day what metric do we all look at when we are lps in a fund well this is what i put down i put down the ones that i look at for everybody else that i'm an lp in you know so what one is that for you i i love multiple on cash invest no i i i need to look at the totality of it i need to understand what is your gross and your net irrs those are important things to understand because it shows how efficiently you put the money to work of course but then but then ultimately then the other two things that really matter is what is the total value you've created and then what percentage of that have you given back to me because that allows you to understand how much paper value this so for example if today let's just say you had a fund that had a tv pi total value of paid in capital of a 5x a 5x on a fund is incredible but if you've distributed none of that well guess what if we're sitting here in may of 2023 or 2022 rather the total value of your paid in capital is not really 5x it may be only 3x and it may be actually two and a half x considering what the markets have done to these companies right and so it allows me to really understand how performant funds are in not just being a part of the game but actually generating realizations and this is the hardest part as i told you jason like this past quarter i think i passed 2x across my funds when i was managing outside capital and i think my gosh it took me 11 years it's hard to return 2x the money and that means i've returned two and a half billion dollars you know how hard that was yeah i mean you got to time the exits you have to have the ability to add you know you can't even time the exit you have to you have to be constantly managing and working your portfolio sometimes you're selling in secondary transactions sometimes you're actually trading up in private markets where you help this company merge with another private company other times you know if i think about it the number of ipos i've had is relatively diminished so how do you make two billion dollars where i've only had one ipo which has been slack yeah so this is a really really hard business and it was just a reminder that you know in the last four or five years managing capital has seemed relatively easy but in these next few years you're going to see who's really really good it's kind of like old warren buffet you know you really you know you can see who's naked when the tide goes up i mean said another way the last five years raising a fund has been really easy uh and writing checks has been really easy and now comes you know act three which is returning a multiple on the money you easily collected and boy is that hard and i you know i all of these um new lps the other thing that i wanted to say is one thing all these lps send me even though i'm not an lp and a potential they send potential lps their performance because they're so proud of it like quarterly i'm like not even in this fund and they have these crazy markups crypto investments this whatever but they've returned no capital and so just to give you just to give you a sense of it if you if you look at the most fantastic organization in the world if it were an investment manager which is berkshire their long-run 50-year track record is you know around 20 right gross if you look at the most successful asset manager in the world and i would put blackstone at that just incredibly good and best in class in probably three enormous parts of the worldwide economy real estate credit um and private equity you know their long-run track record is that on 200 and some odd billion dollars of private equity and another 100 billion dollars of of um [Music] of real estate they've returned 2x so that's what the upper bound is you know doubling people's money and generating 15 to 20 is the best you can expect if you are really excellent and long-lived that's the best what do you look at freeburg when you're an lp what number do you care about because you lp other funds and and i think all of us do at times i made my first venture fund investment in 2006 and i i am still getting distributions from that fund and i'm looking at it i'm like this is a 2.4 x over that period of time i'm like what the hell why did i even put this money into this fund i guess this makes sense for pension funds and you know very large balance sheet long-range investors that need to kind of diversify but as an individual i should have put my money and have had liquidity on it for 16 years rather than have it locked up and a bunch of private companies sloshing around and you know kind of dribble out and at the end of all this i only get two and a half times my money back two and a half times your money in 16 years what's that irr it's like low teens yeah not a great deal no no it's slower you would have been better owning the s p 500 that's right and so for me i think the the the key the metric the only metric that matters which i think you're saying chamath is how much cash i got out relative to cash i put in and so initially my my irr is negative 97 and then it goes up to negative 80 and then your negative 60 and negative 30 and negative 20 and now it's 14 because i finally got more money out than i put in and so it doesn't feel to me like uh you know the the just generally private investing everyone gets excited because we all get sold stories and individuals all gets old stories of you put a dollar in you get 100 bucks in i mean j cal wrote a book called how i made 100 million bucks from whatever you invested um in uber yep and um and that story i think gets everyone kind of excited but the reality is the vast majority of the time and if you diversify your bets like this you're going to end up waiting a long time to get your money back you're going to be locked up and a top performing fund is returning two and a half x after 15 years which is not much better than kind of investing in the s p where you could sell that any time you want and use that cash for any purpose you want well if you did a hundred thousand dollar investment and you returned 260 000 in 15 years i'm on an irr calculator right now internal rate of return it's six point five eight percent yeah better off from the s p uh yeah i mean and if you did qqq depending on yeah how hot the market was then yeah and you get really it's really really really hard to actually make money there are always going to be periods where people look like geniuses and have markups but you can really see when people have skill after a decade and a couple of up and down cycles same with hedge funds by the way right hedge funds put up a score every year and in certain macro cycles that can last many many years everyone looks like they're doing well and then all of a sudden tides go out and you lose more than you made over that period of time and then you realize holy crap i was actually in an insurance business where you get paid some small premium every year and then you have some massive loss one year and that massive loss it turns out your underwriting wasn't good because you lose more than the um sum of all of the premium you collected over that period of time and unfortunately a lot of investing looks like this which is you have small returns for a long period of time and then some massive loss and and the whole business makes you look like you know along the way a genius but the reality is over any any long cycle um most folks end up kind of in a bad position um and amanda you know the icc by the way has um has solved this for mutual funds right and etfs you know there's there's very strict there's very strict standard reporting and i do think that as um you know for example like if you go to the big banks sorry sex interrupt i just want to finish this last thought if you go to the big banks and you have if you're an individual like a doctor or dentist or somebody and then and they will aggregate and pool capital and put it into these funds on your behalf as an example so you know it looks like jpmorgan or goldman sachs is a you know 50 or 100 million dollar lp in one of these big funds but in fact it's just the sum of a bunch of folks on their platform it stands to reason that if the sec can actually mandate standardized reporting for private investing it would actually be a really good thing because all of these games will and probably currently are as far as i've seen in these presentations tricking a lot of folks to put their hard-earned money into things that actually will never make money and it's because if you selectively cherry pick how you present this data you you can tell a partial truth so you know i would really i would love i'm happy to be compared to to any organization but every time i hear somebody chirping about how good they are my only comment is i just want to see your table in the same format as my table and we can compare it because it allows me to really understand yeah liquid returns and by the way the point i made earlier about when markets are generally good hedge fund public market investors generally can look like they're doing well by having a good marginal return above the the benchmark every year and then one year have a big drawdown and suddenly they realize that their underwriting wasn't that good the same can be true in in private investing in the opposite way in the sense that you'll put in small checks small checks and lose money and lose money and lose money and then have one big banger and you get 100 x return and you look like a genius because your whole portfolio looks good but you fast forward and you keep doing that for another 10 years all those small checks may not even add up to the banger and that's um that's the flip reality that you realize and by the way i think that's a good analogy for the difference between public and private investing you have similar cash flow economics where you can have small returns and then a big loss in public and you can have small losses and then a big return in private and the timing of when you present your data can make anyone look good if you catch a good hit at the right time or you don't have a bad hit at the wrong time and then the framing over a long enough period of time i think really becomes the key measure and the reality is most people don't make it long enough in their career to actually to actually present true results in how they really do underwrite and by the way to the extent anybody's listening is able to invest in these private funds i think jason mentioned this uh superficially so let me just dig into it because i think it's really really thoughtful what he said which you should understand if you have the option to invest in a private fund you have to understand that that private fund has two huge negative things working against it relative to investing in the s p 500 so you could put your money into a vanguard etf or if you could put your money into a private fund you need to realize two things number one is it is illiquid not just for 10 years but it could be a liquid for 12 or 14 or in you know friedrich's case 16 years so you need to get paid a premium for owning that and then the second is depending on the business model you may have very high failure rates which means that you need to really hit these outsized grand slam home runs and if you don't then you're going to be worse off than if you invested in the s p 500 so that deserves a premium and so jason's right which is the s p is between seven and eight percent over long periods of time predictable compounding that's you have to add another seven to eight percent for this illiquidity premium and another seven to eight percent for the business model viability of for example being in venture when you add those three things together you do need to get paid basically in the low to mid 20s returns to be justified otherwise you are much better off just owning the s p 500 much much much better off sex uh do you what do you look for when you're lping and now that you have many large funds what do you think lps are looking for now and what do you advise them to stay focused on the number one metric that matters is dpi which is the ratio of distributions to paid in capital and it's basically money in versus money out right at the end of the day that's all that matters is how much money did you put in the fund how much money did you get out the issue is that to jamaa's point these are 10 to 12-year funds and it takes a long time to get distributions so all the other metrics are basically triangulations or approximations of what you think the fund's going to do until you actually get to distributions so i would say in the long term it's all dpi in the short term you look at tvpi the total value to paid in capitals is basically what's the marked up value of all the positions in the portfolio versus how much cash has gone in and then the big question is does the tvi tv pi turn into dpi does the total value explain that to people if chamoth had invested in slack but there hadn't been an outcome it could be on the books for a billion dollar position so the tvpi is looking really great but until that company goes public and the shares are distributed you know the lps haven't realized it so it's it could be ephemeral or it could go down significantly as we've seen with public markets yeah so in the last four months we just returned our fund one uh in terms of like real distribution so i think we have like a dpi of like 1.1 or 1.2 on that fund now the tvpi is like four to five so but it feels great just to distribute the entire fund out literally in my first two funds i think we we did that as well and it's a really great feeling and and you know sometimes you know selling 10 or 20 of a position early and getting over that hurdle and just getting into the one to 2x that's a pretty great feeling by the way just to talk about how difficult it is to convert paper gains into real gains let's just say jason in your example you had a fund that had these huge paper gains but haven't distributed anything as coming into this year okay here's a little interesting data about the ultimate buyer of all of these tech stocks which is the nasdaq right people that buy stocks in the nasdaq listen to this as of yesterday more than 45 percent of stocks on the nasdaq are now down 50 percent so basically one in two more than 22 percent of stocks on the nasdaq are down 75 so almost one in four and more than uh one in five and then more than five percent of stocks so one and twenty on the nasdaq are down ninety percent so you can use this to actually get a blended average but what it means is that the ultimate buyers of tech stocks are taking a 60 discount to what they were able to buy even just four months ago 60 so there is no public mark that will support a private mark unless it's also discounted by at least 60 percent now think about that when you talk about this entire panoply of companies that have been over funded many who are under executing and burning enormous amounts of money who now have to come back out to the market as any sophisticated buyer will have to tell them the truth which is i'm sorry guys but the data says there's a 60 discount to this mark are you willing to accept it or not otherwise the lights are going to go off yeah and these marks only happen uh at least in the private markets and venture funds when a transaction occurs so if somebody raised a bunch of money as we talked about in previous episodes at a billion dollars you know uh and they're now worth 500 million well that's only going to uh work itself out in fun documents and reports for a year or two later when the next transaction occurs so the the there's a lagging effect one thing i just want to bring up before we go into um maybe gdp or the bill uh hawaiian situation is what we talked about on this pod last year about what was going to happen in private markets uh i've been seeing the last two or three weeks and i don't know sax and freeberg what you're seeing in private markets but really acutely people who are going out and skipping rounds this like i'm gonna you know just skip my seat round and just do a series a i don't have product market fit i'm gonna get credit for work that hasn't been done i'm gonna raise 10 million without product market fit oh my lord has this uh that has the dialogue changed i've been on many calls with founders who've met with 50 vcs and the conversations are moving to you know how many months to break even and uh you know how many customers do you have and how they increase them let's talk about the churn it is getting uh super pragmatic out there if you're a founder and we said this a year ago but it's worth stating here this is not the moment i would try to over optimize if you have a term sheet or money on the table i would i would close it uh just you know founder to founder what are you seeing sax yeah i mean it's gotten a lot harder i think especially at the growth rounds we actually have signed two growth term sheets recently and it was much harder for us to do growth rounds last year just because you had these huge mega funds come in at crazy valuations but now they're kind of licking their wounds and we're starting to see some really attractive growth opportunities everyone else is backed off so it's interesting yeah it's changed quickly yeah now one thing to i you know toronto raise a good point about you know private not only are private valuations sort of sticky but private marks are sticky and you know companies only get remarked every couple of years and so whereas the public markets get remarked every day so it is hard to know like what is the proper valuation of a company that raised money last year because yes valuation multiples have come way down but then also they may have grown and their performance is better so the analysis that i saw jason lemkin do in his lp newsletter and we're basically repeating it for our entire portfolio is to calculate what was the ar multiple that you paid basically valuation divided by arr what was that entry multiple and what is it today and so we're doing that across our whole portfolio so what you see is sorry sorry stocks clarification ltm arr or you know uh ntm arr which one basically you last 12 months next 12 months yeah no you just look at their current error which is you know run rate rate their current run rate revenue yeah exactly january you times it by 12. yeah basically yes you take the current month and multiply by 12. but they have to be annual commitments right so if it's not it has to be annually recurring revenue if they're not in if it's not an annual commitment with an expectation that's recurring you can't count it so for example you don't count professional services revenue in that in any event so the point is you you basically calculate what was the multiple that you paid at you know entry in the company and what is it today as a function of the current valuation and what we see is yeah there's a lot of companies that we got into i don't know two years ago at evaluation multiple that you couldn't defend today 60 times 80 times 100 times but the multiple today is more like 10 or 20 times because it's actually grown really fast so you need to look at both sides of the equation and that's the analysis we're running for every company in our portfolio and then you know lps can decide how to how to market i mean the most important thing is what's the next investor if they need more capital going to market at well the question is are you growing faster than valuation multiples are falling correct and then can you that means you could have a down round a neutral round or possibly an upround but it doesn't so are you starting to see people just or people discussing on the board level or in your firm hey maybe we take a sideways round a neutral round we just go to last year's price and top off another 10 million are you seeing that i've told some of the boards i'm on just keep fundraising just keep the round open top off if there's money available because you know especially if you raised around eight months ago six months ago those prices like if people are still willing to invest in those terms that's a good deal i literally had this conversation with the founder this week where they had raised that in a great valuation and they turned money away because they were like yeah that was a mistake we're still growing so yeah why would we take the money now if our valuation is going to be you know double in nine months and now it looks like yeah maybe you know that extra one to five million dollars would have been good to lock up okay so adding to these headwinds i think we um we've been talking about the possibility of a recession for those uh uh new to the to the concept of recession if you're under the age of 30 and haven't really lived through one as an adult it's two quarters the official definition two quarters of negative growth of the gdp well it turns out uh us gdp fell 1.4 percent in q1 uh and uh q4 we had a 6.9 growth rate q1 was the weakest since the spring of 2020 when covet hit nick cue the clip where sax and i uh basically said this may happen in january of this year so the concern is that you know with the losses we're seeing and i mean every day it just keeps like keeping more red that this could turn into a recession you know popping of bubbles is usually followed by uh by recessions or so i think you know the fortunes of the economy could turn really quickly here and that is that is the marginal risk the marginal risk is actually for a recession david is saying something really important the risk in my opinion is not of runaway inflation anymore the fed is now in this really delicate situation where china cut rates last week we have an fomc meeting the open markets committee that sets rates on wednesday i think of this coming week what is he supposed to do the risk is to a recession because if we over correct yes and the leading indicators all around the world tell us that their economies are weak then inflation may have actually been much more transitory than we thought and right now we have to decide because if we over correct we're going to plunge the united states economy into a recession there's a lot of data here and obviously uh this is when this data is always in the review mirror so obviously we're talking about q1 it takes a while to collect this data and there's a lot of different factors going on at the same time obviously kovid and obviously supply chains consumer spending rose at a 2.7 annual rate in q1 a slight acceleration from q4 there was also a 9.2 rise in business spending so we have a lot of spending going on who knows if that is spending that actually occurred in the previous quarters and because of supply chains like people's cars are being delivered people's machines and manufacturing equipment is being delivered now we had negative gdp in q1 for a whole host of reasons that can effectively be summarized by the fact that we are still trying to restart an economy at the tail end of a pandemic and we're doing it in fits and starts and so we have these small bursts of incredible gdp which we had last year and then contractions in the economy right the thing that's always been true about the united states is that we are a consumer driven economic engine which means that as long as people feel confident and they're buying things the economy tends to do well and we tend to move forward as a society when consumer confidence ebbs and people contract their spending we are in a world of hurt the last couple of years we've had a lot of consumer savings right we've had a lot of money that's been pent up in the system whether it's stimulus checks or you know loan forgiveness or all of this stuff has allowed people to feel much richer and as a result they've started to spend in dribs and drabs the problem now is that because prices are so high all of those savings have largely been depleted i just sent you guys a text in the group chat of what consumer spending looks like in consumer savings rather and it tells a really really scary story which is that the savings boom is largely over personal savings rate fell to 6.2 percent in march the lowest since 2013. and so what does that mean well it means that the setup is there for us to sort of really contract what we are able to spend as a society so i think now the odds even push further in this direction that we could have more quarters of negative gdp and all of a sudden we're back to what we talked about before which is a 2019 like scenario where the government or the fed specifically races forward to tackle inflation and in 2018 and 19 it turned out to be a head fake and by the way in 2019 the stock market ended up more than 30 up 32 or something like that crazy numbers here and by the way back then in 2019 china turned over it looked like it was going to be a fast-moving economic recovery for china and instead they sort of slowed down we have the same thing here we have a quarter of negative gdp we have china in lockdowns we have every company that's that's in the manufacturing supply chain ecosystem telling the world that we don't really know what this is going to look like intel today actually said there's going to be shortages and ships through 2024 so i think uh i think it could be a very difficult path ahead for the fed how do you raise rates 400 basis points into uh into a slowing economy you could raise basis points 75 you know 75 bips maybe 100 bips but it gives them very little freedom to operate without really tanking the economy there's also another point to highlight here which is in some of this data that was released there was a strong indication that there are real in issues right now with inventories i don't know if you guys have tried to buy an appliance or a car lately or a piece of furniture but like i tried in the q4 to buy a car and it was absurd i mean right now there's like one-year delays to get a freaking couch i mean like everything in this in the global supply chain somewhat related to the kind of big inflationary pressure that hit us at the end of last year and then everyone placed orders all the factories kind of had to produce a lot they all couldn't keep up through to what's going on in china right now where there's lockdowns and factories are shut down i have several businesses in the hardware space that are actively searching and frantically trying to find components suppliers specific parts even basic raw materials like aluminum are very hard to get a hold of um and so there's also a very challenging inventory and supply chain problem when that happens i can't actually wire money and buy aluminum because i'm waiting for aluminum to show up i can't wire and buy the the microchips i want i can't wire money to my car dealership and buy money so that doesn't get credited on the gdp counter because those sales didn't close that quarter and as we saw with amazon recently and others and apples just said that they're expecting i think close to a 10 billion hit this quarter because of supply chain issues a lot of folks want to spend the spending interest is there the capital flows are there it's just that the supply chain is clogged up and we're so dependent on getting atoms and molecules moved around and they're all kind of held up in different places that folks simply can't get their purchases in and so the revenue triggers don't get hit and so the numbers don't look good from a growth perspective but it doesn't necessarily mean that the demand isn't there this is a significant inventory problem and supply chain problem that's that's driving a lot of this uh um this adversity right now in the market it seems and interestingly by the way that doesn't that doesn't mean sorry that doesn't mean that we're not going to have a recession because you know when i when i'm not able to spend money on apple apple's spending less on their suppliers they're spending less on their suppliers so there is a trickling effect of capital flows and the recessionary effect may be hit but you know there is capital and there is demand uh for consumption uh it's just that we're really clogged up right now well and the consumer confidence index has been on a bit of a roller coaster we were at 130 before the pandemic for the year of the pandemic we were down in the high 80s 87 88 89 we rocketed back up um you know in 2021 people started to feel like oh we've got these uh vaccines things are gonna go back to normal rock it back up to 128. and it's been a slow tick down uh to where we're now at 107. and so i think consumers don't know what to think they don't know if you know inflation is transitory they don't know if gas is going to be seven dollars or four dollars they don't know if they should spend a big uh do spend on a big vacation or not and so this i think in terms of people's planning i don't know if people can plan how their own personal budgets right and i think that's on the confidence thing to chamot's point we need to have a predictable economy you know it can't be this um schizophrenic uh to use the term sacks what do you what do you think about what we're seeing here in terms of we're obviously either in a recession or dip you know dancing around it we're basically you know on the edge of the cliff right now i think it's probably the most accurate i tweeted in february hey anyone noticed that we've just entered a recession and i got dunked on by all the professional economists and you know all these people but the actual experts the yes exactly correct and now it's like the data just came out negative 1.5 economic growth in q1 so what i wrote at the time was exactly right and you know i don't know how the threat the fed threads this needle i mean we've got a slowing economy with negative gdp growth you've got inflation is still rampant um it's not as i don't think it's gonna be as high as last year just because we're lapping a much bigger number from last year so on a year-over-year basis the comps are are you start at a higher price level but inflation's still there so you know i don't know what you do about that um it's it's a really tough situation and when you have this kind of wealth destruction in the stock market i mean you know and we uh there was a good tweet that um jamath you shared we should put up on the screen i mean so much like wealth has been destroyed you don't necessarily see it if you just look at the big cap indices but you look at all the engines of sort of growth and prosperity the small caps the recent ipos the growth stocks they've been absolutely hammered it really hasn't been this bad since the dot-com crash of 2000 like and and not just the like april period but like all the way in october where it kept going and then uh the two thousand recession yeah the 2008 real estate crash so we're already like top three worst situations for growth stocks in the last 20 years and when you have that kind of like wealth destruction it eventually trickles down into the economy because people just feel you know companies start cutting budgets people have less money the spending goes down that dynamic that that we're referring to in this tweet in that image is called dispersion which means you know people may be being be confused when you hear why are all these stocks down so much but the the indices are not down as much and it's exactly for the reason that david just said which is that um underneath the surface the mega cap text consume so much of the market cap of these indices so you know the googles the microsoft's the apples and the teslas those four just clog up an enormous percentage i think it's approaching 40 of these of these indices and so underneath the surface you have dispersion which means you have these tail of two kinds of stocks you have these four big mega caps and then you have everybody else and the mega caps are generating so much cash that they're just basically keeping the market afloat so at this point maybe there's a small silver lining and that silver lining is that to be bearish right now is effectively not being bearish these growth stocks because as we said they've been just decimated at this point to be bearish the indices means very specifically to be bearish those four names and only those four names and so that may actually mean that the market has effectively crashed already yeah but by the way i'm not necessarily bearish on growth stocks from here because like you said they've already been beat up so badly the stock market's usually a leading indicator what i'm a what i'm a bearish about is just the state of the economy because the stock market's traded down it trades down on expectations so it was already trading down months ahead of the slowdown in the real economy so now new in december the market knew in november the market recession was coming and like around november 6th of last year and they knew it was coming in yes mark knew when we talked about the sales that bezos and musk did the you know when we were when we sold equities we were saying like it's like you can't keep all of your money on the table all the time unless you have the durational wherewithal meaning you're just not time bounded and you can just be there forever and not everybody's in that position an endowment could be in that position but individuals with no an endowment is not because they have to create distributions every year right there's i'm talking about the mega endowments where they you know for sure you know you know ford or harvard may not need to do this but yeah smaller ones might actually be operating you know memorial sloan kettering might actually be operating their budget from it yeah but just to go back to david's point like it's a really difficult spot like what is the fed supposed to do so they're probably going to tighten 50 basis points in may that's relatively well expected we'll be we'll be able to digest that reasonably well but what do they say to david's point you know if they all of a sudden go on a crazy program of quantitative tightening right and what is that again that's when you know we were spend they were spending they were printing you know money billions and billions of dollars going into the market buying securities and giving people the money right that's called quantitative easing now we're doing the opposite right they're selling and they want the money back now the problem is what that does is that removes liquidity from the market and when you remove liquidity from a market you actually make it a little bit more fragile a little bit more precarious a little bit more price sensitive and so it puts us in a very tough situation when the economy is slowing when these guys may be raising rates and then at the same time removing money from the system it may be a lot for all of us to handle and so i think that they're under a really difficult well and if you started decisions there is a business cycle and you know there are always recess recessions periodically every seven to ten years but they have really magnified this because you had the fed for years maintain interest rates really too low and doing quantitative easing during a boom and then the federal government was printing trillions and trillions of dollars and they didn't stop it was one thing to do it during that sort of covid recession but then last year they printed that last two trillion and that's what set off this wave of inflation so you know when i was like in school learning about economics and they would tell us that all these government programs and actions are like automatic stabilizers or what have you like the government helps balance out the business cycle no the government like magnifies the business cycle they've made this so much worse well they're putting their hand on the steering wheel right it's like let the economy drive let the free market do this and if you start you know you might oversee her into the federal government is great at setting incentives right and creating like tax credit programs and incentives for private enterprise to invest money but when they act as a direct market participant and start to actually direct capital flows and make decisions about how the capital market should work it never ends well because this is not what they're good at well i think there's also another i mean just to counter that there's there's also this other issue of not just incentives but when they create a free capital that then allows a market to find a way to take advantage of that free capital and that's effectively what we've seen happen with medicare medicaid as well as with the student loan program and um you know i i don't know if we're going to get to the student loan program today but i think you know to your point chimoff one of the things that's happened with the cost of education in this country is that the federal program which was uh you know and i i took a bunch of notes here to talk about this today but the federal government began guaranteeing student loans in 1965 it's called the federal family education loan program and that program made capital available for students to borrow to spend on universities or whatever education they want to go go get of their own choice and the idea being that that will give them the ability to go make more income and extend their careers and educate the workforce and the problem is that when that capital was made available a lot of private universities started to emerge and private for-profit colleges started to emerge and in the years since that that program was introduced i just want to give you guys some crazy statistics so in the 1969-70 era the cost for a public four-year college was 1200 bucks a year that's room board tuition and fees and in 2020 that cost rose to 21 000 and here's the the uh the other crazy stat for private four-year college in 1970 2500 a year 2019 2020 46 000 a year and so that capital basically allowed these for-profit organizations of these organizations that try and grow their endowments which are effectively like for-profits to charge any price they wanted and the consumer the student would be able to get free capital to fund that quote-unquote education because it was available to them for free from the federal government and so the federal government created a bubble in education cost and that bubble in education cost has now overburdened 15 percent of american adults with student loans that many of which would they would never be able to pay back and now we're in this really awkward situation of saying hey maybe we should forgive those loans because it's unfair that people are burdened by this and um and doing so obviously doesn't solve the fundamental problem which is that making those loans available in the first place creates an inflationary bubble effect in the end asset and the end asset in this case is education but we've seen the same thing with housing and we've seen the same thing with pharmaceutical drugs and medical care and other services so any place where the federal government steps in and says i will provide a backstop i will provide free capital to support and create a quote-unquote incentive for this market to accelerate you end up with these inflationary bubbles you're gonna have people game the system right you get whatever university of phoenix types and and you even the large uh jacob university is raising uh tuition to observe things and people take these loans chemoth before their frontal lobes are even fully developed and they have long-term uh understanding of the ramifications of this so where do you stand on this champion so there's a there's an interesting article in the atlantic about who really wins when you forgive student loan debt and i and i just pulled out some facts so i'm just going to look down here and read them just so i get them right it said in the article 13 of the u.s population carries federal student loan debt grad students account for 37 of that federal student loan dollars currently it's 1.6 trillion of total total student debt versus about 10 trillion of mortgage debt so the average debt has gone from about 25k in 2012 to 37k in 2022 so you know almost a 50 increase in a decade the majority of student debt is held by white borrowers only 23 of black americans age 24 or greater have a college degree in 2019 so the majority of the black population would not be directly benefited by student loan forgiveness in 2020 the median weekly earnings for someone without a high school diploma was 619 dollars for those with some college but no degree that number was 877 dollars for those with a bachelor's degree it was 1 305 dollars and that number continues to grow for masters and professional degrees and and phds interestingly the last two points the gallup organization who ran a poll is unable to report the percentage of americans who have mentioned student debt or student debt cancellation because it hasn't garnered enough mentions to do so in 2022 according to the article across four gallup polls quote just one respondent mentioned student debt as the most important problem facing the nation unquote and then last thing is here is that 43 percent of the 2020 biden electorate graduated from a four-year college or university versus 36 percent of democrats in 2012. so you know one of the takeaways is that this may be an issue that affects a certain percentage of the dems who went to college but it may not represent a plurality of all democrats and it doesn't really represent you know a majority of all they sure are vocal though to your point i think yeah i mean look that this is i i think that there are two motivations uh political motivations for doing this now they're pretty obvious um and then i just want to say three things on on kind of the concern about this and why i feel very strongly that if we don't fix the underlying system you cannot forgive student loans you have to fix the system before forgiving students fix it first what's the number one fix freedom well so let me just say the two motivations the two motivations number one this is a stimulus so this morning the biden administration said that they were thinking about taking executive action to make the first ten thousand dollars of student loans forgiven so if you do the math across 43 million people that's a roughly half trillion dollar forgiveness what happens that half trillion dollars much like we saw last year becomes a stimulus payment it is money that people now have that they didn't have before it is capital that they or freedom from debt that they didn't have before and it will stimulate the economy so there is a very um important economic incentive here to do this which is if we do it it will be stimulating to the economy and um people will spend more and the economy will grow by the way that's a that's a two and a half percent boost to gdp right so half a trillion dollars of free money just flushes into the system the second thing is that it will help in the midterms is their point of view right so they've obviously done they've done the polling here right and and it's like hey when i was in junior high the kid that ran for class president was like i'm gonna make everything in a vending machine free guess what that kid got voted in so you know the idea that you're just gonna give everyone free give your your loans back to you for free everyone's like my gosh this is the best thing ever elizabeth warren your genius you know bernie sanders your genius joe biden your genius let's say yes um and so they believe through polling that this is going to help um help them in the midterms but the challenge is if we don't solve the problem if there's no standard of value of an education if there's no standard around whether or not a specific accredited university increases your income and earning potential as an individual or increases the opportunity for you as an individual you are wasting money you are giving federal dollars to private companies who are profiteering from that and the individuals are not going to benefit from it and i think that that we're seeing this sorry and we're seeing this structurally continue in a lot of other places where the federal government doesn't hold itself accountable to the standards of how their stimulus is meant to benefit the individuals that is being funded for the individuals are not getting a good education in many cases they're not earning more by getting this education chamf's data speaks to the average but a large percentage of people go to crappy universities that don't improve their earnings potential and then the federal government says here's this free money that private university just made a bunch of money and no one's better off and guess who's end up paying for it taxpayers are gonna end up paying that private company a bunch of money because we're gonna forgive all the loans and so we have to have a standard around whether or not a dollar should be loaned to pay for education at a specific university by having that university prove that it improves the potential and by the way if you stop the federal student loan program today fewer people would go to college and if your people went to college guess what would happen colleges would drop their tuition the reason they're able to raise demand supply and demand and the reason they're able to raise their tuition is because there's so much demand because there's free money and so if we actually saw the federal loan program cut back or put these standards in place the cost of tuition would actually decline and profiteering would decline people would get a better education and the taxpayers would be better off end of diatribe sorry no no i i think it's completely legitimate saks we talked on a previous episode about how people make things like immigration uh you know such a charged philosophical debate when there are point-based systems being used in canada australia and other places that make it much more logical do you think the the solution here is to freeberg's point of just and i'm interpreting free brooke's point as what is the value of this degree nursing great nurses can take out a hundred percent of their loans because we know there's a nursing shortage uh you know philosophy graduate students maybe can't take out more than five thousand dollars in debt because we don't see a bunch of job openings for that getting a history degree trump university is a lot different than getting a nursing degree so sax what's the solution here uh and then we'll let give you your um your uh swing at bat in terms of buying votes yeah let's go solution first before we go partisan look i think that a loan only makes sense when it generates roi right it makes you're going to generate more income on the other side of that loan to make that loan worthwhile and the problem here in too many cases is these kids go to these schools they spend five years there they get a degree in some woke nonsense and of course it doesn't help their earnings power i mean that's a bit that's the fundamental issue here is that these degrees are worthless right i mean if you go if you go to if you go to college to get you know to become a doctor or maybe a computer program or something where the skills have value then of course you can pay back the loan because you get a gainful job but you know otherwise if you just major in fine arts at harvard or something like that i mean you basically graduate you get a job at what the new york times is your dream you can't pay back your loan you're saddled with this enormous debt and think about the cultural impact that has you you have this young generation who believes in socialism and i think that's a big part of the reason why is they have no capital and they have no ability to accumulate capital because they're so saddled with debt so to interpret what you said sex hard to believe in capitalism if you got no capital right if you start if you start the race at negative 250 thousand dollars in debt to get a degree that was basically worthless for you yeah so the system is cool so look i think maybe what we do is we reform the the debt i had actually okay with forgiving the debt in some instances if you got a reform of the system in other words right if we stop funding these worthless degrees but if you're basically going to acknowledge that hey we need debt forgiveness because these degrees are worthless why would you keep funding those degrees so you know we need to have a like a more honest comprehensive solution here the other thing we should do actually is one really crazy part of bankruptcy law is that student debt is one of the only types of debt that's not dischargeable in bankruptcy i don't know if you guys know that but right under george w bush's presidency explain it to everybody yeah basically look when when if if you ever get to the point where you have too much debt and you can never pay it back you declare bankruptcy and then this the court starts you over from zero so you can at least start building some wealth right but you lose credit but you lose yeah exactly no one's going to want to give you credit after that but at least you're not so deep in the hole you can never recover so that's the point of of a personal bankruptcy but the crazy thing is that in bankruptcy you cannot get your college debt your student debt cancelled you can get your credit card debt cancelled you can get other types of debt cancer you can't get your student loans canceled it's crazy so that's one thing they should fix immediately is make these debts just with private market sacks you wouldn't need to do that right the reason that's the case is because it's federal dollars that are funding those loans but if it was private market dollars people actually if banks and and lenders took a loss when people couldn't pay back the loans then the market would work itself out the problem is it's the federal government stepping in and trying to be a market maker right and it creates this this totally crazy incentive right it creates it creates double distortions on the one hand like you said it basically means that because government money is funding everything the tuition goes up because colleges take advantage of it but then also nobody's really making a smart roi decision about whether a smart underwriting decision about whether this loan is worth making whether it actually stands a reasonable shot of being paid back there is such an easy free market solution here it's called a an isa it stands for income sharing agreement this is where you give a loan to somebody and you get a percentage of their income uh over a period of time capped at a certain multiple say 2x and what this does is it aligns the person giving the loan with the job that's expected to come from the education you already have that you already have that it's called taxes yeah but here's the problem nobody's watching the store so nobody's looking at it saying i will give an isa at this percentage return for nursing nursing i gotta pay 50 of my income every year to the federal government to the government like i pay taxes the thing we have to remember is like if the federal government tries to do this it really is just about buying votes going into a midterm election and here's why if you arbitrarily give a bailout of one sliver of the population unless that sliver is really really large which we know it is not it's going to really anger everybody else think of all the people that are trades people working class people who don't have a college degree yeah what are they gonna think what about all the people that just finished paying off their debt what are they gonna think it's going to upset so many people and ultimately what this is is a bunch of coastal elites who are miscast in jobs and saddled with debt is pushing pro for a program that isn't a broad-based mechanism to create a quality at all it's just a get out of jail free card for a small people so for a small group of people who unfortunately were taken advantage of and this is the thing that we're not losing sight we're losing sight of you can only pay back a loan if you're making more money than you owe and the fact that this exists shows that these loans were really poorly constructed and they were given in instances where they should not have been in the private markets we've seen that happen but we go through a cleansing mechanism to sort it out right we've gone that's literally what happened during the 2008 real estate bubble people gave mortgages to people who could not exactly pay them if i as a lender think that you're not going to be able to pay back the loan i don't give you the loan that's the simple mechanism that exists in free markets and part of the issue is a lot of people got loans thinking without doing the calculation will i ever be able to pay this back and they took the loan to get an education the other the other binary concept that i will just make money but let me ask one other question of you guys at what age and at what level do you think individuals should take responsibility for the decisions that they're making when they take on personal debt because we see ourselves getting in the cycle where consumers are given debt they don't think about the consequences of that debt down the road or do the analysis themselves and maybe they're not equipped to and they'll take out a loan on a car on a house on a no but the problem is and on education but car but here's the thing like the education is a very dangerous thing because we put so much societal credit and external signaling to it and we give everyone effectively the same quantum of risk but that's not true for a credit card nor is it true for a car loan so the private markets are efficient in that when you first try to get a credit card sure you don't get an mx centurion or platinum card you're given a chase sapphire card with a 500 limit and you earn the right to borrow more same if you applied for a car loan the same with a mortgage it's based on a down payment so there's differential risk pricing and if you don't have differential risk pricing you're getting a lot of people how would you add it to education the market would figure it out the market would because you would differentially price the risk as as you guys literally a brainstorm it right now like what are your grades well no what courses did you take whatever whatever it is skills we're not gonna get it right the market will get it right but the market would figure it out the problem is and and sorry the incentive was and this is a really important point you know if you guys read ray dalio's book which we've talked about a number of times he's identified and highlighted that a growing economy and a successful um uh country improves by improving education and having more people get higher education generally speaking and so the initial incentive the initial intention behind the federal student loan program was a good one which was to give people access to capital that the private markets were not providing at the time so that they could go out and get a higher education we could improve the education of our workforce and we could um grow our economy nowadays the question that we always forget remember we always get one step away and then two steps away and five steps away and we miss the point we're in that moment now where the question really is is the federal student loan program doing more harm than good well that's actually are we actually creating value from our higher education system in this country or not no and no most importantly is the private market there because you look at the total debt outstanding 1.7 trillion dollars there would be a private market yeah freeberg don't sell beyond the close the answer is no we have a massive employment gap okay the data tells you in every single which way possible that we are not educating our young people to take the jobs that are needed for a high growth functionally moving economy we know that so we are miseducating these folks and then we are giving them access to enormous amounts of debt that they have no reasonable chance to pay back and i think that that should be fixed by fixing the incentives of the universities you are right universities today are for-profit asset management businesses wrapped by this philanthropic do-gooder nonsense that they try to tell people to get you to go there and pay fifty thousand dollars a year in tuition it's a joke and they're compelling people to think that these degrees are actually going to make them successful humans they come out miseducated and undereducated and incapable of servicing the economy's needs separately the other thing if you take a step back and take student loan off the table for a second and just say any consumer handout that touches less than you know 40 or 50 percent of the economy or of the population of a country is very precarious so students student debt in this case 15 of the u.s population so a lot of people but it also means that there's 85 who don't benefit what will those 85 percent of the people say when they have to foot the bill for the first 15 and then what do you think happens with other kinds of debt what happens when the oil lobby says forgive our debt because we're in a national energy crisis what what what will all the climate fraud there's no accountability well it creates a slippery slope and and and my last point on this is to the extent that we actually want to forgive student debt i'm fine if that's the law of the land that's great it should go to the floor energy to be debated in congress and it's a law that should be passed but it should not be by executive edict trying to back in to buying votes in a midterm election it's gross uh sacks oh by the way just on the politics of that i think this could potentially hurt them because jamaat to your point this is basically a bailout of the woke professional class it's the it's the underemployed graduates of these universities who again are members of the professional class they majored in things that didn't increase their earnings potential meanwhile the majority of the country is working class something like two-thirds of the country is still working class meeting non-college educated and they're gonna have to pay pay for this bailout in one way or another either through higher taxes or more uh deficit spending or more debt the burden of this bailout is going to fall on them and why should they have to pay stability like somebody working in retail is paying for somebody's graduate school degree in creative writing or something is completely profoundly unfair to the answer to freiburg's question we actually know when executive function fully matures in adults it's 25 years old and that's when you can actually make long-term thinking so there is an argument that people should not be allowed to take these loans uh that are not even that you can't get out of or there should be some cap on the amount of loans you can take because people at the age of 17 18 19 20 are absolutely not able to make these decisions there are other programs as well that work so in canada i went to a school called the university of waterloo and fantastic engineering school the reason i went there and i did electrical engineering there is that they had a program where after the first year so the first year looks like every other year at every other school okay but you're there for you know two semesters from september to may but after that you start working and you alternate four months of work with four months of school and you get paid for that work and what it allowed me to do was graduate with meaningfully less debt but it also allowed me to graduate with a commercial skill set and i was able to get a job and in that moment actually i was working at a bank and i got profoundly lucky which is i worked for an individual and i was trading interest rate derivatives and i was learning to trade technology stocks on the side and this guy mike fisher incredible human being and uh i made in one year like 25 or 30 thousand dollars for he wrote me a check and he said here you have twenty five thousand dollars of student debt go pay it off right now i'll like how much cash out this whole book i graduated with about twenty eight thousand of debt i had about eight thousand i think i had a um somewhere between ten and fifteen 10 and 20 000 and then i got my first bonus check after my first year of work after undergrad and i paid off all my debt and it felt incredible incredible it was amazing when i paid off my debt i've never been in debt since i walked downstairs to the bank and i paid i gave them the check and i endorsed it and i said here's my student loan number and i was like oh my god i was free for the it's like it was an enormous sense of relief for me it was credit card debt i had accumulated all the credit card because i went to cal it was like four grand a year to go but but if i were back then if i didn't go to waterloo i would have had double the debt because i wouldn't have had work but then also like i think about all these scenarios i wouldn't have had two years of work experience i may not have gotten the job that i did at bank of montreal at the time that may not have been able to give me a chance to meet mike fisher hey all these things could have happened so you can't rely on the luck of the butterfly effect so that you have a reasonable shot of building a good life yeah right so there are all these things in universities that i think are really mismanaged today and they go and work against what is right in society so i'll give you another example the the dean uh of the engineering school and the president of university of waterloo was here this week with me and i asked them tell me about these global rankings and they said you know it's just a really difficult game they said if we wanted to compete to try to get high on the list we would have to do the things that would undo all the things that made us great and unique in the first place and i was like you know what i am such a huge supporter of this school please just continue to do what you're doing and i'm so proud that they have the strength to just stand on their own two feet but every other school is running this shell game of you know gerrymandering all of these statistics trying to get high on the list to trick some parent to force their kid to go to some school to then graduate with 200 000 of debt to get a job that that doesn't then give give them any line of sight to paying it off it is i don't think it's their kids fault but you have to reform the system and i think the first thing you need to do is look inside these universities and hold these folks accountable i mean the these incentive systems are just crazy um speaking about crazy uh we talked about bill wang uh and his that's your transition to transition sorry they can't he's looking at the agenda for today and he sees bill huang and he's like okay how do i do this how do i get the wang right yeah okay crazy the linkage is craziness okay go i mean no no no no no hold on the the linkages uh trillions and billions link speaking of trillions and billions trillion dollar mistakes we got a bill lang and his cfo were arrested on wednesday and charged with racketeering wire fraud and conspiracy uh we talked about this when it happened uh his uh firm archway ghost i think it's hard [Music] his poorly named firm uh and family office we covered this in real time back on episode 28 they famously lost 20 billion dollars over two days uh when they were margin called uh back in march of 2021 uh he worked at tiger management yada yada and it was at the time reported that they were trading billions of dollars at over 5x leverage according to the sec complaint at its peak the firm was managing 36 billion with 160 billion of exposure which is 4.5 times leverage but archaegos or whatever it's pronounced started with only 1.5 billion in assets in march of 2020. so wang flipped 1.5 billion in capital into 160 billion of exposure in 12 months essentially trading somewhere in the neighborhood of 100 to one at its peak according to this complaint um a bunch of banks have lost money because they were supporting this credit suisse lost 5.5 billion morgan stanley lost a billion ubs 774 million the new york times described it as quote orchestrating a stock manipulation scheme that relied on them masking and concealing the enormous risk they had taken off you had some thoughts on this i think so first i think we should probably explain how he did this right yeah so that's that's everybody's question is how did the banks let this happen so well i think first it's what's the mechanism so you know there are ways in capital markets to take really extreme bets this way is called what's called a total return swap and so the basic way that this works is you have two people on on each side of a trade and what you basically say is let's agree on what's called the reference asset so i'll just use an example let's just say it's i think discovery was one of the companies that they were trading so discovery communications let's look at let's that's the reference asset that stock and what i'm going to do is buy protection and what you're going to do is um sell protection and essentially what happens is as the stock goes up and down you're going to net the difference between these two people and when you do it that way via a derivative so what it what it forces the person to do the bank in this case is to go out and buy the stock okay so that they are hedged in case the price goes up a lot because they have to pay that difference in this case to uh bill huang and if the price goes down bill huang has to pay that difference back to the bank so what happened is that he went to three different banks morgan stanley goldman sachs and credit suisse and effectively what he did was he bought he made these bets across a handful of names but he did it with so much leverage that he ended up owning 60 or 70 percent of some of these companies and in march of last year when the stock market turned over um he owed them enormous amounts of money so much so that these banks had to unwind these trades which caused further downdrafts in the stock and almost spilled over to the broader stock market jason that the numbers from the sec complaint are pretty crazy as of march 31st of 2020 they had 1.6 billion invested on a gross exposure of 10.2 billion which that what that means is they were able to go and lever up this 1.6 billion to behave in the market as if they had 10.2 billion by january 1st of 2021 so nine months later they had 7.7 billion dollars of invested capital so they'd done really well right they'd made 70 on this 10 billion but they levered that up again and so they had gross exposure of 54 billion dollars and then just uh i think three months later by march 22nd they had 36 billion dollars of investor capital meaning they had 36 billion dollars of cash this guy had taken 1.6 and spun it up to 36 billion in bitcoin this guy went like 20 in a year but then he had uh levered that up again and he had 160 billion dollars of gross exposure and then the market turned and he owed all this money and so all these folks had to get out of it but they also allege that he was trying to do short squeezes on the stocks to try to make them goose even more so there was a massive manipulation because of his position size correct yes so this is what happened but then here's how it is allowed to happen so if you try to do the same thing in interest rates in the interest rates market versus the equities market it's not possible why if i wanted to go and buy a credit default swap effectively think of that as the same kind of thing he did but on the debt of a company on the debt of discovery what i would do is i would be able to enter into that trade with a bank but it goes into a clearinghouse and that clearinghouse is able to tell all the banks how much risk is building up in the system and the reason we implemented this clearinghouse was to make sure coming out of the great financial crisis none of that chaos ever happened again but we did not include the equity markets in that clearinghouse and in the laws that regulate it and so what this is is a very shadowy gray part of the of the market that is poorly regulated that has very little oversight so what do the banks do the banks say to you if you want to put this thing on give me a balance sheet so i understand what the risk is a piece of paper a report and i think what what they're alleging is that these guys lied so that any individual bank in this case goldman morgan and credit suisse had no idea because they kind of doctored these reports to each other and that's why that's why all this risk built up in the system it would be solved if you had a clearinghouse for equity derivatives the same way you have for interest rate derivatives it is crazy to think that somebody was doing this and thought they would get away with it and had been up 20 acts and the psychology of these people the madoffs of the world i just find fascinating why wouldn't he if he just by the way we we talked about how the three the four of us we talked about how the four of us are grinding to return 2x of our money in 10 years and this guy's like yolo he's 7x or 10x 2 you know 1.6 billion dollars and it was not enough it's not enough i mean people have i mean what do you think the psychology of this is like i have no idea that's what i'm trying to figure out sex what's the psychology of somebody who tries to do this they're already a billionaire they've already got their jet they could go anywhere they could have anything they could buy any home they could go on any vacation that's the thing i never understand about these people is like this has got to be some crazy sociopathic behavior jake hill did you always want a jet by the way the guy i just got some business select on southwest when you started your career what did you want the knicks and that's what i still want well when you started you wanted a house right and then you got the house and you wanted the home in tahoe and then you or the home you know the vacation home and then and then you want the jet and then i mean i don't know why this is confusing well no but i don't want it enough to put my entire freedom at risk or to cheat apparently this dude was a christian i'll put that in quotes because i don't i mean it doesn't sound like christian behavior ran bible study and stuff in the mornings he lived in some modest house in jersey blah blah blah but you know he was a bit of a freaky deak what does that mean so weird i mean the guy couldn't kill her by the way the the dude was pinched in 2012 for insider trading and had to pay a settlement and like get back everybody's money he got pinched it's crazy and wait is what it is you know you never wrote that on your friends i got pinched they got pitched yeah when you grew up in the streets you know that is what happened to this guy i got pinched he got pissed when you grew up in the streets the guy ate cheese he didn't run out he ratted on his friends he ran out of the manchego he tried to steal some magic and he ratted on his friends now the cfo got pinched too they said they flipped them this is super deranged uh speaking of deranged [Applause] someone needs to take all of j cal's transitions from the last couple of shows and just put them together in a row yeah just a second of crazy yeah on wednesday the department of homeland security speaking of billions announced a disinformation governance board disinformation governance board according to the announcement the board will immediately immediately begin focusing on misinformation aimed at migrants at the u.s mexican border the board will be led by disinformation expert nina jank owets jankowitz he has researched russian misinformation tactics and online harassment this is also the woman who sings show tunes on tick tock jkl fighting this information should be running you should be running our disinformation board you always have such a strong opinion you have such a nose for what's bs and what's not here's what's going on here so first of all this woman claims to be an expert in disinformation let's evaluate that claim she was an active pusher of the steele dossier which turns out is disinformation for which people are now under indictment she also was active in trying to censor the hunter by the laptop story which as it now turns out was not disinformation it was absolutely true as acknowledged by the new york times the washington post you would think that these blemishes on her record might disqualify her from being an expert on disinformation but actually in the view that people are hiring her these are actually qualifications because they are not interested in the truth the reason this department is set up and what they mean by disinformation is they have hired her to push partisan political points that's what's going on here that's what this information is now it used to be that if you disagreed with somebody you just say listen i disagree with you or maybe you're an idiot whatever you're wrong but now the way that these debates are set up and the way they work is they don't just say you're wrong or that's not true they try to label you as disformation so you can get you censored and the point of hiring this disinformation czar is is basically to censor this basically shut down the debate that that is basically the whole point of this do you think there's any timing here with elon musk yes of course it's it's um well it's it's there was a great tweet about this i mean i love conspiracy sacks by the way i don't think it's conspiracy theory it's there was a great tweet about this that um that we live in a future where it's like a mash-up of george orwell and iran because here you have you know elon musk the heroic loan entrepreneur trying to rescue freedom of speech at the same time you have this orwellian ministry of truth being created by the federal government so i mean no awareness of naming yeah it's just bizarre but but the disturbing thing about it is this information governance board is such a dystopian name the um the thing about it that's a little bit scary here i know you play the video of of her doing show tunes and it seems sort of silly but the thing that's scary is that this is under the homeland security department that's this is the worst wrinkle why is that there it's it's the most militarized department in our government so it's really scary to put the ministry of truth under the department that has all the soldiers history of truth it's not the name of it but it's close pretty darn close now now why is it there i'll tell you why because this was built up to there was a truth shout out george orwell a couple of months ago is a news story that we might have covered on this pod where the homeland security department redefined disinformation to comprise uh they said it represented an escalation of the terror threat level so in other words they basically said that discrimination was tantamount to terrorism remember that didn't we talk about that this is the payoff to that first they define they basically define the other side as being disinformative of the debate as being disinformation then they define disinformation as basically terrorism then they have the homeland uh security department which is supposed to be responsible for terrorism create this ministry of truth this is what's going on here it's really weird just to remind everyone there was concern in the last election i i'm gonna play devil's advocate as i often find myself doing here that uh just just to try and explain the world that's the reason i often play this role because i'm trying to understand the world but um you know there was a real concern that you know the russian government was using uh you know information warfare and propaganda through social media to influence voting and um and that that is considered a security threat to the integrity of our elections therefore this is a homeland security issue and there is a question mark of course that everyone has on how far are they going to go once you set this precedent when would they ever stop in terms of quote-unquote policing information and policing what's true and managing internal propaganda and internal media delivered to us by the government that's the other side of the coin but the primary side of the coin the initial side the initial representation that i think folks do have concerns around is how do we keep foreign actors from creating misinformation campaigns that go viral and influence elections and sex i don't know if you think that that's a concern we should or shouldn't have but how would you address it if you were the president and that was the the challenge you know to like how do we stop that from happening the foreign actors interfering in our elections is certainly a concern we should have if it was actually happening on a big scale or in a meaningful way i mean this is basically look this is basically a hoax okay john durham is basically out there making indictments right now proving the extent of this oaks it started with the whole steel dossier which was a piece of campaign opposition research that was manufactured by hillary clinton's campaign the lawyers who basically produced it are under indictment and that's where this whole thing of russian disinformation came from and the only proof for that thesis is that supposedly the russians bought a hundred thousand dollars of facebook ads on facebook so i'm not denying that that occurred but it was relatively minor it was a drop in the bucket of all the activity going on around now wait to be clear to be clear that was just the ads that were bought with with like credit cards that said like fsb on it like but way to go facebook security you probably you know didn't count all the number of credit cards that were stolen i'm pretty sure the russians are capable of stealing john smith's credit card and using that to buy ads as well well i looked at those ads you've seen those ads they were ludicrous they weren't going to convince anybody of anything i mean they had like jesus and the devil arm wrestling each other and the jesus figure was basically set and you know it was just absurd i mean the jesus figure was saying that but to be clear it happened and you've now stepped back your position on like it just wasn't at scale to your opinion i think i think look the the scale interference in the election was committed by big tech i mean they censored the hunter biden's story two weeks before the election it turns out that's a completely true story that hunter biden has extensive business dealings in ukraine the country we are now yes but we are now deeply involved in a war there and that story the electorate had the right to take that into account big tech censored that story so well there's a reason for that couldn't may i respond to that just to give people like making a very difficult decision you have to remember trump asked putin on stage to hack hillary's emails and they did then he asked the ukraine um to take action against the bidens or he wouldn't give them uh support he was impeached for that so if you put yourself in the and i'm not saying twitter made the right decision here but there was and there was also sexual material you know people's nudes which and hacked material and nudes are against the terms of service so i think two things happened concurrently one listen the people working at twitter are 98 liberal they don't want trump they start as an existential threat and then two they don't want to link to hacked material oh really hold on a second hold on during the whole canadian trucker let me finish this point during no i have to finish my point the third point and then i'll let you go is that in it in addition to all that hunter biden is completely a grifter go okay i agree with you on that one yeah so look during the whole canadian trucker thing remember when all the people who contributed to those canadian truckers they got docs i mean basically there was a hacker who leaked all the people who had donated and social networks were happy to print all that information so this idea that they censor hacked information is nonsense the libsiv tiktok account just got doxxed by taylor lorenz look whether you think that was a good idea or not the point is these principles are invoked very selectively when there's a story they want to suppress and the new york times and the washington post have both not come out and said that the laptop was real it's been authenticated the story was real and this whole idea that it was disinformation that was just invented i mean it was just invented well no hacked it wasn't that it was just a racist that it was potentially hacked and you and trump nothing was happening here's the thing trump set the stage for that and the uh the the people at twitter and facebook who also made these decisions they were informed by three later agencies department of justice and fbi et cetera hey this is potentially hack material designed to interfere with the election listen it would also be true and other democratic party operatives just made up out a whole cloth that the hunter biden's story was disinformation it was true it's been a knowledge is true the washington post is i think this is where social media can improve which is if they had to explain every one of these decisions they make in full in transparency i think that's something elon could bring to this party which is if you're gonna block something we need to know why and they'd never explain why and who made the decision and i think that that transparency would benefit situations like this if the ioj or fbi told them listen this is hacked material then they've got to go to the doj and say you got to give us cover here if this is in fact hack material you told us not to print it we're not going to print it but it was just bizarre that one publication got dinged like the new york post it didn't the oldest the oldest newspaper in america the oldest youtuber in america i'm not the bastion of like it doesn't matter that's not for you to decide it's not for twitter to decide it's a legitimate publication that had a true story and i don't disagree it was relevant to the election and the american people should have been able to take that into account and people like nina jenkins whatever our new czar of the ministry of truth she was out in the forefront basically calling that story disinformation meanwhile she's pushing the steel dossier which really if that story was confirmed would biden have one i don't know i don't know the answer to that but the point is that it shouldn't have been suppressed that was that was election interference now elon came out this week and specifically tweeted that that that was basically a mistake that jack also said it was about jackman said it was a mistake too and elon repeated the same thing that they shouldn't have done that i think everything was agreed to that call in hindsight yeah of course but in hindsight right but what was the reaction to what elon said he was accused by virtue of criticizing the policy decision that twitter made that that was supposedly targeted harassment of the legal counsel at twitter who made the decision who gets paid 17 million dollars a year to make those decisions do you guys see this debate this happened last year this last week so the point is that if you criticize somebody who's on a certain side of the debate that's harassment he could even mention her by name this is how absurd this discourse has gotten can i make a prediction yes prediction is great um [Music] i think people misunderstand elon's incentives for buying twitter so and i haven't talked about this so i'm just making a complete um subjective prediction i think he's going to buy twitter i think he's going to clean it up i think he's probably going to generate something like a 2x on this you know we talked about how yep you know that's like a good terminal valuation in six or seven years that basically you know puts that asset worth at around 100 billion dollars in the meantime he's going to open source as much as possible i think he's going to make it very difficult for misinformation and disinformation to get very far he said he's going to authenticate every human being that uses the platform he said all of these things publicly already and then here's the master stroke and again this is just me speculating i think he's going to donate it into a foundation and a trust and i think it'll be an incredibly powerful competitive alternative to all these other for-profit businesses because everything you guys are talking about is the incentives that get perverted when you have to layer economics inside the new york post inside the washington post inside the new york times the wall street journal everything eventually devolves to click bait to hearsay to doxxing to whatever can get you more revenue but if you can take it off the table and run these things as a public trust you can actually win back a bunch of confidence and a lot of these edge cases go away now you would say why would anybody do that well i think the real answer is because then if he if he were to donate it into a foundation he'd get 100 billion dollar credit that he could use you know to offset the gains when uh spacex or starlink go public interesting theory interesting theory there you go well i agree with everything except for the donation part because he's raising 20 something billion from private equity and then he'll pay the debt off he'll own it 100 and he'll pay people a very fair living wage and it'll attract people that want to seek out the truth that want to work in an apolitical environment he's already said the 10 of the extremes you know are are both equally crazy he's going to force this thing to be rational and predictable it's interesting it's an interesting prediction i think it goes public again at and it goes to five times evaluated are we going to be able to ask him these questions in miami sure why not so let me ask you guys a question what would you do because a lot of people have pointed out in response to what has obviously become a very polarizing set of discussions this week around what should be censored what should be banned what shouldn't etc elon's gonna let bullying and hate speech kind of proliferate other people have said we need to release you know the restrictions and let people say what they want to say freedom of speech has no bounds etc what do you guys think about the um the argument that there there does need to be constraints and boundaries set around things related to health and safety meaning if someone is making calls to violent action should that be censored sex and how do you make that interpretation because it becomes a fuzzy gray interpretation and then separately like when there are scientific papers that say one thing and someone says that's not true and says something else how do you kind of decide whether or not that should be uh allowed or censored on the platform because i think those are two very key issues that we got to take them separately let's do violence first sax there's plenty of precedent in law yeah just explain the violence look the biggest straw man around because this was the whole trump argument right it was like he was inciting violence with the argument that was being made but like generally speaking is that an appropriate form of censorship on this private platform and if so how do you set that standard let's start here with you hear this argument a lot which is that if elon brings free speech back to twitter then we're gonna have all this horrible content on there you're gonna have violence you're gonna have racism you're gonna have harassment you're gonna have all you know all these bad things on fraud the truth of the matter is that it's really a straw man argument because what it's basically arguing is that free speech means anything goes but free speech does not mean anything goes there's we have 230 years a supreme court case law basically um discussing this question of what speech is protected and what's not and their the supreme court has ruled that there's nine major categories of speech that are not protected by the first amendment why because that speech is considered to be dangerous in one degree or another so for example you can't commit fraud like you know the um archigas guy or whatever and then say well that speech was protected by the first amendment first amendment doesn't protect fraud first amendment doesn't protect incitement to commit violence or a crime you know it doesn't uh protect fighting words so you could ban you know all ethnic or racial slurs on these social networks under the concept of fighting words so i think if you actually look at supreme cool yeah well what i would do is i instead of just making up the content moderation policies as i went along i would look at the peop at the cases where people been wrestling with these decisions for decades and i would create a content moderation policy inspired by first amendment case law where i would take these nine categories of sort of dangerous speech or harmful speech and i would operationalize those so for example you can't defame people right def you know uh the first moment doesn't protect you against claims of defamation would you make people go to court though in order to take it down right so this is where the word operationalize really comes in it's not practical for a social network to require a court level burden of proof to prove defamation right so what i would do is i would say that if you are a person who claims to be defamed you could file a report on twitter and provide the tweet and provide you know some explanation and as long as it looks like a colorful claim of defamation meaning the person is attacking you in a way that seems out of bounds then potentially that can be taken down you don't have to subject it to a jury trial or something like that so what i would do is i wouldn't you can't literally impose first amendment case law but i would use it as the basis for defining a content moderation policy can i just say something i think one of the best things about being your friend is sometimes you say stuff that is so powerfully smart and elegant uh because it's so simple basically what sac said for everybody else because this is how i he's like the prd for content moderation has existed it's called the constitution it's just that nobody in any of these companies has taken an effort to actually try to write code that maps to this prd where the prt is the constitution whose rights have been established for hundreds of years by prd you mean product requirements documents yeah sorry yeah yeah that's what a product manager would use yeah yeah exactly instead of them making this up all as they go along i would look to the categories of speech the stream court has already ruled out right let's just do the health one sec so there's a scientific paper that says this drug doesn't cure covid and then someone goes on twitter and says take this drug it cures covet what's the what's your and i know you're not obviously a a constitutional lawyer at this point in your career but how would you kind of think about um about that and how how do you think that that would ultimately resolve uh in this regulatory framework that's a debate that should exist i mean i don't know why we need to suppress that debate so if someone says declaratively on twitter this drug will cure covid which by the way trends and just to be clear by the way you know the fda actually regulates claims like that on boxes and material in a commercial setting and if you're making money off twitter you're getting a lot of followers and then you make more money by putting out a tweet that says yeah but you're not you're not making money off the drug yeah right exactly look if the person is selling the drug should never say that right so if someone went on twitter and they said take this drug it cures kovid but there's a sign you're confusing facts and authority twitter is riddled with people that have zero authority that spit out what they think are facts right so i i think i think what you're speaking to is something very different which is if you're gonna design a social network i've been part of helping to design one so let me just give you my two cents on this topic there are layers of of decision making that need to go into an algorithm to get to a sense of rank okay rank means do we believe with some reasonable probability distribution in some probability distribution that this thing is worth showing to somebody else and the way that you get there is through multiple layers so there's obviously a layer where you can get signal relative to the authenticity of the person and individual making the claim is it a bot is it a real person then there's a separate layer which is how you know roughly accurate do we think this is then there is another layer which is is this person believable in making all of those statements and my point is there are different subsystems you build for those things he's already said all these algorithms are going to be open sourced and what you're talking about is authority you should allow people to say stupid things it's not illegal right yes a person can be on a street quarter saying jesus is the son of god and he will save your soul sex doesn't have to believe him and somebody can say that on twitter the issue here is does it trend and do you show to people the algorithm and if you fix those problems then who cares if a person says hey listen twitter has an authority problem and a ranking problem and the authority problem comes from the fact that there's all kinds of long tail non-human individuals in the system so solve for identity and this problem can get easier solved and solve for trending and so if you guys were running twitter you would not put on these covid19 warnings this is misinformation and rely solely on cdc guidance and recommendations and fda approvals when it comes to treatments and vaccines and risks and so on i would i would you would let anyone say whatever they wanted how much was the cdc wrong yeah i'm just trying to get clarity here yeah he's just asking the question i what i would do is and then i'm going to use taxes i would label it and i would i wouldn't label it right or wrong i'd say ivermectin is a drug here's the wikipedia hold on yeah here's the wikipedia page on ivermectin let's say there's a lot of confusion about iverbacter which there was you could just put anytime anybody says the word of avermectin i here's a sentence of what ivermectin is here's the wikipedia page the cdc page the uk government's page dhs whatever uh for more information about this topic so i just wanted this warning yeah i just wanted to learn more jkl i want to disagree with what you're proposing okay because it is the topic du jour it was the one off that then triggered the ability for everyone to bifurcate on their point of view on what should or shouldn't be done as opposed to having a universal standard that is universally applied that doesn't speak specifically to just the kovid 19 pandemic or just ivermectin or just what trump said or didn't say but each one of these things can and should be universally standardized and then universally communicated and then treated with universal standards across every one and every topic rather than have each of these breakouts where you've got someone at twitter scratching their head saying this seems to be an important topic let's come in and annotate it let's create a classification for this and that's where everyone gets riled up in my opinion i think if there was a universal standard that was universally applied without giving another example a topic give an example go ahead can i address this well vaccine is another good example but yeah first of all nobody contradicted the cdc more than the cd8c itself it constantly it constantly put out revisions of its old opinions first it said that kovid was not spread human to human then it obviously said that it was it basically was against mass then it was for them and on and on and on it went okay the idea that you cannot criticize your government or an agency of the government is absurd but that is the type of censorship that was being uh leveled in these social networks is that basically they are preventing us from criticizing the so-called experts that is precisely the kind of censorship that should not exist on these networks that's pretty much the kind of debate what about labeling in the way i talked about it like the problem with here's more information the problem with labeling is once again it's done selectively and the people at twitter basically decide who they think is right in a debate and they basically want to act as a referee to raise the hand of one of the participants of the debate raise their hand over their head and declare them the victor now it's a lot better to label than to just censor the other side's point of view but still it is a form of softness the labeling i described where and which happens on our podcast on spotify where it says here's the covet information center you know for more information and they give a range of so if it's executed in that way do you oppose it if there's like a very confusing public interest going on if if you were to algorithmically post related stories or something like that and it was done in a completely fair and speech neutral way and it was just as a feature of twitter fine but if you have employees at twitter sitting around discussing issues and deciding who the winner is in various debates and then putting their their thumb on the scale to tilt the debate towards those people that's not what they should be doing now you know and that is basically what they're doing with censorship if you look again let's go back to this this topic of misinformation because this is really the crux of the debate okay once again on the basis of first amendment case all you could remove offensive material on twitter on the basis that it is you know fighting words it's a slur it's harassment incitement to violence you could it's fraud okay inauthentic that the the account is not who they purport to be you remove all the bots so all that content can get removed so what is really left then it is basically this idea of misinformation this idea that we are going to declare one party the victor in this debate and i think that is what is so offensive about this mystery of truth that homeland security is setting up it's what's so offensive about the censorship that twitter has been practicing which is they are trying to end the debate they're trying to say look this is the person with the on the side of truth and that is not what they should be doing it's up to the marketplace to decide what the truth is all right there you have it folks do you disagree with that i i agree with you to your point david um i i do think in a situation where the public good and there's confusion in a situation sending people to more information isn't a bad idea i do think a lot of this uh there were thumbs on the scales and it wasn't transparent what was happening i think if you add transparency so i think every time there's an action that's taken it should say agent number and what their agent number is took this action on this tweet for this reason and then data scientists can look at all the actions that occur and then say look we're looking at this agent number and here's their manager's agent number and here's why they took down this post you know then at least you could have a starting point to figure out what's going on we don't even have enough information to know what what thumbs are on what scales if at all or to what extent and i would like to see transparency first so we could have a more informed decision and then sending people to trusted information sources a group of them isn't a bad idea i think what's trusted yeah i mean and so to your point you don't need to look to a podcaster a social network or the government to find truth in the world you have to have a process yourself that's part of what this podcast is it's for people to develop being in a part of being an adult yes you have to come up with your own process of coming to the truth you could trust some people trust the government agencies some people trust a joe rogan or a podcast or this podcast some people trust a folk singer trust yourself that's the number one thing you have to learn how to do as an adult in life take in all this information and make a reasonable decision to take ivermectin or to not take ivermectin is a perfect example people said there's no downside to it people have been taking this drug forever and it's cheap and then another group of people said well you're taking horse medicine it's like no that's something completely different and the whole conversation became i felt very easy to parse when you think about it do your research do your own research right and and talk to your doctor do your own research but you can't do your own research if you're not permitted to see everything and um and you think about like with drugs think about how many drugs over the last 30 40 years have become the basis for product liability lawsuits because they had unintended side effects or consequences and they revised the use of those drugs or drugs were taken off the market if people weren't allowed to question those things because supposedly the experts had ruled on the issue and ended the debate how would we have gotten a correction on that how we've gotten to the truth so just because the experts say something doesn't mean there's pros and cons to this we have kids getting tons of kids taking all kinds of sris and antidepressants and all kinds of drugs parents have to make difficult decisions adult need to make difficult decisions do they do this do they not and by the way there's no we don't know we're doing large-scale experimentations on the population in real time with drugs it is a decision you have to do the pros and cons for the medical establishment the medical establishment at one point in time thought it was a good idea to lobotomize people like they were doing that as like a medical procedure so these people can be wrong you know and this idea that we've arrived at the the end of history and we know the truth here's all the truth no new facts are being or no new knowledge is being created for sake i mean it's dangerous is red wine good for you or bad for you because every three or four years coffee and red wine are good for you or bad for you depending on the year well i saw i saw a longitudinal study that just came out that said there are no caloric benefits of intermittent fasting now there's a lot of people that would be up in arms with that what are you supposed to do if you know maybe there's some value to organ health maybe there's some value to managing your glycemic index but again the point is there are study upon study there's work going on all the time all these things are in an area of gray and so if all of a sudden you jump down one person's throat and basically become very judgy because you think that the total bounded body of knowledge has already been created you are making an enormous mistake i mean steve jobs thought he could cure his own cancer i mean intelligent people are free to make bad decisions with one of the most intelligent talented people in the world who by all accounts might have survived longer if he had treated to this very specific method of juicing um you know there's a there's a certain sliver of folks there's a really incredible documentary actually on netflix if you want to understand it of people that went down this path of juicing their uh trying to eliminate their micronutrients the irony is that the people who are i think some of the stupidest people like that woman singing show tunes that you like these are the people who are making these determinations over what is true and what is false and what is labeled as information and what we get to discuss it's great it's biased it's riddled with bias you have to make your own decisions in these cases and you know like it's great to have smart friends to have a dialogue with beautiful dialogue it's the beautiful thing about being an american and working so hard to get to this country is the independence and the freedom to be your own self i mean why is that such a bad thing and why would anybody want to give that up to a nameless faceless blob in an organization well and the response you get back from people is i'm not abdicating my ability to think for myself to this rando woman singing show tunes and then people say like oh well the response i got when i said just trust yourself is like well what about all these bros who are listening to joe rogan and they're making decisions on their health according to joe rogan i'm like i'm like yeah it's called personal responsibility like i'm not responsible for joe rogan's listeners if joe you know the same person that told you that is probably micro dosing and thinking ayahuasca is a solution to everything they have intermittent fasting and micro juicing and from the childhood trauma they had when they didn't win their you know soccer medal and nobody knows they didn't get into harvard so they're on ayahuasca every day i mean give me a break yeah nobody knows no we we we all know so little so here's what we know you live you die the end and we're all just trying to do our best and so why don't we all just try to have a reasonably decent time and be nice to each other all right everybody it's been an amazing episode we will see you in miami which will be absolutely fun and thrilling sold out our first all in simon and last uh because i don't know who the gonna do this work next time you will you doing an amazing job continue it bye-bye boys [Music] and they've just gone crazy with it [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension but they just need to release [Music] your feet [Music] i'm going on [Music]








[Music] and they've just gone crazy with them there was a lot of big news um obviously this past week uh when a leaked draft of the supreme court's roe v wade decision uh was published uh by politico the draft opinion written by justice toledo uh would turn roe v wade from a federal issue to a state issue now this is a bit above uh all of our pay grades so chamoth had a really great idea to tap some people who are actual experts and uh in the supreme court uh chamoc maybe you could introduce our guests i will queue this up for us thank you great um so first i'd like to introduce amy howe um amy uh until 2016 served as the editor and a reporter for scotus blog which is the um the premier blog that covers the supreme court she continues to serve as an independent contractor and reporter for scotus blog she also writes for her blog called how on the court and before turning to full-time blogging she was a council in over two dozen merits cases at the supreme court and argued two cases there from 2004 until 2011 she co-taught supreme court litigation at stanford law school and from 05 to 13 2013 she co-taught a similar class at harvard law school and i'd also like to introduce um her partner in scotus and also her partner in life tom goldstein another dear friend of mine over the past 15 years tom has served as one of the lawyers for one of the parties in just under 10 of all the cases argued before the supreme court he has argued 43 cases himself and two that i think are probably a little bit near and dear to all of our hearts uh in 2000 tom served a second chair for lawrence tribe and david bowie's on behalf of vice president al gore and bush figore and most recently he represented google in a fair use copyright infringement case google versus oracle um about the use of java apis um and so tom and amy thank you guys for giving us um your precious time welcome to the pod thanks for having us thanks for having us i was a little nervous about what the introduction was gonna be like so thank you so guys there's a there's a million questions um to start with or that we can go but uh maybe just to frame the issue can you guys just first walk us through the original roe v wade decision how it was made and the rights that it conferred and then maybe we can go from there and talk about um what has happened as a result of the way it was written and the and the the judgment as it as it stood sure roe v wade back in the early 1970s was a decision by justice harry blackman in which the court held for the first time that there is a constitutional right to an abortion and at that point the court ruled that it was regulated by time up through the trimesters am i getting this right tom yeah and then in 1992 in a case called planned parenthood versus casey that was an earlier effort to overrule roe versus wade because abortion opponents started pretty quickly trying to overturn roe versus wade and so in 1992 in a case called planned parenthood versus casey the supreme court did not over row in fact reaffirmed it but switched the test a little bit the constitutional test to decide whether other abortion restrictions can stand and this was a decision by justices david suter anthony kennedy and sandra day o'connor who were all appointed by republican presidents and they said there's a constitutional right to an abortion up until the point at which the fetus becomes viable which these days is somewhere around 24 the 24th week of pregnancy but states can regulate abortions as long as they don't impose an undue burden on the woman's right to an abortion i was just going to tack on like what's sitting underneath roe because that ends up being a big deal these days you know where did it come from seven justices in rowan wade say there is this constitutional right to an abortion up to an appoint and of course there's no textual reference to abortion in the constitution instead the supreme court drew on earlier decisions involving what was called the constitutional right to privacy essentially a kind of bodily autonomy right an individual liberty principle that you're going to control your own destiny and your own body drawing on cases involving contraception for example for both married and unmarried couples and that really is the doctrinal the jurisprudential piece of this thing that conservatives have been after so hard you've got kind of two branches of conservatism in play one is look uh kind of religious uh and social conservatism that abortion is evil and then you have a jurisprudential lawyers kind of thing like you made this up it's not in the constitution and those two threads have come together and have been at the root of this 50-year battle over row in fact before we unpack that maybe you want to just define for people as i understood as i've been learning about this this week there's this one sort of moral spectrum between liberalism and conservatism but then there's this orthogonal form of like originalism i guess is what folks call it can you just define those terms so everybody understands what we're talking about sure so you know in ordinary politics we do think of conservatism and then kind of more libertarianism a kind of peter thiel uh get the government out of my life and conservatives do believe that the government has an important role frequently conservatives believe this an important role in regulating abortion and prohibiting an abortion whereas a libertarian be more likely to say no this is my body my choice for example and so that's kind of along the political spectrum in the legal spectrum you have this sense of people there are a set of conservatives in particular are principally who think that the constitution should be interpreted today the way that it would have been understood the day that it was enacted or that an amendment to the constitution was enacted so that the 14th amendment to the constitution for example prohibits depriving someone of liberty or property without due process of law and they would say well what was due process of law at that time what was liberty at that time whereas a more progressive constitutionalist somebody more on the left would say look no there are lots of things that aren't enumerated in the constitution including you know a right to bodily autonomy at all the right to contraception uh the right even rights even conservatives care about the right to educate your child in the way that you see fit and the constitution in particular has to be able to adapt to modern circumstances and that's why actually our constitution's so vague there are lots of more modern constitutions take the south african constitution that have lots and lots and lots and lots of detailed provisions tackling all kinds of problems including modern problems but the view of progressive constitutionalists is that look when the country was founded and they wrote the constitution they knew the country was going to be around for centuries and they didn't intend to capture every kind of social circumstance they didn't intend to capture every modern problem which couldn't even be contemplated so yeah that's the those are the two different kinds of conservatives and we're talking about um but both originalists say look there's no right to abortion in the constitution the founders of the country would have never imagined that we would uh strike down bans on abortion and then social conservatives are like well this is a really really important role of government we're protecting unborn life amy i don't know if you've had a chance to read alito's draft opinion but can you sort of walk us through his legal framework for coming to his conclusion that that this thing needs to be struck down and why he's saying what he's saying yes it is a 67-page opinion with another 30 pages or so in the appendix and what he tackles it in two ways the first is kind of from this originalist perspective he looks at the idea of whether or not the right to an abortion is something that is deeply rooted in our country's history and he concludes that it is not that not only was there no right to an abortion he said until the late 20th century when right around the time that the court issued his decision in row but in fact abortion was a crime in many places and so he starts from that premise that there's no deeply rooted tradition of abortion being a right in under the constitution and that goes to the idea of what did the framers intend does it fall within this fundamental right that would be protected by the constitution even if it is not specifically enumerated in the constitution but then he also has to look at roe and casey because those laws have been in effect that those cases have been in effect for 50 years now the court issued this decision in row in the early 70s and then reaffirmed it in casey in 1992 because the supreme court and courts generally have a principle called star a decisis that says that courts should not overturn their decisions just because they think the earlier decisions are wrong that there needs to be a good reason to do that and the court has never said specifically exactly what you need to do to overrule a decision but over the years they have outlined some factors that you can look at to decide whether or not you should do so and so he walks through those factors the idea that roe and casey were simply wrong when they were decided for the reasons that the toms has just discussed and that elita discusses at great length that there's no deeply rooted tradition of abortion being a right the idea that another thing that courts often look at is whether or not people have relied on the court's decisions here in rowe and casey and he said that even in casey there wasn't this idea that people arranged their personal lives you know in the short term around the idea that they have a right to an abortion they've looked at it in casey and sort of in people since then in sort of the broader sense that women have made decisions about about their lives so with the idea that they will have reproductive freedom and he says that's really not the right way to look at the issue of reliance he looks at whether or not the test that the supreme court has and other courts have been using to review restrictions on abortion uh this undue burden standard is what's what he calls workable and he concludes that it's not workable because he says this idea of an undue burden test is so amorphous that courts have reached all kinds of different decisions on various abortion restrictions and so for those reasons he says the i abortion is a profound moral question he says but it's not one that is protected by the constitution it's a question that be should be decided by the people and their representatives and should go back to the states can i just follow up on that point so i think a lot of people when they read a headline like roe v wade overturn they think that the supreme court is directly legislating on the issue of abortion and it means abortion ban nationwide um i think that maybe even the popular conception of what of what just happened can you just explain that a little bit more that you know what exactly is this from court deciding on this issue and specifically what the supreme court is doing here is more deciding who gets to decide rather than issuing policy themselves could you just explain that for for viewers and as you do that maybe you could just highlight the role the supreme court is meant to have in in our system of government just as a basic kind of concept which i'm not sure is like as clearly understood here sure so you know there are the three branches of government the president the executive branch the legislative branch which is congress and the supreme court and the supreme court's job is to in this case interpret the constitution now some of the cases that come to the supreme court are technical they don't even involve the constitution what did congress mean to say when it enacted this law about bankruptcy but then it also gets these really momentous cases like abortion and this case is a challenge it can't the actual case that came to the supreme court is a challenge to a mississippi law that was passed with the idea that it could go to the supreme court and challenge roe and casey but a mississippi law that was passed a couple of years ago that would ban virtually all abortions after the 15th week of pregnancy and so abortion providers in mississippi went to court and said under the supreme court's jurisprudence these decisions in row and casey this law is unconstitutional because women you know as the law currently stands have a right to an abortion up until the point at which the fetus becomes viable which is around 24 weeks but is certainly well after the 15th week of pregnancy so the case made its way up there as a challenge to this mississippi law but the state of mississippi in defending the law specifically asked the court to overrule roe and casey and so what that means is the supreme court is deciding whether or not this law is unconstitutional if the supreme court as the draft opinion suggests holds that the law is constitutional that roe and casey should be overruled then the issue does go back to the states uh is the way that most people think of it in each state whether it's mississippi or texas or oklahoma or california can decide for itself whether or not they want to allow abortions and if so on what terms you know i think it's a little bit you know it does go back to the states the people can decide but defenders of roe and casey supporters of abortion rights say that part of the supreme court's job is to say what the constitution means and that there are some rights like freedom of speech you know the second amendment the right to bear arms that are that are if they're in the constitution then the states shouldn't be allowed to decide that the supreme court's job is to protect them so if they strike this down basically all the state legislatures will start to pass their own laws that govern what happens in that state and the federal government will not have a role or a say ultimately in state abortion laws is is that is that fair is that what's going to happen next if this gets struck down yes i mean there are already you know at least a dozen if not more states that have what's called trigger laws that have already been passed by the state legislature with an eye towards this decision or some other decision by the supreme court over ruling row and casey so those states wouldn't even have to pass new laws those laws restricting abortion would go into effect immediately and um can i just ask maybe for sex too like why why isn't there a constitutional amendment if this is a an issue that folks feel you know should be kind of indoctrinated as an amendment to the constitution why has that not happened and um you know why do these cases kind of keep recycling and the decision-making kind of keeps going back to the states and they keep getting litigated why don't constitutional amendments get passed anymore it's really difficult to pass a constitutional amendment tommy i'm sorry go ahead oh no i was going to say yeah let me just step back first on this question of states versus the federal government so when the supreme court says the constitution doesn't give you a right to an abortion they aren't technically saying okay now it'll be up to the state legislatures they're saying it'll be up to legislatures so you have to pause on the fact that it is at this point possible that you could have a federal uh protection for abortion or a federal ban on abortion then the question would be is that constitutional or is this a states rights issue where only the states can regulate it but there is a big big big fight looming in congress on both sides the only reason that you're not getting a federal statute when you have democrats in control the senate the house and the presidency the only reason you're not getting a federal statute per uh protecting a right to an abortion is the filibuster essentially right um and the sorry just just just to sorry to interrupt but a statute is a law not a constitutional amendment right can you just distinguish that's right so the constitution is our founding foundational doctrine document it's what creates the congress and gives congress the power to regulate certain things it creates the presidency and it creates the supreme court and so it's the most important thing you can't do something that violates the constitution then congress can pass laws and states can't do anything that is contrary to either the federal constitution or a federal statute unless the constitution says oh only the states can handle this question so there would be a big fight over whether abortion is strictly the regime and strictly the purview of the states to deal with then you say okay well the constitution stands above everything else uber alice why don't we just amend the constitution and as you suggest we're just not in the business of doing that anymore uh there we have very few constitutional amendments and we haven't done it in a long time the constitution imposes all kinds of hurdles in terms of congressional authorization state authorization it's why the equal rights amendment was never passed uh it's just incredibly hard to get the kind of super majority in the country that you need to amend the constitution and the our kind of foundational rights and that's what's made the supreme court so important by the way and that is we have something like the equal protection clause we have a right to free speech we have a right to uh the free exercise of religion and those are big capacious phrases that nobody can objectively tell you what they mean they mean what five justices of the supreme court say they mean and that's why there are all these fights over supreme court appointments uh because the justices have enormous power by five four majorities to fundamentally change the course of american life and it can be in a conservative direction or a more liberal direction remember the most famous thing the supreme court has done recently before this decision is recognizing a right to gay marriage i want to go there but just before i go there i want to go back to something that amy mentioned which is starry diseases this idea of precedent my understanding is that when supreme court nominees go through the confirmation process this is a really important part of what they're asked right through their confirmation process what are your views on starry diseases what are your views on roe and there's a lot of discussion right now about whether you know specifically gorsuch and kavanaugh who signed up to this alito draft at least may have lied to congress in the way that they answered their questions i don't know if you guys can sort of um talk us through that and and whether you have an opinion on on on that and their actual congressional testimony to get confirmed so what they said and i went back actually and looked at some although not all of justice kavanaugh's confirmation hearings today actually uh you know what they had said at their confirmation hearings was that roe and casey were settled law that roe has been in effect for 50 years and then casey came along and reaffirmed it so i think justice kavanaugh called it precedent on top of precedent so that seems like starry diseases it just said in different words or no oh yeah there's no question that that all of the nominees that have gone through have acknowledged because it's not just two cases there are 10 abortion cases you know this has been in front of the supreme court ever since 73 over and over and over again and casey adopted this framework and it's been reaffirmed over and over and over and the court has been moving in a conservative direction upholding more abortion restrictions but the foundation the corvo has been there but the issue is this when someone says this is a precedent and a super precedent they are not saying it cannot be overruled everything can be overruled and so that's why alito's draft is so strong it is it uses a formulation that kavanaugh has used which is egregiously wrong from the start so that if something is just outrageously totally wrong now pause to the fact that a super majority of supreme court justices have thought it was correct including a bunch of republican appointees for 50 years right and you know including the court that first adopted it the but this majority uh has come up in a kind of jurisprudential with a jurisprudential vision that's sufficiently conservative to say this is essentially the most outrageous thing the supreme court has ever done is row because it interjected itself without any textual basis into one of the fun foundational moral debates of our time which is what legislature should be handling so now some of the you know moderate republicans susan collins uh senator mikowski have said they're quite upset about this because they feel misled but i think the defenders of the justices would say well i mean they did say it was precedent on precedent but they didn't say it was immune from being overruled and here you go just to add in one tiny little detail in the draft opinion by justice alito is that one of the things he talks about when he's outlining the principle of starry decisis he says that this principle is actually at its weakest in cases like this one involving the interpretation of the constitution because only the supreme court gets to say what the constitution means and at some point you don't want to sort of trundle along with an interpretation of the constitution that is as tom suggested egregiously wrong he said you know if you're talking about a supreme court decision interpreting a law that was passed by congress if the congress doesn't like that decision they can get together and pass a new law but only the supreme court can say what the law is so i'm not you know obviously i'm not defending the a leader opinion that's not my job as a reporter but that is i think one of the one of the points that someone would make in explaining why this that despite the what they said at their confirmation hearings if they voted to overwhelm rowan casey i have a call i'd like to ask a question first from up which is i think this is really fascinating like the history of it it's amazing for you to really unpack it for us i want to ask a human question here and and maybe because these judges are humans and there's like a sentiment here um where the majority of the country uh does not want to do this it's been the law for generations of women have had this protection it's been 50 years so i think the question a lot of us have watching all this is why is this happening right now and is this some you know strategy that's been played out to overturn this because it feels profoundly unfair to take a right away from these generations of women and there's this anger that's built up of how on earth could this happen so maybe you could tell us about the humans who are in these positions of power and why they made this decision because we can look at all these laws and the precedent but there is also the reality that um the deck has been uh stacked with this court uh it seems quite strategically and this feels like a rug pull to a lot of the people who voted these people on and now you have a large group of the country who feels like this is exactly the opposite of what the majority of us want so can you explain that to us what's going on here with these humans who have these positions of power and authority yeah i think that's a fair characterization of what is a majority of the country that is to varying degrees pro-choice now we ought to pause and recognize that there is another significant part of the country for whom this is you know an incredibly important positive moment the country is divided on this question there are passionate views on both sides uh the women who are directly affected many of them will feel no doubt incredibly impassionedly strongly that this is an outrage um but there there are activists on on both sides and yes from the day that roe was decided there has been a unflinching commitment among conservatives to undo it and it has taken them five decades to do it but they have marched forward from that position where they were losing seven to two in the supreme court till june of this year where they will likely win a five to four and they have worked tirelessly to put justices on the supreme court who would be willing to take this step they thought that john roberts would and it appears that he's very likely willing to cut back on roe but not overrule it entirely but that the other conservatives whether it's someone who's been on for a while like justice thomas or instead much more recent appointments which is the uh and in gorsuch uh kavanaugh and in barrett and justice alito having been on the court for a while uh those people this is the number one agenda item for what they believe is correcting the course of the supreme court's interpretation of the constitution that this was the one that was most out of bounds because it was the most made up in their mind now we should talk a little bit about what it's going to mean for other areas of the law like gay rights and that sort of thing but in a very human sense there there has been an utter human commitment uh by pro-life forces to stop what they regard as the murder of you know millions of unborn children and an unbelievable commitment on the among pro-choice uh forces to maintain what is uh you know a basic individual liberty yeah i just wanted to add i mean i think i agree with everything that tom said and i think in particular you have to look at you know go back to 2015 and then in particular the 2016 election donald trump was elected you know in no small part because he pledged to put justices on the court who would overrule roe and casey you know you had conservatives who weren't quite sure about him but felt so feels felt so strongly about this issue that they were willing to go to the ballot box and vote for him because they trusted him based on including like a list of supreme court potential nominees that he released before the 2016 election which is something that nobody had done before but i think worked out very well for him you know and then you know sort of compare that with people as tom said on this issue people who opposed abortion were often single issue voters you know in the 2016 elections you had you know the the butter emails crowd who weren't necessarily going to go to the polls for hillary clinton even though they likely would be abortion rights supporters and you know often just like not i think there was probably an element of disbelief the idea that this right was so solidly enshrined in american constitutional law that that it would stand despite who might be on the court so amy i want to ask a jump a question from here um then this is an issue that's close to all of us when we read roe v wade we were i think we were all like a little shocked like wow this is happening and then the second wave of news was how this created potential to undo obergefell right so the gay rights law or even like interracial marriage you know jason's in an interracial marriage i am you know many of our friends are are gay and married how are we supposed to think about what this does presidentially and does it create risk that all those rights could be taken away from us or or our or people that we care about like is that something that's possible here i mean i do think those a lot of those rights are going to be challenged justice alito in this draft opinion says no those rights are different you know because only abortion rests on the purposeful termination of a human life but you know to go back to what tom talked about earlier you know those rights rest you know are also not in the constitution rest on this same sort of principle called you know substantive substantive due process you know rest on a right to privacy and there were definitely arguments made in the supreme court in the mississippi case not by mississippi but by groups supporting mississippi that if you overrule roe and casey you do have to go back and look at these other rights yeah i mean the the for over ruling row is by and large the same reason that you would over rule a burger found oberfeld is a much less well settled precedent you know it it hasn't been reaffirmed by the supreme court as opposed to roe many many many times um it you can just as easily say it's uh an issue for the states and when you see in justice alito's what you see is two things in justice alito's opinion a bunch of reasoning that would be used to strike down a bunch of other rights go all the way back to where does where do we think we find the right to contraception right where is that and the supreme court both with respect to married and unmarried couples said there's a right to contraception but it's not in the text of the constitution and there's a bunch of stuff that's not in the text of the constitution as i said the constitution's super vague so you have a bunch of stuff in alito's opinion that says uh all of the the reasoning that's in those cases essentially is wrong and then you have a paragraph that says but but by the way this is just about abortion why because it is and the difficulty is that in a later case it's much much much easier to apply all the thinking than the truism that this is just about abortion because this case just is about abortion but i think what's very likely is you know i'm a legal realist and that is i think that the justices decide what they want to do and then they write the opinion that gets theirs when the court voted to overrule roe when five justices did that after the world argument in this dobbs case one or more of the justices said okay i'll join an opinion over ruling row if it is absolutely clear that it will not lead to the overruling of these other things and so justice alito put that in there he doesn't believe it for a second that those decisions are rightly that those rulings should necessarily stand but it appears that they don't have five votes for that view but look they didn't have five votes for over ruling row until very very recently and you could put another conservative on the court um or you know these five could end up doing it it is very much in play that at the very least you have to acknowledge that a lot of things that people thought were kind of foundational bases for how we order our lives uh because they were protected by the constitution uh may well not be anymore i mean i just like isn't there like an element of compassion that has to be a part of how they're supposed to do their job i mean i know five people who disagree with you it just so happens that there are a majority of the support let me ask a question about this sort of uh parade of horrible so so tom i understand what you're saying that that overturning row would implicate these other cases on the other hand and as you mentioned alito specifically says well presumably it's alito in this dobbs decision those cases are not affected so he does carve out this case specifically but this but separate from that this stream court just two years ago in boston uh clayton county read you know lgbtq rights into title vii and that opinion was written by gorsuch with roberts joining him you know i think was that that was a six four or six three majority so the idea that this supreme court would overturn you know marriage equality you know obergefell which was just um written by kennedy in 2015. i mean i understand that you're saying it's possible but is it really likely well look bosek is totally different it's interpreting a federal statute a law that congress passed that's their point the conservative's view is like okay congress passes a law to protect you know same-sex marriage fantastic have at it and if it is past title seven to prohibit discrimination on the basis of sexual orientation fine uh we don't have a problem with that but it's our problem is interpreting the constitution to strike down those laws do you say is it likely uh you know the it is a it is a bizarre circumstance because doctrinally when we think as lawyers when we think as judges it should be much harder to overturn roe versus wade because we do have this is a lot of water under a lot of bridges whereas with same-sex marriage it's a pretty new thing that we've recognized in the constitution and if you say look we're going to talk about the founders of the constitution we're going to talk about originalism i'm going to give you two propositions you tell me which one is more likely and that is in the year 1800 someone said given the choice do we protect a woman's right to have an abortion say in the instance of rape or incest or something like that or we're gonna say that is there's a constitutional right for two men to marry each other this is not close it is just not close now i believe in both of those rights but nobody seriously would say that the founders of the country in enacting and adopting the constitution thought that they were protecting same-sex marriage and if you want to look at it from that perspective and this opinion does then a burgerfell is just an easy target to be honest in order for the the sort of the parade of horribles to happen though there's a two-step process right the first step is the supreme court throws it back to the legislature then the legislature has to do something that you think is appalling and ultimately the you know marriage equality is not popular as a position in both parties right so the idea that um even if that decision was overturned that all of a sudden you would have a change in that law seems unlikely right no no because all that is that a court clerk in rural texas says i refuse to uh sign this marriage certificate remember a lot of these statutes haven't formally been withdrawn they haven't been they're they're sitting on the books uh they're just invalid so too with roe there are a bunch of statutes on the books that are abortion restrictions that everybody knows are unconstitutional they're not in force those are in states you're saying yeah exactly and so too with respect to gay marriage and all other kinds lots and lots of other uh uh there were there were hundreds maybe thousands of statutes that discriminated against gay couples and gay individuals uh in the lgbtq community uh and there's bunches of that stuff still on the books and all it takes is for one conservative to say look i'm gonna apply those laws let's go i'll give you an example the attorney general of texas has said look i'm now let's see i heard what's going to happen with roe i'm now looking at plyler versus doe that's the st that's the constitutional decision that says states have to uh educate children no matter whether or not they're lawfully in the country or not i mean a whole this is going to be extremely motivating and extremely animating to conservative legislatures to conservative attorneys general in the states everything's now in play it's let's go uh let's give it a shot let's take it up to the supreme court it can get worse from the conservative perspective they've already lost on some of these issues and so it's going to be a scary quarter century it seems to me amy the we grew up i'm of gen x 51 years old with this profound respect for the supreme court that it felt fair it felt just it felt like the one institution that was above politics and now it feels uh because of flipping a 50 year old law as if it's and these you know sort of um uh you know the interview process when they were being confirmed and maybe the rug pulling there that we can't trust it and then this leak happens so now it all feels like this institution is not trustworthy is biased is political so were we living under a mirage that it wasn't or has something fundamentally changed when we look at the supreme court and how they're behaving now that's one of the things i'm struggling with is was i just you know living under a false vision of this institution and now i'm seeing reality uh or has something actually changed with the court and should we as a country be looking at the court differently i mean i think at least one thing that has changed is that right up until the point you know in the last 10 years when justices david suter and john paul stevens retired and then justice anthony kennedy in 2018 you know nom people who are sitting on the supreme court you didn't always you know people did not always have the sense that they were voting in the same way as the party that put them on the court you know justice's suitor and stevens it really had become a solid part of the court's liberal wing by the time they retired justice anthony kennedy was still a conservative but he was a conservative you know who provided the key votes on things like same-sex marriage and whether or not there is a right to be intimate with somebody of the same the same gender and so you just didn't i think people looked at the court and didn't think those decisions are political you know they're not always dividing five to four on sort of so-called party lines i think that has changed and i think some of the the confirmation hearings i think in particular democrats and progressives feel that at least one of the seats either justice gorsuch or justice amy coney barrett was was stolen in effect because justice scalia died in february of 2016 senator senate majority leader mitch mcconnell refused to have hearings for the president obama's nominee saying the next president had just has to decide you know you can agree with that you could disagree with that but then justice ginsburg dies in september 2020 and the republicans rush to put someone just now justice barrett on the court before the presidential election so i think people do just i think there is a general sense that it is more political than it used to be what about the leak tom you just wrote about that yeah yeah well can i just say one other thing was having jason that was you were winning i mean people think the supreme court is political when they don't like what it's doing and so when there was a right to an abortion when the affordable care act is being upheld when obergerfeld is being decided in favor of same-sex marriage you and me tend to think of that as oh that's that's just the way the constitution should be we've got an objective sensible set of justices and then we start losing uh and we get the perspective that the other side ideologically has had they think the supreme court's been super political in uh roe in casey and obergefell and in the aca because they think the constitution means the opposite and so they think they've got a bunch of that the court has been way too liberal and way too ends oriented because there's no objective answer with respect to most constitutional questions because the document's so vague we have this notion of what's judicial activism well judicial activism is is losing because if you win then obviously it's what the constitution was meant to to be from the beginning and so we do have this it it our the the perception of any individual about the supreme court whether it's neutral and objective or instead political and biased tends to be rooted 95 percent of whether you like what it's doing or not so i'd love to hear from you i think it's a very fair observation i mean even it's its fans would admit the warren court was a highly activist court so i think you tend to think of the court as being activist to the extent that you don't like the results yeah although obviously there are um more or less incremental approaches that one could take actually in this decision it looks like roberts was angling for the incrementalist approach here which was too incremental yeah it means in this context yeah and i think incremental there was i'm not sure i guess it just you can call it whatever you want so at the oral argument in december one of the alternative grounds that mississippi had offered was to still uphold their law but not formally overwhelm roe and casey and at the oral argument roberts seemed to be the only person who was interested in that alternative ground so that would still be a major shift in abortion rights laws but it would not formally overwhelm rowan casey in that moment and please correct me if i'm wrong the biden administration also said they don't want that nuanced decision they wanted rowe voted up or down in its entirety is that right you know i'm not i'm pretty sure that nobody including the the lawyers liked like the alternative ground i think that is right because it's an optical illusion the chief is a sophisticated guy who is very aware of all these issues related to public opinion and the court he knows what how strident the reaction would be and will be if roe versus wade is overruled and so he'd rather take this step by step and kind of like turn up the temperature of the water to a slower boil so that it's less of a surprise if and when roe versus wade is overruled five years from now because he doesn't have to go that far today on the other hand uh you know movement conservatives realize look you know justice scalia died a lot can change we've got our shot let's take it uh right now and our at least at the the initial vote we're willing to be super aggressive and that apparent that seems to be the debate that's playing out now in these leaks is you know what will happen with kavanaugh and barrett and will they go with the chiefer instead with the leader's stronger opinion exactly so this is what i wanted to ask both of you how does this play out from here inside the court itself and is there a chance that this draft isn't the ultimate decision is there a way that there can be a middle ground path like what happens from here or is this basically a fata complete as as as written right now so i'll let tom talk about the the leak and he's got some theories about what might have happened it is this was the first draft you can see that on the copy that politico published and it is from apparently from back in february the argument was in december nobody expected to get the decision in this case in all likelihood until late june and so you know i do think that there is a chance that the opinion could change in some way it might not have quite as strong a tone or it you know it's possible that what's going on behind the scenes and we just don't know it is some sort of effort to move justices away from this opinion to this alternative ground that the chief was advocating for at the oral argument in december i you know i'll let tom talk about some of the theories that he has one of the things that somebody who actually gets to go to the oral arguments right now when you are at the oral arguments in any case but in particular this case you know the justices are talking to the lawyers asking the lawyers questions trying to flesh out what their positions are you know what the possible resolution of the case may be the justices are also talking to each other and so one thing that was not a leak but was really interesting at an oral argument on april 20th a couple of days before the this wall street journal editorial that tom is going to talk about and then a couple of weeks before politico leaked there was a discussion in a case involving the miranda right you know you have the right to remain silent the law and order thing um and the question was whether or not you can bring a lawsuit a federal civil rights claim if your miranda right has been violated and so not anything to do with abortion but at the oral argument justice kagan starts talking to the lawyer who's arguing the case about the miranda decision there was a miranda decision in 2000 at which the supreme court by a vote of 72 held that congress could not overrule miranda and she said you know justice chief justice william rehnquist the chief justice at the time wrote the decision and he was someone who made clear that he had not been he thought that miranda was wrong but nonetheless voted to uphold it because he knew what in effect overruling something that everyone believes is part of our constitutional landscape so to speak would have on the court's legitimacy and you really had the sense at that point that she wasn't talking about miranda that she she was talking about roe versus wade and planned parenthood versus casey in this case because this was something that this is an issue that justice kavanaugh had raised at his confirmation hearings talking about rehnquist and miranda and so you have the sense that that maybe things still are in play behind the scenes at the supreme court as recently as you know a couple of weeks ago she wouldn't have been necessarily trying to make this point if she thought it was set in stone yeah so a couple of weeks ago somebody leaked to the wall street journal editorial board and this has happened before a couple of times over the past you know decade-ish that um five justices have voted over a row but it was in play and that the chief justice was trying to pull along to a more moderate position justices kavanaugh and barrett and uh it wasn't styled as a leak but we now know it was a leak including because the wall street journal editorial board said and we think justice alito is writing the opinion out of nowhere like nobody in the world would go on the record saying that was true unless they knew it so they they knew what was going on and that that's a very strong indication that uh things are still in play then with respect to politico uh politico was told that five justices had voted to overturn roe and that was the current vote but did not say that five justices were signed on to this opinion and that's what happened so justice alito circulated this opinion in february and then he's supposed to get memos back from his majority saying hey sam uh if you make these five changes i'll join your opinion and boom then you've got a an actual majority for the court but all that you see from february 10 is this is sam alito's view and it is the outcome that five people voted for at at the conference of the justices uh and so there's a bunch missing between february and now in terms of actually getting to a majority so the most likely scenario right now is that it is in play now what does it mean to be in play and is it as i said an optical illusion well it is not in play whether this statute's going to be upheld it's in it's in what's in play is are they going to admit to over ruling row and how far are they going to go in upholding doing something that would for example uphold a six-week ban like their states with six week bans what about statutes that are total abortion bans are those now constitutional so you know are we going to go step by step and is this going to be a five-year process or is it going to happen on the last day of june of this year that might be in play but people ought not be uh misled into thinking like there's a real real debate uh about what's going on in abortion in the supreme court row is is on life support best case is there um anything uh because the person who leaked this we would assume is hoping to make some change and send this out as a warning sign to the country and the people who want to preserve roe would we agree on that some people think that's i think that's true others think that uh this was an effort to get kavanaugh on record as having voted to overturn roe and to hold his feet to the fire that's certainly how i interpret the leak to the wall street at royal street journal editorial board i think the release of the opinion however the distinct like this piece of paper is intended to do what it did which is to motivate progressive forces and say wake up like this is really happening we're not kidding you've been hearing that the supreme court's getting more and more conservative but i'm telling you in eight weeks you don't have a right to an abortion anymore uh you better get your act together so the second question is is there any chance that public sentiment could make a change in the thinking of the supreme court is that farcical for us to think or are they humans and they see this and say you know we gotta dial this back or we gotta you know you know uh and somehow maybe dampen the blow of this if we are gonna overturn it could protest mass protests and sentiment actually change their thinking amy it's so hard to say i mean i really do think it's probable you're probably talking about just one or two justices rather than all of the justices as a whole you know because i do think that there is probably a sense among some of the more conservative justices who would have signed on to this opinion that we are not going to be we're not going to you know step off the path because somebody leaked this document and people aren't going to like it we're going to stay the course but you know i think you're talking about you know in all likelihood one or two justices whether they will be affected by this i think it's just it's so hard to know and so much depends on what the leaker was trying to accomplish which we don't know institutionally they're in a hell of a bind you know right now we know that there was this initial vote now let's say that the ultimate opinion doesn't overrule row and justice kavanaugh joins the chief justice to do something less aggressive institutionally that sets an unbelievably bad precedent if it creates the impression that leaking documents to the public leading to protests causes the supreme court to change its mind so that's a horrible place for the the justices to be in to be perceived as reacting to the leak in a way that the leaker intended uh what that invites later generations of court staff to do is is no bueno it seemed like alito almost thought it was gonna happen because there's a section in his thing that actually speaks amy you mentioned it about being almost oblivious maybe is the right word to what happens on the outside that they needed to do what's right almost in in a way almost forecasting this i have a question for both of you which is more general in nature which is should we have age limits for supreme court justices so one of the things and i don't mean to you know i don't mean to sound morbid when i say this but you know these folks literally are in the chair until they die and this is what i think creates some of this um some of these issues right so rbg you know there could be a claim now that if if ruth bader ginsburg had actually stepped down or tried to hold on you know it would could have been a different outcome there could have been a different person what do you guys think about this age limit concept for supreme court justices and and and dealing with that in that way versus making these lifetime appointments i'm personally strongly in favor of this but you have to recognize that it would require changing the constitution there are all kinds of attempted workarounds but i'm telling you that the people who decide the constitutionality of the workarounds are the justices themselves and they would have no interest in accepting any limitation on their life tenure so you you have to expect that we're talking about something that's kind of high in the sky because we're not going to amend the constitution to do this until we end up with the justice who's senile and who can't do the job and the supreme court turns into a laughing stock and at that point the country will react but we're just not good as a country at seeing this problem coming i mean fundamentally what happens is we're now incentivized to put people on the supreme court when they're in their late teens just get them on there as soon as you can and keep them there for 70 years and it's not gotten terrible and you know justice thomas was extremely young but we seem to have settled around 50 years old and there's nothing intrinsically wrong with having somebody on the court for 30 years or 40 years at age 50. we've been super lucky uh when it's come to the fact that we've everybody's been pretty coppis menses we've we've gotten we've run good and we could run much worse than we have we you know we see this in the senate right now uh that we have some problems and it could happen with the supreme court justice but the difficulty is even are you referring to maybe they become senile they're not there or they could have alzheimer's and the problem is since whatever yeah and then what do you do because you can't you know you're gonna impeach them uh people who like the outcomes are gonna but what like the only the justices themselves can decide whether they're gonna leave so the the but the problem is this we're we're getting we have a huge incentive now to put on somebody who's very young and the the lead time effect of one presidency of the trump presidency for example now will span you know four decades uh and that i don't think the framers intended remember the you know the average life expectancy at the time of the constitution's framing when we said life tenure was decades shorter uh even for people who like supreme court justices back then who had very good health care and so nobody contemplated this when we originally said lifestyle there is a proposal on this that there were a few members of the house i think including ro khanna and uh rasheed labe and some other folks but also some conservatives support it too for an 18-year term limit for supreme court justices and i think the way it would work is basically uh each president would get to name two justices so basically every two years you get someone rolls off and then the new president gets to choose a pick and so every president gets two and so yeah basically if you think there's there's nine justices on the court so it takes 18 years for a full cycle for it to roll over i think it's pretty interesting because it would take a lot of the heat out of our these sort of supreme court nomination battles where you know somebody dies and now it's a nomination fight and both sides are playing for all the marbles if you knew that every presidential election every president met two votes on the supreme court it would sort of normalize things i don't know i mean i it's just that's what the constitution says right no i know i know we need a constitutional amendment but i think it's a really interesting idea i'm all for it yeah i mean i think obviously there would still occasionally be openings that would be created if someone had to step down or would have passed away but you're right that it would people would be able to plan we would know when people were going to be rolling on and rolling off i do think it is you know it's always struck me it's kind of ironic that it is at least from a constitutional perspective easier to add justices to the court than to impose term limits for which there seems to be a fair amount of amount of support tom and amy you have been unbelievably generous with your time and your knowledge we truly appreciate you coming here and explaining it to the all-in audience uh we're all better for the work that you do and for you sharing with us the podcast is amazing it's so generous of you to have us thanks for having us great to talk to you guys all right uh chamoth first off thanks for getting those amazing guests it was a quite an education i i think first you know we'll recognize it's for four guys talking about abortion um and you know we understand this is not exactly our issue uh to discuss an opinion no but jason the takeaway from me was that this is not just an abortion issue oh of course the downstream this is gay marriage this is interracial marriage so on the gay marriage point let's just go back to that for a second so look i think tom did a nice job laying out um you know in pretty neutral terms what's what's going on here and where he had a point of view he you know expressed it i i think the idea that this leads to uh gay marriage being overturned i i don't see it it's just uh you know it maybe it's not impossible but i i just don't buy it there's two reasons so first of all the bosti case i mentioned this was a case just two years ago written by gorsuch joined by roberts and the other so it was a 63 decision in which gorsuch held that the civil rights act of 2064 protects uh gay and transgender employees against distribute discrimination now tom is right that that's statutory not constitutional but gorsuch didn't have to find in that statute that sex applied to gay people and transgender people the court decided on its own to do that to interpret the statute that way so you're telling me that a court that just two years ago decided that you cannot discriminate against gay employees is now going to allow discrimination against gay marriage i just don't buy it and the second issue the second reason is that marriage equality is broadly popular now in the united states people's minds have really changed on that issue and i don't think the court would want to go back on an issue where again they just ruled on this in 2015 where the where basically the issue is now settled in the country one of the differences i think with abortion is it's still a very hot issue and it's not settled in the way that uh marriage equality or gay marriage is settled so i just don't buy this idea that now we're gonna be overturning gay marriage that we're gonna be overturning like for example example uh contraception i just don't buy it why because nobody in the country is arguing for outlaw and contraception well i guess the the counter argument to that david that people would have is well we didn't think they were gonna overturn ra uh roe v wade and they have um and so we feel we got rug pulled kavanaugh et cetera people you know when they were uh being integrity interrogated about their views on these things they felt like they lied so i guess what would the response be there because there seems to be a trust issue here that people are not trusting uh the supreme court right now and again of course you know depending on which side you are you might be thrilled or not thrilled with the outcomes i think that was a very good point in our discussion but um people didn't think this outcome would happen with roe v wade so yeah it's kind of hard to believe anything the court says we did talk about this earlier i think we we mentioned this when we talked about abortion some episodes ago that this case was going to go and we mentioned i think this in the context of this and affirmative action as you know two things that we're going to get challenged and would probably lose and unfortunately it turns out we're right on one and it looks like we you know we may be right on the other as well because i think the affirmative action case will get we'll get it did we think that we're gonna get overturned did you think that david i admit i thought roberts was gonna get his way on this so i i am a little bit surprised i still think that in terms of like the the um the the testimony of these nominees i mean look tom i think nailed the answer to that question saying that these decisions are settled law is just a platitude i mean yes it's settled law it doesn't mean it can't be overturned look i mean we all know that in these nomination hearings the job of every nominee from either party is to basically say as little as possible and describing row a set of law is doing that i mean it's not it's you could still go back and and overturn it so i this idea that they lied or whatever i mean look people hear what they want to hear in these in these they all the republicans and the democrats have a perfectly rehearsed answer when somebody in the senate confirmation hearing says will you overturn it and they and they say i could never adjudicate the case without knowing the facts and i have to you know look at every case as a clean slate it's like a very well practiced answer to every question to your point david it's a very rehearsed confirmation process right exactly so this idea that they lied or whatever look the only way you you think they lied is if you read if you read something into an answer that was a platitude that you wanted to hear my issue my issue with this is the following which is that i do think that there is a role for compassion and how we're governed okay and i what i what i have an issue with is that at the sake of this originalism to go and just be so textual about the constitution are you willing to abandon all compassion and an understanding and you know i i that's where i just struggle and jason i think you asked it like where is the role of like humanity in doing one's job right and why is it that there's a belief that one must so fervently interpret in an in a very black and white binary way a document that is you know for all intents and purposes still quite old right and everything has the potential for improvement and so this belief that we got it right the first time and that there there isn't any room for any dynamic improvement to me i really struggle with let me just play devil's advocate your point of view is that the humanity in in making these decisions is driven by what you consider to be your moral standing here which is um one of pro-choice and folks um there are other folks in the united states who who have the moral standing of pro-life which is to say i i don't believe that that choice should sit with with an individual given that it infringes on the life of another and um and i think that's really what this is all about which is in these circumstances where there are different points of view on what morality is what ethics should be in this case that's where the law and the courts have to play an adjudicating role and that's what makes it so tough right i hear you but look here's my my perspective on this is that yeah i am fundamentally pro-choice i don't think i have the right to say okay what a woman can do with her body that's just absolutely not um not my role uh or a right that i should have i understand however and this may sound that i'm talking on both sides i understand when people say this should be a past law okay i think that that's a very reasonable thing to say you know people should be able to vote that law and people should be able to enact that law i just think that when you have 50 years of a precedent you know where there is as tom said so much water under so many bridges um this is why i think well why couldn't you overturn loving virginia right why couldn't you overturn griswold why couldn't you overturn obergefell and and this is where i just think like are we not just taking a big step back in society and saying you know we're going to throw out compassion in favor of original textualism and i'm just not sure that that's a good trade-off in 2022 america it's very interesting this is such a polarizing issue for us and it seems like other societies have found a resolution in a way to move forward i also think sorry just to finish jason i also think like this is where okay honestly politicians step up and do your job one way or the other you have a responsibility to reflect the will of the people and you have a responsibility to collect that nuanced perspective and implement a framework that represents that and instead what i think i see politicians on both sides is just you know screaming like crazy people at each other and it just doesn't do anything so what are we going to do and we're going to have the same conversation guys about affirmative action right we're going to have that conversation and we're going to wonder okay well is affirmative action was it reasonable was it good was it bad well it's not a right that's affirmed in the constitution and so you know it's going to go away i think thinking about intellectually the the way to uh resolve the issue for the country um or path forward uh might be interesting to delve into here is there a path forward you see david uh because listen we it is one brush we play with you're either and the language is framed as such pro-choice or anti-choice pro-life or anti-life obviously these are loaded framings to begin with um and people could be not want to see abortions occurring in the world and they could also uh still be pro-choice right this is a very nuanced issue and then people might have different feelings and i know this is graphic and hard to talk about but people might have different feelings about the second trimester that they're tremendous and very different feelings about the first trimester and when an abortion occurs and and people who are pro-choice might not be for third trimester abortions they may want to have some basic uh rules uh around uh abortion so i'm not putting my own personal beliefs out there right now i'm just framing a question what are your thoughts in terms of moving forward because this is a could possibly be a state issue in july yeah well so so let's assume that this is the decision and it it's i guess it'll officially come down in in june or end of june so let's assume that this is the decision by the way it's still possible that roberts could peel off a vote and then we would get a scenario in which roe is upheld while modifying it to allow you know laws like the mississippi law but let's assume that this this decision that appears to be written by elito ends up being the law what that will mean is that like tom said we'll have a vote in congress the democrats will see if they can basically uphold roe buy through a law which biden would then sign i think the issue there is they have to get enough votes to break the filibuster and i don't know if they're willing to do that so let's assume that fails then it goes to the states so in states like california where we are there's going to be no change whatsoever in fact you know news from the democrats are saying they're going to enshrine the the current law in the constitution of the state that's really that doesn't do anything abortion will remain broadly legal in california and in blue states places like new york coastal states so right off the bat let's say in about half the states 25 of them or so i don't think there's gonna be a change in about 12 states these um restrictions that are already on the books are going to go into effect and then we're going to have about you know 12 or 13 states that become battlegrounds purple states basically and we will have those states through their legislatures and through their elected representatives are going to have to figure out what their policy is going to be and that is going to be a huge issue in those states and i think where this will go is i think politicians who figure out where the center is and figure out where most of the people in their state are are the ones who are going to benefit and maybe the the potentially hopeful scenario here is that it will force people to compromise when they actually have to craft legislation they're gonna have to work through those compromises until now the issue has been so fully preempted by the supreme court that everybody basically was making these absolutist rights argument right like one side is saying there's a right to choice one side saying there's a right to life these are rights that are being framed into absolutes that broke no compromise there was no reason to compromise because there was nothing legislatively to work through or compromise right these were arguments being made to the supreme court so no one's had to compromise and i think when they actually start working on legislation they start getting working through these questions jason of what you're saying which is should abortion be allowed in the third trimester okay no most people would say no should it be allowed in the second trimester and so forth so you have to work through those questions by the same token if the pro-life side refuses to make compromises for say rape and incest they're gonna be punished by voters in those states i mean that is very unpopular so both sides here i think are going to have to learn to compromise and it's going to be a messy process but the hope would be that at the end of this we do eventually arrive at some sort of resolution to the issue like we have in every other western country you know in every other western country even ones that are quite religious this is not a culture war issue and i think you could argue that one of the reasons why it's become a cultural war issue is because the supreme court preempted it and stopped the democratic process from working 50 years ago and so the only way for people to express themselves is to make these again absolute rights arguments in front of the supreme court i think that when it comes to the messy issue of democracy when people actually have to work through these things through their elected representatives who will lose elections they will lose elections if they take ex positions that are too extreme i think maybe we will get to a compromise i think you're saying something really important you're saying had blackman not adjudicated roe v wade in 73 it would have been up to congress at that time they would have passed some set of laws and and over successive iterations of those laws you're saying there would be a framework so that a moment like this didn't happen yeah and you know what that exactly what you just said was written by um a supreme court justice um in a larvae article in 1992 i'm going to let you guess who that justice was in a second but i kind of read you a couple of statements from it this justice said that uh no measured motion the road decision left virtually no state with laws fully conforming to the court's delineation of abortion regulation still permissible around that extraordinary decision a well-organized and vocal right to life movement rallied and succeeded for a considerable time and turning the legislative tide in the opposite direction meaning there was already a trend before roe towards liberalizing these abortion laws across various states even ronald reagan had governor had signed a law liberalizing abortion in california and that process was halted and stopped by the supreme court's decision which in one decision invalidated every single abortion law in america and then what this justice said is that roe halted a political process that was moving in a reformed direction and thereby i believe prolonged divisiveness and deferred stable settlement of the issue do you know who the justice was who said that ruth bader ginsburg so she obviously was for the ultimately the holding in in row but what she said she would have done was have a much more incrementalist narrow decision that would have maybe invalidated just that texas law but threw it back to the legislature so that they could then work out the issue and instead she felt like the supreme court making such a sweeping decision it created a backlash and i think for 50 years we've been living with that backlash and there's been a culture war in this country over it while every other western nation has gone through the democratic process of working out the messy compromise now i think what roberts was trying to do is create an incremental approach to putting it back in the hands of the legislature and i think you could argue for the same reason that ruth bader ginsburg argues that the incrementalist approach would have been better um i think it was certainly the politically shrewder move right not just throw this grenade into 50 state legislatures but to gradually move the issue back to the states i think there's a lot of wisdom in an incrementalist approach whether it's roberts or ruth bader ginsburg they both are basically saying or you call it the starry decisis approach you give precedent you give weight to president you don't just overrule you know these 50-year precedence i think there's a lot of wisdom in that approach as well but i think the hope here would be that by letting the legislative process work through this issue we can hopefully eventually get to a stable sustainable consensus and it will be chaotic but other countries have dealt with this australia has basically by the states in australia they have different weak requirements and europe has a certain weak requirements i've read a new york times article and chamathi you pointed me to some of these resources so a possible outcome is states starting to build their own framework in terms of rape incest on-demand you know on request versus a certain number of weeks uh and that is just going to be an absolute amount of chaos for some number of years yeah look if if the parties don't compromise on this voters will eventually punish them i mean i don't think you're going to see you know glenn younkin like victories by the republican party if they broke no compromise on for example the issue of you know rape and incest by the same token i think democrats will have to in a lot in purple states they will have to concede that there is a competing rights interest at some point on the part of this you know of the unborn baby right i mean are you really going to allow abortion into the nine month of pregnancy if the life of the mother is a mistake so both sides have never had to acknowledge that the other side had anything useful to say and i think now they will and if the absolutists in both parties refuse to do that i think they're going to lose elections yeah i i it's so hard to get the proper statistics here because i think a lot of the i've been looking trying to understand what the country actually thinks and people do not ask very nuanced questions are do you believe roe v wade should be overturned people get asked that question the majority believe it shouldn't be do you believe that you know like but we don't have all of these nuance issues uh bi-state it doesn't seem to be um maybe people haven't even thought it through right like do most people who are pro-choice have an opinion on the third trimester on the second trimester do they do they actually have an idea of when they feel and and you know i'll be honest i have not given this total thought myself as to how i feel about it i learned a lot by reading this here's here's something that was in the opinion that i didn't know but it says at the time of enactment of this mississippi law only six countries beside the united states permitted non-therapeutic or elective abortions on demand after the 20th week of gestation those other six countries were canada china the netherlands north korea singapore and vietnam that's it in the whole world and so you know to your point there's there's all these granular details and i think as david said a group of politicians need to sit in a room and really think through these things and kind of try to try to get to some kind of basis that doesn't take back something that's been in the books for 50 years that's something so funny that's the really tragic part about this it's like it's such an unequal think to do unfair it feels profoundly unfair to take her right away after 50 years i think that's the republican party is going to just pay such a massive price for this um broadly i mean is this a case where like the dog catches the car bites the fender and it's now like oh my god cause well this is why i'm asking what is the what is the true prioritization of things as we know how the world works today meaning i understand what it means to be an originalist or a textualist i understand that right and i respect people's perspectives that the constitution should be interpreted verbatim i understand that and and i and i and i respect people's ability to think that the thing though jason to your point of like the dog catching the car and the fender or whatever is okay um do you do that at the sake of a lack of compassion or or lack of empathy for how the world works today and should we not have a point of view that says irrespective of how we decide we should factor in what the moral temperature of the country is in that moment in which something is decided and i in some context like there's a context here of it being law for 50 years that you cannot disregard and that's why obergefell took until 2015 to really happen right because by that point it was a it was there was this beginning of a sea change where you know i think it's like 70 i think in a gallup poll that i saw support um same-sex marriage and i think it was about eighty percent it's not a hundred by the way eighty percent support interracial marriage and ninety-two percent this is all in the same galapagos 92 percent support um they don't think that using contraceptives contraceptives is immoral okay but that still leaves 30 20 and 8 percent that still think something that's very different but it's such a clear majority of america so my my hope is that you know as as tragic as this ruling is if if this is what comes to pass that it's narrowly defined so that to your point david we don't open the pandora's box on all of these other things that we have decided as a nation are are very reasonable things you know i don't think obergefell is going to get overturned i just don't see it and the reason is because of the way the supreme court handled that issue so you know again go back to the early 1990s the way that that um this issue first came up is that a hawaii court found that there was a right to gay marriage and there was a huge uproar supreme court did not take up the case they did not take the bait so what happened then is congress passed doma the defense of marriage act which was huge majorities in both parties and bill clinton signed it remember this stating that marriage was you know one man and one woman and so if the supreme court had basically taken up the issue then and found a right to gay marriage we might have had a constitutional amendment banning gay marriage by now and we'd be trying to work our way out from under that and figuring out how to get rid of that but instead the court did not take the bait they stayed out of it until 2013 when attitudes had changed substantially and then they invalidated dome in 2013 and then obergefell came along in 2015. so i think the pattern here is that the court has learned to stay out of these hot button issues until they become a little bit more settled and then what they do is once the public's opinion has sort of clear is clear then they enshrine it but isn't it clear that people want the right to for women to choose well but it created this enormous backlash the the the the enormous backlash that you mean amongst the minority well you say that but it is a it's a very large group of people but it's the minority but then you said yourself that the majority in the court wants the majority of people to go for gay marriage that's what that's that's the disconnect i have well but here's another disconnect right jake ellis if you believe your position on this is so incredibly popular and has such a super majority why are you worried about it being returned to the state legislatures they will basically have the laws that you want well no i believe in some places the minority might be the majority in a certain state and then we'll have women in those states who aren't able to get an abortion safely that would be my concern i think that the country is deeply divided on this issue look at all defense uh depends on how you define the labels it is true that most people say they're pro-choice however if you frame the question as should there be no restrictions at all most people would say their favorite restrictions yeah that's a totally different phrase exactly so my point is the country is still deeply divided over this and um the issue got preempted by the supreme court 50 years ago and we've never made progress since then yeah and i think it's gonna be i think it's gonna be very messy i think that's fair and if we if you frame the question as do you believe people women should have the right to choose in the first trimester we would probably have the overwhelming majority people say sure that's no problem then we would be arguing over second trimester and third i just i just posted the gallup data they've longitudinally tracked attitudes and uh opinions of abortion since 1975. as of today in 2021 2022 you know the split between pro-choice and pro-life is very even it's you know 49 is pro-choice and 47 is pro-life but if you ask the more nuanced question that david said 48 consider uh abortion to be legal only under certain circumstances 32 percent say it should be legal under any circumstance and 19 said it should be illegal in all circumstances and so to your point the plurality of people half the half of america basically wants it it as a supported right with some boundary conditions but then there's 32 percent of people that want it under all circumstances so i think the compromise is that there is a 70 plus percent majority of people who can craft a law here right yeah i mean right and also the question of do you consider yourself pro-choice or pro-life that is the personal question not do you think it should be legal or legal that's what do you believe as a human being on planet earth are you pro-choice or you're pro-life if you and i guess that would be assume if you had a baby but then when you look at the illegal the illegals under 20 now it's been 18 19 percent now so well to be fair since in 1975 that line hasn't moved right and that would be highly religious people i would assume uh make up the majority of that 19 that we're talking about like what's what's really moved is you know we've doubled the number of people that that say it should be legal in all circumstances since roe and that's come from people who thought it should be legal under some circumstances yeah to 32 so 50 this is a fraught issue for the republican party because if they only appeal to their base the 32 percent who should actually you know sorry 32 percent say it should always be legal that's the democratic base but if they appeal to the 19 who say never as opposed to the 48 percent who say reasonable restrictions they could lose some elections here look i think until now the issue has been a little bit performative because both sides both parties could just appeal to their base because the issue had been preempted there were no laws to vote on now they're gonna be real laws to vote on there's gonna be real votes and people if they don't move to where the majority of the country are they're gonna pay a political price for that so basically translated republicans are going to have to fall into this bucket of legal under certain uh and they're going to not listen to illegal at all because that that means they'll just be so disconnected from the reality of american life in 2022 they will not get office as long as we can have some reasonable voter participation that isn't about the extreme bridges of both parties again this is again what we've been saying i think it's like the more centrists that show up and vote the more compassionate and rational we can be and getting to denmark is what they call it right what is it there's a term getting to denmark which is a term for where the politicians and the people who represent you are in sync with the beliefs of the majority of the country and if you get to denmark you know the distance between what politicians are doing and what the people want is very short you have this consensus or this alignment and we don't have that alignment right now and this is probably the most pronounced issue and gun control we don't we can always hold out hope that you know there's a more temperate moderate form of a ruling that's not what this is but in the case that this is what it is i hope david that you're right and that it starts and ends with row and that it it gets the states to be activated to do something and it doesn't spill over to other things like gay marriage or even interracial marriage because i just think that i don't put it past one law clerk someplace who's hell-bent on proving a point to use an originalist framing of what they believe the constitution says to run these cases up the flagpole right but i don't think the supreme court is going to overturn those other cases i'd just be shocked i don't even think they will take those challenges um right yeah i hope you're right i am just absolutely devastated by this it's just to take away women's right to choose is just insane to me but uh we'll see we don't know exactly what's gonna happen here so hopefully we'll get some resolution but i really love you guys love you guys too








when are you coming to miami are you there already i'm here i just got here oh cool come tomorrow have a good weekend i mean you get a ride on someone else's plane mine's been repossessed you can give me a ride i'll have mine for at least another couple weeks i love i love flying commercial you know i left fine commercial every fan of all in and this week in store up stops me and takes a selfie i cannot tell you the love in miami i sat down to have a meal outside were you by yourself or yourself i'm myself it's 11 30. i was like hey everything's closed there was this one little place that's open i kid you not i sit down two guys come over we love the pot and i'm trying to eat my meal and they're asking me questions and they want to know where's friedberg's introduction and i'm like it's so bad well i showed them the video and they were in stitches i was like guys there's only like five people have seen this video and now it's youth two so there's seven people they were so over the moon we should never have cut that well we could play it now it was good thank you it was incredible i said we just we just throw to it right now is that a good uh plan maybe and here we go in three two this is like the nerd olympics for freeburg he's like nerd stretching he's having a nerd uh freak out right now you know what i'm most excited about that i don't have to listen to jason's intros oh my god you're on like nerd brawl that's like nerd adderall take it easy dungeon master this guy hasn't been so happy since he rolled a 30 on the 30-sided die jesus oh my god i've got a plus seven bro where does that come from oh from dungeon i've never played oh really you were playing league of legends okay okay i'm gonna just apologize in advance to the audience okay here we go no interruptions please thank you in the voice of j cal hold on is there a frog in your throat what's going on there oh god he's super loud and has nothing to say but we keep him around because he has a producer we don't have to pay one good investment in his 30-year career but he wrote a book about it and tells all the vcs to kiss his rear he's one of a kind will always come to your rescue when you're in a bind he calls himself mr calacanis but we all just call him an anus jason calacanis everyone jason welcome to the show great to be here great to be here thanks for the uh kind intro good to have you his words are incendiary and divisive but only if you identify as a gender fluid progressive otherwise to you he's a scholarly god fighting the great war against the rise of the woke mob hey pal it's the 17th most important guy from paypal he's back with the same political speaking tracks the one and only mr david sacks david welcome to the show thank you thank you i think we need to work on some of your rhymes but yeah we might need to tighten that up a workshop but yeah keep going maybe it gets better he contradicts himself twice a week but we're still enraptured because his mixed sweaters are so sleek his monologues last most of the show but he never talks any more about ipo 2.0 as he'll tell you over and over he drinks the world's greatest wine but commenting on other topics is a bit below his line he's silicon valley's most renowned dictator our friend the verbal masturbator paulie hot potato chimoth welcome to the show great to have you here wow that was brutal god oh i'm not done we're an increasingly notorious whack pack litigated by david sacks emceed by an investor hack and soon to be cancelled because of the performance of chamoth's latest back we are the all in pod and you'll never get this 90 minutes back i'm the sultan of science with an iq of 103 i'm taking the throne as this podcast's new mc thank you everyone i'm gonna have to oh man i don't want to read the youtube comments on this one all right we'll scrap it no no no he's going no no no no no no you can't spike this sex commentary well i mean uh it felt a little bit scorched earth to me yeah um i thought mine was fine but uh i think these other guys are a little bit shell-shocked right now i went a little hard i actually wrote this for your uh for your birthday and then i decided to throw it in okay well i guess maybe we save it for your birthday yeah you may want to do something funnier for my birthday i'll be back next week with some actually funny intro material apologies to the audience [Music] [Music] all right listen stocks and crypto have plummeted tiger coinbase shopify employee rsus meme stocks it's all gone everybody uh the world's over uh so uh where do we start you guys want to start with crypto stocks where do we even begin should we talk about what happened when rates went to zero and how financial assets inflated and i think we talked about this during the pandemic right when the pandemic was starting i remember an early show we did where you and i talked about how it felt like we were going into like the roaring rapids riot at like magic mountain or disneyland i kind of described it like that like it feels like you're going to a rushing river and there was just all this capital flowing so fast like overnight there were it would like all of a sudden we went from this like coveted standstill to oh my god this rush of capital and you could feel it right all the businesses we're all involved in started getting term sheets and doing deals and there was specs and transactions it was an incredible rush of capital and so when you know the central bank made interest rates zero and then banks could lend out money at close to zero and still make money and then people could lever up assets and then those asset values inflated and they could borrow more and keep you know investing in more and buying more ultimately you know we had bubble after bubble and we saw a lot of things that um you know may not have necessarily been valued based on a historical set of multiples or comparables or cash flow but really it was just about hey if i invest x dollars and someone else is willing to pay y dollars for this asset tomorrow i'm gonna make money and you know suddenly the friggin vacuum came out which was like let's take all that money back and so when interest rates got hiked it was like all that money's coming back out of the system and it was like this whooshing sound like the airlock got opened and all the cash came back out and as a result the bubbles just all deflated and it happened so quickly that it's what was crazy to me was that for so long everyone's been talking about how everything feels so overvalued so everyone was just waiting for the moment when the whooshing sound began and then everyone laid off all the risk and it happened so fast and it's still happening people are still trying to unwind the things where they're you know in huge positions but uh you know it i think it really is just uh it really is this uh this kind of incredible moment where you see all the money get pumped in it all gets rushed out just as fast um and i think we're all kind of like you know in odd how quickly the the response has been so maybe some context is helpful from 2018 up until the beginning or not really the beginning of this year but probably q4 of last year you could have calculated an incredibly tight correlation between the stock market and the fed money printer so the fed is in control of how they can introduce dollars into the economy how do they do that they literally manifest money they don't actually technically print it but let's just assume for these purposes that they actually do print it and they literally take that money and they enter the market and they buy things with it and they're giving you this newly created money that they just created out of thin air from 19 or from 2018 up until about q4 of last year there was a 0.92 correlation between that and the s p 500 going up what does that mean so if you look at a negative one correlation that means that if something goes up this thing goes down dollar for dollar that would be perfectly negatively correlated if you look at something that has a zero correlation that means it's just random whether whether one thing goes up and down has no influence on the other but a point nine two percent correlation effectively means that for every dollar the fed created the stock market was going up by that same dollar and that is literally what we had up until november of uh 2021. since the beginning of this year till about yesterday so i think the number is still going up probably by at least by a trillion dollars we have destroyed collectively as a society um 35 trillion dollars in global market value now to give you a sense of that that's 14 of all global wealth that has been destroyed in basically five months and for reference in 2008 when we went through you know a cataclysmic shock to the system that threatened the banking infrastructure of america and a potential contagion to the world that destroyed 19 of the world's global wealth at that point so you know we're uh approaching some really crazy heady moments in time where in terms of the market correction and the value destruction the difference here is that the last time around it was really about a handful of financial institutions and some very specific assets right mortgage-backed securities um you know some parts of the of the credit market and then a bunch of financial stocks and that was largely it this time around as you just said free burke it's literally everything that's getting smoked there is not a place that you can effectively hide that has been safe crypto smoked the credit markets totally frozen the equity markets nasdaq is in a bear market the s p is basically flirting with the bear market now and i don't really see any end in sight meanwhile we're waiting for cpi to downtick inflation hasn't really done that it looks like consumer price index how much stuff cost so that's taking a lot longer than we thought to sort of roll over separately jobless claims are now starting to tick up which means that companies are beginning to affect layoffs because they feel this pressure so now you're going to see an unemployment rate that starts to go up and then meanwhile we're fighting a proxy war in the ukraine against russia to the tune of about you know 40 billion dollars every sort of month or so when we open the paper and decide to read about it so you put all these things together it's not clear that there is the momentum to create a market bottom real estate chamath if you look at it was a major uh compression in 2008 real estate held up is holding up seems to be holding a little bit i don't know how long that's going to last with mortgages going up so when you were talking about all the different categories i was like that's the one category that i guess hasn't fallen yet saks what's your take on the list yeah i mean look we're in a stock market crash that i think over the last week sort of became a panic i mean i think now there's panic selling going on that's not to say that it's all oversold but certainly there are names now that are starting to become screaming buys but nobody has the capital to to buy i mean it's easy to say you know in theory that you should be greedy when others are fearful and fearful when others are greedy the problem is that everyone's already fully deployed and then when the stock market crashes they got no cash enough to buy up new names and you know that's one of the things that you've noticed in this downturn and i'd say especially with crypto is with all the other crypto downturns there were always you know the crypto accounts saying hotel or buy the dip or the you know they had the laser eyes going i don't see any of that right now pure capitulation fear exactly yeah exactly so this is just a route across the board i agree it's every asset class i think home prices that's coming jason because like you said mortgages are going up inventory is going up so that's a leading indicator people can't afford uh the same mortgage they did before because rates are going up very fast so you know sellers are going to have to drop prices and until they're willing to do that yeah the inventories go up that's a little dance that happens in real estate is the sellers don't want to accept reality and they don't have to sell because they're living in it as opposed to their crypto holdings which they're not living in and they're not getting value from and frankly i think the consumer in general that's the next shoe to drop here because right now it's been you had this sort of financial correction you had this massive asset inflation and now that the sort of the the air has come out of the balloon but the consumer has generally been holding up pretty well um obviously we had unemployment you know near three percent very low although the labor participation wasn't great but the consumer was doing fine it was sort of holding up the economy now i think you've got a bunch of different factors that are going to really hurt the consumer over the next several months like you said interest rates going up means that home loans become more expensive car loans any other uh you know uh personal consumption loans go up credit card debt now has all of a sudden uh skyrocketed so uh there's an article on axios on this that the amount of consumer debt is uh surging and uh to this highest level of increase in over a decade so consumers are turning to plastic to cover the soaring cost of everything and then because of inflation that wages in real terms fell 2.6 percent over the past year so another point of inflation when you say inflation so if you're to look at wages in real terms people are actually making less money you give somebody a 10 raise eight percent inflation it nets out to two well no you're giving them a six percent raise oh i'm sorry yeah or or like like a 5.6 percent raise or something like that against eight percent inflation and net net they're down 2.6 percent got it they're down to not up yeah in purchasing power exactly spending power sax's point is like i mean the number was 60 billion of new consumer credit last month which is like something we haven't seen in a very long time as consumers try and bridge this gap to afford the things that they've gotten used to spending money on to jump up like that just indicates that we may be in the beginning of a consumer credit bubble now which is scary right this is this is the question is what are the next shoes to drop so so you think about like what's happened in the market so so far it's mainly been multi multiple compression like earnings season was pretty good i mean it was hitting for some folks yeah for some folks so the stocks that got hammered were generally the kovitz stocks it was the pelotons the netflix zoom you know you could like coinbase and um robinhood with the day traders because that was people are laying off that stuff so but so basically the covet stocks have been hammered but the b2b stocks actually had really good results and yet you know the sas index is down like 80 you know the average sas multiple it was over 15 times you know last year in the on the public comps and now it's down to 5.6 so the sas companies have been hammered despite having great earnings so we don't know they're b2b they don't they're a little bit insulated from the consumer but what we don't know is what happens over the next six months if we go into a deep recession then do even the b2b companies start being impacted that would look like sex just to be clear you know people uh maybe start canceling their netflix or they don't take that vacation that's the consumer getting hit first a business that's laying off 10 or 25 percent of their employees which are starting to see that contagion they might also pull out their sas bill and say here's 12 sas products we're playing for let's consolidate down to eight right i've got a sas startup that sells you know six and seven figure deals into enterprises and they closed their deal with uber the day before dara's memo came out saying we got to be really focused on cost cutting what wall street wants now is free cash flow yep we got to really sharpen our pencils they were like shoot good thing we got this across the finish line if it had been like two days later it just would have been a much tougher process so first you're right the companies that impact are the ones with exposure to the consumer but then those companies start sharpening their pencils and buying less so the question is how much are earnings now going to be impacted in the b2b space and what sort of recession do we have i think like recession now is this inevitable you to jamaa's point you can't have 14 of global wealth wiped out practically overnight and not have that translated into a big recession monetary velocity is going to slow dramatically the money circulating around is you can feel the brakes happening you can feel the the the the type of people are just way poorer than they were six months ago guys just to be clear we actually haven't started to remove the money in the system so the process of quantitative tightening which is the fed's mechanism of removing liquidity is going to start now to the tune of about 90 billion dollars a month but to run off all the money that they printed will still take three years right so we have to take about three trillion dollars of excess capital out of the economy and so if you add that three trillion as well that's just going to disappear to the 14 trillion we've already you know or the 14 the 35 trillion sorry you know you're you're starting to touch numbers that are you know as bad as the gfc in terms of global wealth destruction and again you're referring to the great financial crisis when you say gfc 2008 unlike the gfc this wealth destruction is touching a lot of normal everyday folks in very broad-based ways and that wasn't necessarily the case there were a lot of people that unfortunately lost their home but even that was still relatively contained to the hundreds of thousands here we're talking about tens of millions of people owning every kind of imaginable asset class who's seen wealth destruction you know somewhere between 25 to 90 and that's very okay yeah but i just want to make the case like people keep using this term wealth destruction and it was only wealth that was accumulated in the last few quarters since we had covid and we released all this capital and made interest rates zero and flooded the market with money so everyone kind of gets the money and then they're like hey i'm worth a lot more and then all of a sudden the free money's taken back and you're like oh my gosh i'm worth less i've been destroyed it's you know it's it's crazy the reality is this was meant to stimulate the economy money was released and the idea when you release capital from a central bank is that that capital flows its way into productive assets meaning businesses that can employ people that can create products that people want to consume and ultimately it's very hard to manage that when your only mechanism is to raise or lower interest rates and make capital available or buy bonds at the end of the day a lot of that capital flowed into financial assets and inflated the value of those assets the value of stocks the value of crypto the value of bonds that we own the value of startups that we all own and all of those assets the value of the stock went up but the capital didn't necessarily flow into creating new jobs creating new businesses and creating new products i want to finish this one because i think it's really important and at the end of the day if that capital didn't really go in to create value and it comes back out and all that happened was we had this kind of inflationary moment in terms of asset prices and we didn't actually create new jobs and didn't actually stimulate the real productive economy that's where we have a problem with stagflation and where we are inevitably going to run into a recession and i think the biggest concern i have let's be honest we're in a recession right now this is the second question the biggest concern i have as i mentioned earlier is this consumer credit problem a lot of consumers got used to the free money over the past two years and people took that money and they went and bought new cars or they bought uh crypto or they bought thing or another nfts and a lot of people got used to living a lifestyle that allowed them to spend in a way that they otherwise would not have been able to spend and then all of a sudden the rug got pulled out and now everyone's like well i want to keep living this lifestyle i want to keep spending this money i want to i had all this stuff taken away from me shoot what am i going to do and then they take on credit and the credit markets haven't tightened enough yet on the consumer side that we may find ourselves in a really ugly consumer credit bubble here's a crazy statistic for you guys in the 2008 financial crisis the median home price to median income in the united states was 5x today it's 7x so people today own homes that are significantly more expensive relative to their income and earnings than was the case during the financial crisis that caused a massive housing bubble you're missing a bunch of important data points here the most important thing that happened was we changed the way that we are allowed to capitalize mortgages and the borrower rates so that fundamentally is what drove that okay so for example you were not allowed for example to have a qualifying mortgage be over a million dollars at the end of last year we changed those rules so if you x out those effects that allow the fdic and all of these you know fannie mae and freddie mac and all of this financial gobbledygook acronym infrastructure that props up the us economy if you factor in those rules i don't think it's as extreme as you're describing what do you mean consumers have more debt per relative to the value of their home uh sorry debt uh relative to their income than they did during the 2008 financial crisis that's a fact has nothing to do with the structural way the market works but like what i'm saying is the market allows you to be that levered without actually getting foreclosed on or you know you're allowed to get the borrower rates that allow you to do that all i'm saying is it's not like um excess credit is being built up in the system abnormally by consumers it's just that these products again are being structured in a way that that gets people down and real estate is a very unique category because you have eye buyers taking stuff off the market you have regulation not letting people build more so i would be very reticent to extrapolate what's happening in real estate i don't think we have like a a a an issue in real estate to be completely honest with you i i think that we may have a looming credit crisis but the practical issue today is i think asset wealth destruction in the financial markets whenever that happens generally tends to lead to what sac said which is belt tightening by companies focus on maximizing short-term free cash flow which unfortunately the way to cut that is by cutting opex and the way that you cut opex is by unfortunately spending less on goods and services which affects other companies and firing employees and i think what you're going to start to see are a bunch of those things where these companies make these short-term optimizations then how that unfortunately impacts the consumer is what friedberg said which is that if the consumer was already living you know sort of at the knife's edge and using a lot of credit to basically allow them to live a lifestyle that wasn't sustainable whether that meant not having a job or whether that meant you know vacationing and staying in airbnbs all of that will come to an end now you can say what is the canary in the coal mine and let me just give you one thing that hit the wire this morning which will show you how bad the credit market is so there was a article in bloomberg that came out that said instead of elon taking margin loans to fund his acquisition of twitter there is an idea being floated by morgan stanley to use convertible debt now i love this idea because i think it's an excellent mechanism this was the you know when elon had convertible debt on tesla that was you know of one big escape velocity moment for me in my career in 2016 so i believe in these products i believe that they work but the reason i'm bringing this up is that the what it said is i'll just read this to you the preferred equity may have a 20-year maturity and include a feature allowing interest to be paid in kind at a rate of 14 percent a year if the single greatest investor's cost of capital for debt in today's market is 14 i think you have to really start to question what the credit markets really look like for market clearing prices because if that's the price for a risk-bearing asset run by the greatest entrepreneur of our generation there's a bunch of stuff rebirth to your point that's pretty mispriced i i think one thing where that's a silver lining here is we did build up 11 million job openings labor participation is really low right now even post pandemic people if you ask this question i think chamoth of like how are people going to get out of to free burke's point the lifestyle issue like they want to live lifestyle it's a pretty easy solution go back to work get a second job start working again we we peaked you know in the 90s with something around 67 percent uh labor uh forced participation and then we're now you know just right around 62 this is a large number of people who could go back to work now you mentioned that slight tick up ever so slight in unemployment claims we'll see if that goes up but i think the potential way out here is is that it's boden meaning like if you look now the last three or four right unemployment claims readings in a row have largely showed that it's floored and it looks like in the last couple of readings that it's starting to tick up well with three percent unemployment we're kind of on a floor you can't possibly have less unemployment unemployment's going up i think employment has peaked unemployment's going up and it's exactly what jamas said look all of us in our board meets the last several months really since the beginning of the year have been warning founders that the environment is changing don't assume that we're always going to have a boom and the cash is always going to be there however nobody's taking the advice well because there's been resistance because people don't want to believe it and then in addition it's always like well how do you know it's not going to bounce back right and now i think after what's happened really since april and really in the last week or two i think no one's really saying that anymore everyone understands that we're in a new environment and they just don't they either have experience with how bad it's going to be or they don't but everyone understands things have changed so every every company that's that's acting sensibly is freezing their hiring putting a break on the growth um you know slowing down their plans and that will absolutely translate into um you know less job creation yeah we've we've really um pushed that exact plan i used to sit down with our founders and in these board meetings what we would talk about is the base case and then we would always talk about a blue sky case and a really bold case right so three flavors of kind of like kind of go and do what you're doing actually put a little bit more gas on it and you know press the gas and then really go for it i've stopped all of that you know these last five months have been me and my founders basically saying okay guys what's the extreme bear case what's the bare case and then what's the base case what's not yeah and what we are trying to figure out is how do we make sure that we can optimize for a contribution margin for profitability for cash flow and when that's not possible how do we minimize burn so that we can extend our runway as long as possible and show technical validation so that we can raise money on reasonable terms not even great terms and if the boards of these private companies haven't been doing that for the last five or six months and the and the burn hasn't dramatically changed i think that they are they've been a little derelict in their duty it's a it's a it's you're not doing a very good job as a board member or investor if you have enforced these conversations with your ceo and you shouldn't expect the ceo to bring this to you in many ways because it's very hard for them with the with the focus that they have every day to put this front of mind but as sac said you have to do it as a director if you're worth the salt at all you have to do it right it's been quite the opposite we saw with fast.com co was the opposite right people were just not even considering it as no survival risk is on the table you really have to act differently it's kind of like the difference between a poker tournament and a cash game you know like players behave very differently in a poker tournament the players are much more conservative why because once you're out you're out so if you lose the wrong hand you're busted out of the tournament whereas in a cash game you can just rebuy well we've gone from basically being in a cash game where people can just rebuy maybe they won't you know they could go out and raise more money maybe it's not the valuation they want maybe it's not as much they want but you know in a boom you can always just go raise more money now if there's no more money available to keep funding your plan if it's not working you really have to think about survival and you have to be more conservative you can't let yourself bust out of the tournament by the way i'll say two things on that one what you're describing is exactly the condition that is now led to the fact that roughly one-third of public biotech stocks are trading below cash so they're uh they're yeah so their entity value um the biotech industry as a whole syn bio in particular but really biotech um about a third of companies now trade below their cash balance i'll send you guys some some links on the snake i'll add it to the show notes afterwards and uh the reason is yeah 40 of them have less than um uh 20 months of cash um 60 of them have less than two and a half years worth of cash and historically biotech companies they kind of run an r d cycle to prove that their biotech product will work and if it works there'll be a pharma company that'll swoop in and give them some money to go through the next phase of clinical trials or they'll do a secondary offering and raise more money to get through the next phase but because the capital markets are gone now for them or the assumption is hey there's not going to be any capital left they're still burning whatever it is 20 30 40 80 100 million dollars a quarter they've only got a few million dollars in the bank and everyone's like hey look the odds of you guys actually even if your technology works even if your product works the odds of you being able to get the funding to get through the next phase of clinical trials is much lower therefore the the ascribed value of your business is negative and we're seeing that across the board i started working in silicon valley in 2001 that's when i graduated from cal and i worked at an investment bank doing tech m a and that was right after the dot-com implosion most of what i worked on was public companies that were selling for less than cash today you know we don't talk about that over the last 20 years because it just never seems to happen well it's a phenomenal thing to happen right i mean you could basically what that means is you could shut the company down and make a profit and still own the ip and that is what happened in the dot com area yes we sold a bunch of companies i was on the banking side uh representing the sellers uh the private the public companies because there was no business they were just burning money and there was no line of sight to making money or line of sight to raising money so the board said you know what we just got to get shut this thing up shut it down and then you know hey what's cheaper shutting it down or it's going to make us more money shutting it down and distributing the cash or letting a private equity firm come in and shut it down for us and in a lot of cases they sold these public companies to private equity firms let's say the company's got 100 million of cash they sold it for 60 million private equity firm comes in and they're like boom boom boom everyone's fired this thing shut down and they liquidated it and they took you know made a 20 million spread on that thing i will say on the on the flip side for prime for private markets and i think this is a really important maybe point for us to have a conversation about over the past decade as you guys know there have been a more venture money raised than any time in history the numbers have been going up every year the number of funds total capital raised but at the end of 2021 if you look at the total funds raised in the total capital deployed by venture funds we have a 230 billion dollar capital dry powder hangover so there's a quarter there's a quarter trillion dollars of cash sitting in venture coffers that they can call and write and checks into so i think it provides a really interesting contrast that sets us up for a dynamic over the next few years on what's going to happen in private markets because you're going to have the haves and the have-nots the haves are going to have a lot of freaking money available to them because these venture funds need to be deployed over the next few years the have-nots are the ones that don't have proof points to a viable outcome in the in their business but the haves are going to have a lot of capital available to them with one capital capital so what do you guys think will happen there's two caveats in the contrast of everyone's saying hey there's no capital available there's no capital available that's not true there's more capital than has ever been available so how does it get allocated so the first thing um is to jamaat's point at what valuation and so there's gonna need to be discipline and they're gonna you're right the that money will go to the winners other thing to remember is during the great financial crisis for about a year maybe even two many venture firms did not want to call capital from lps whose portfolios were crushed and lp said i know we're on the hook for this but i would appreciate it if you don't make a ton of investments right now because we don't want to clear our already you know demolished portfolios to then fund your venture funds so those are commitments it's not cash in the bank and those commitments only come from harvard yale calpers ford foundation whoever more or less on climate catering if the gps can ask the lps for that and the last time this happened and i don't know if it will happen this time but i think you remember it too much the lps specifically said hey pump the brakes yeah let me build on what you say in 2000 the more extreme measure happened with which is that most of these venture investors returned the money and just canceled and tore up the lpa now why would they do that why would you tear up commitments for a quarter trillion dollars it's because your portfolio is trash meaning if you have made a bunch of horrible investments that you know are now totally upside down you have a responsibility to manage those investments to a reasonable outcome and ideally even try to get some salvage value and so you know it's very hard for you to look at an lp in the eye and all of a sudden say you know what i'm going to deploy this fresh capital and i'm in a psychologically good state of mind to do that well and i think that what history shows is that when you have these drawdowns the money is made by new entrants or fresh capital which doesn't have the legacy of a bad portfolio the returns are not captured by the same people and the reason is because they have the psychological baggage of a horrible portfolio or horrible marks so for example there was a tweet and i'll send this to you guys this is from a guy named matt turk he said to put the depth of the reset in context to justify a one billion dollar value valuation one billion dollar valuation a cloud unicorn today would need to plan on doing 178 million dollars in revenue in the next 12 months if you apply the current median cloud software multiple of 5.6 times forward revenue now let's put it in a different way if you're a company that's worth 10 billion that means that you have to come up with 1.78 billion dollars of annual recurring revenue for the market to give you a median multiple how many sas companies in sas would sacks you'll know this how many sas companies even get close to 2 billion of ar probably a lot less than the number of sas companies that are worth 10 billion on paper so you know by the way we should also talk about who's the bag holder in that transaction it's the employees and we should we should explain why that is in a second but just to build on what you know jason is saying and free broke what you're saying is in moments like this i would ignore all of the dry powder and all of that stuff i think that there are a lot of venture investors today who've deployed way too quickly and if they want to have any reputation over the next 10 years will have to rehabilitate their portfolio and try to return money let me just say one thing i saw um an analysis from one of the biggest venture firms in the valley over a 14 fund cycle so they looked at data from 14 funds and they showed that 40 of their capital was deployed in businesses that they were chasing valuation meaning like the business wasn't performing well and they needed to bridge the company or support it through a down round or you know some other sort of situation where at the time it was let's support our portfolio 40 of their capital on that 40 they made like 50 losses so they deployed money in a situation that was not kind of an accelerating successful you know up around kind of business it was declining business and in that support they lost half their money the other 60 they make like 3x right so it kind of averages out that they make kind of whatever it is two two and a half x on the whole portfolio but i think it really speaks to the condition that a lot of venture firms may make the mistake around doing over the next couple of years which is i've got all of these businesses that are suffering through down rounds or need supportive capital and i know it can get there but that belief ultimately costs the lps and costs the fund more and it's why we saw such negative return cycles happen after the dot-com crash how about this since 1994 okay just guess how many funds private equity growth venture funds even existed that are greater than a billion dollars so this is over you know 30 years how many how many funds do you think even existed over a billion dollars since 1994 to today how many funds like how many funds have been raised that are over individual funds or the brand names yeah since 1994 how many do you think there are 450 1276 oh you're including private equity and stuff oh there was venturi okay sorry okay so now of those 1276 private equity funds or growth funds or crossover funds or got up your funds how many do you think have actually managed to return more than two point three times the money two point three times uh ten percent ten percent five percent ten percent twenty two of them it's like under two percent under two percent wow so here's the point that i'm trying to make yeah investing is very hard in an up market everybody looks like a genius all of these funds come up with all of their nonsensical ways of showing irrs and all of these fake gymnastics but the truth is in the data and what the data says is that in the last 30 years the minute you get over your ski tips at a billion dollars very few people know what they're doing very few it's hard it's hard these multiples compress as you get to bigger deals and you can't say where the value is not deny this numerical truth yeah so again i go back to you know the person that's always been talking about this and who again may be proven right yet again is bill gurley you know everybody would make fun why is benchmark only raising 450 million dollars why would they only raise 500 million dollars and they always were consistent because over the last 30 or 40 years over multiple cycles we have seen that this is the best way to optimize both for return instrumental clarity and for making our lp's happy every variable was optimized at around 550 focus and then you see 5 billion 6 billion 10 billion funds funding 5 billion 6 billion 10 billion 20 billion dollar private companies and i think what we have to do is put two and two together and realize that it's going to be very difficult sledding from here for a lot of folks and when the venture or crossover investor has this mental baggage that they're dealing with they're not going to be able to provide fundamentally sound advice to the ceo they're going to optimize for making that portfolio ternicating the bleeding in the portfolio the ceos will make a bunch of suboptimal decisions it'll probably lead to a bunch of layoffs bad technology decisions things slow down and the cycle is reflexive in that sense and so you know we're going to go through a few years of sorting out down rounds liquidation preferences nonsense sacks will be yeah so so look i i agree with that point that these mega funds are very hard to repay because they require you to have multiple winners not just winners but mega winners so you know we've always kept our funds in that five to six hundred million dollar range where you really only need one winner per fund to basically return the fund but let me let me go back to this point about you explain the math explain the math of that you typically own fifteen twenty percent of a winner so just yeah maybe even less by the time it reaches an exit yep right exactly so you know if you own 10 percent of one deca corn that's a billion dollars and if it's a 500 million fund you've doubled your fund but if it's a one or two billion dollar fund you haven't even paid back the fund yet so that's i mean how hard is it to hit a deca corn hard it's hard right it's hard really really hard really i hit two i hit two i've had two in a decade yeah i fed to an exact same time period we go back to this point about dry powder i think it's actually important so this would be a little bit more of a of a bright spot so in a weird way so there's a i think stunning article in techcrunch just two days ago that said that tiger global you know which the hedge fund as of the end of april the hedge fund had lost about 45 and then may the first weeks of may have been even worse so who knows what they're at now but they had a separate venture vehicle and their the history of their venture vehicles is that they raised 3.75 for a fund in 2020 then 6.65 billion in 2021 and then just this year they closed a 12.7 billion dollar fund in march now i think that fund was raised as early as september last year but maybe there was some money that still trickled in and they finally closed it in march but basically what this article said is that this 12.7 billion fund that they just raised is already nearly depleted it's something like two-thirds of the fund has already been deployed so this idea that they've got like a lot of dry powder sitting on the sidelines i don't think they do and then meanwhile you know the other big crossover funds d1 co2 they are completely risk off i don't think they were ever as aggressive as tigers so they're not in as bad shape as tiger but they're just basically sitting on the sidelines till this thing sorts itself out so basically all of this capital that flooded the venture markets this growth capital that came in over the last couple of years it's gone i mean that's basically driving so fast what was their thinking because you and i met with these folks we saw them marking up our companies because you and i you typically do a series a that's your sweet spot i typically do see it into series a you do a and to b they were coming in and marking up our in the b and c rounds what was their thinking what was their mistake here i think the thinking was that we can create an index fund for pre-ipo tech companies for sort of late stage private tech companies the only problem was and by the way they did a if you could i think they did a good job sort of prioritizing that solution i mean if you send them your numbers in a certain format and do a meeting they were like a term sheet generator i mean they speak out to machines wasn't that your original idea you had you had funding as a surface at one point i did this thing called capital as a service where you would send us you would send us but uh you would send us your data or we would plug in to whatever you use say it was stripe or shopify we would suck out the data we would run it against a bunch of models we would do a few simple regressions and then we would just index you and then send you a trim sheet so we did do that all around the world but we did it on very small dollars you know we did a 500 000 checks 250k checks it was called capital as a service it's still a phenomenally good idea but you would want to cure that business for probably 10 years i would wanted to do that on 10 years on my own money you know 10 15 20 30 50 million bucks before i would even dare raise lp money around that idea because it's i mean at that point it's the machines doing the work and you have to really be sure your models are right she asked the question sort of what was wrong with it um i think that the the the thing that was wrong with it actually was just that the public comps were all wrong right so they were modeling got it to the public valuations these are guys right wrong yeah well no it's look they're hedge fund guys so they're looking at they're looking at the public valuations they're looking at the last private rounds and they see a spread a large spread and they're like we can arb this so they go in with a massive amount of money create a term sheet generator and they are the spread the problem is that all the public valuations we now know were inflated i actually think they did a reasonably good job in creating a a great approach for founders who want late stage capital if the valuations have been correct i think it would have worked here's the problem right now peloton and coinbase are both their market caps are trading at lower than their last private market valuation so let that sink in like if you we did that last private round you're under water big time in those names or i don't know they were taking their signals from the public markets this is the problem with the fed and the administration and congress basically flooding the zone with all this fake money is that it distorts all the signals in the economy and then people start making investment decisions that don't work and then you have this massive correction how long have we been doing this to month how long have we been over feeding the market it was obviously happened under biden and trump does it go back to obama or no yeah it started in 2008 nine without troubled asset relief program which is basically a fund you know to create market um liquidity essentially but what it also did on the heels of the great financial crisis was um we introduced comfort around this idea of quantitative easing or you know having what's called the fed put you may hear that a lot what does that mean which is that when market conditions get too you know stiff or rigid or inflexible the fed will generally step in with liquidity typically into the credit market never into the equity market but what that does is it that also still flows into the equity market so everybody behaves like there's a downside price at which the fed is guaranteed to act and that really started to be a bailout that really started to be in people's psychology after the great financial crisis and then through the you know 2010s we had several instances where we had that where we had moments of sort of like market volatility and all along the way what we also had were academics that started to you know promote things like modern monetary theory this idea that you know money printing was a good idea and so we had this again very reflexive loop where you know anointed experts you know you know did talk pieces and thought pieces and books and then pseudo intellectuals would parrot this stuff and then you know the government infrastructure would behave like this was a reasonable thing to do and it built on itself for a decade so we've been doing this for 13 or 14 years now and now we're trying to undo it and put the genie back in the bottle and it's proving much much harder than we thought because people have unfortunately got addicted to the crack they're addicted to the drug they you're trying to take the oxy away and that's a and people are going to go through what's wrong with really really bad withdrawal yeah if you have a quarter trillion dollars of dry powder let's assume no one gives their money back and they don't do stupid stuff like chase losing companies in their portfolio and they allocated in a smart way to winning companies does that not mean that we end up seeing a significantly kind of outsized amount of capital going to a few highly successful businesses that we'll end up seeing this kind of supercharging of a small set of businesses as opposed to this rise of the unicorn which is what we saw over the past call it you know eight seven eight years um and that you have this big bifurcation in the market the vc market starts to kind of say hey you're not making money you don't have a line of sight to making money you're off the table but the you know top decile get over funded and they become you know kind of the next the next mega caps no yeah i mean it does not happen in this moment well so look if we look ahead two or three years all right can i just tell you why let's take let's take the perfect company which is stripe okay so now 50 billion dollars well they've been funded to a mega cap right i mean 50 billion dollars of horrible vcs who've made horrible decisions here to fore knocking on the collision store saying can you please take my 50 billion dollars because i'm trying to be money good why do the collisons want to take on this headache why do they want to flutter you know mess set their cap table up with all these folks and then at what price so if you're sitting at the board of any really good well-run company of course you'll take some bite-size you know amounts of very decisive capital in these moments if you think you can market consolidate or whatever but i think the point that all of these companies are going through is largely the same if if the best companies aren't doing what we just talked about i would be shocked as well the best companies are thinking let's batten down the hatches and let's not distract ourselves and so i'm not sure this is the moment where a really horrible vc who's had a terrible track record who've just blundered through five billion dollars is going to be able to put in a billion dollars to strike what do you think sex let me speak to kind of the environment that i think is going to happen over the next few years and and what founders will succeed i think you're right freeberg that the vcs are going to become much more discriminating and there's going to be a much more polarized outcome here for companies i had a tweet storm that elon actually gave a nice boost to by saying he agreed with it where i basically said look startups with high growth and moderate burn will get funded through this downturn starts with moderate growth and high burn will not get funded so what's gonna happen is that the sort of mediocre ones are gonna we're gonna get to a very polarized outcome very quickly where you know i think a lot of founders think that if their numbers are just okay and not great then they'll be able to raise but at a lower valuation or they'll be able to raise something but maybe not as much as they wanted and what will happen is the middle cases kind of go away in an environment like this and everyone just wants to fund the best companies so certain things will become absolutely fatal for startups in this environment one is obviously if they're just not growing they're not gonna be able to raise and good growth really starts in the early stages in terms of doubling year over year second negative or low gross margins are absolutely fatal nobody wants to fund businesses that may not even be real businesses and i would say acceptable gross margins really start at 50 at third um cac payback people want to know that you can pay back your customer acquisition costs in a year or less and then like i mentioned the burn you know a burn multiple of one is really ideal where you're burning not more than your your net new arr but certainly not more than two i think burn multiples over two where you're spending you're burning two dollars to add one dollar of growth that's where i think you know companies start becoming unfundable so i think founders are going to have to pay a lot more attention to these um disqualifiers yep but i think that for companies who meet the criteria who have good growth low burn um good business fundamentals they will be able to raise and look here's what's going to happen the crossover investors are washed out of the system they're gone i mean tigers already deployed all of its capital and i don't know when they're going to be back so the so-called tourist money the the basically the big investors who weren't in the system a few years ago they're basically going to leave the system however there will be the big traditional venture funds will have large funds but they're going to deploy them much more slowly these one-year pace of deployments they're gonna stop so the funds they'll be back to three exactly so just think about that even if you had the same amount of money being raised and deployed but it was happening over three years instead of one that would be a two-thirds reduction in the availability of capital in the system so which was that's going to go through you're not seeing that to the best companies that i'm talking about you're not going to go to somebody who's going to blow through it in nine months who's playing every hand like you cannot play that way anymore exactly so what we're telling our our founders is number one you got to lengthen your runway like the days of raising a new round every 12 months are over you've got to plan on not raising for two to three years if you can help it and then you really have to sharpen your pencil and work on these business fundamentals and you know one thing you need to do is you need to have a realistic conversation about am i really able to raise another round in this environment with the metrics i currently have and if the answer is no you need to cut your burn to give yourself the time to fix the business and that fixing a business normally takes two to three years so you know if you got less than two years or even two and a half years of burn and you have one of those disqualifiers i talked about you better like cut your burn quickly to give yourself the time to fix those disqualifiers yeah i mean i wish people we've been talking about this for a year folks and you know some founders just are not accepting the reality of the situation and i i if you look at what happened we have a generation that's never experienced a down market and these down markets happen so violently that they think like people are panicking you know somebody made a joke like bill gurley's called five of the last three recessions you know and it's like well i mean we have scar tissue and it's that the the velocity of the downturn all those kids dunking on girly well guess who's going to have the last laugh i think precisely i i i texted gurley last night he's had the last law before i literally dm'd him last night i said listen the water is great right now i am doing deals back at six to 12 million dollars in the seed space um with you know 200k in revenue and real founders and discipline start investing again it's great now because the deals are now taking i don't know if your experience in the sacks but the deals went from taking two three days now they're back up to four to six weeks and we're having very thoughtful discussions we're meeting a third time with founders we're talking about their go-to market strategy we're getting to talk to three or four customers i had founders who said you can't be in this deal if you want to talk to my customers and that wasn't one founder multiple founders said if you want to talk to our customers um then you don't get an allocation and i said okay the thing to keep in mind i won't do the deal but that was how dysfunctional this was jamaa the thing to keep in mind is that all these late stage companies are mispriced doesn't matter whether you're the bottom decile or the top decile you are massively mispriced and there needs to be some correction between 30 and 70 percent on valuation how do you solve it i have a point of view on that actually because um so so look there's a major difference i think between evaluation multiple collapse in the public markets for surprise market it's gone down look the sas valuation multiples have gone down 70 80 percent there's no disputing that look it used to be the the public markets were trading at 15 times arr for the median sas company now it's 5.6 so yeah we're talking about two thirds seventy eighty percent reductions if it happened in the public stocks it deserves to happen in the private stocks too much absolutely right about that and a lot of people aren't recognizing that fact however here's the difference the median sas company is growing maybe 15 to 20 percent when you've lost 80 of your value and you're only growing 15 to 20 it's going to take you a decade to grow back into your old valuation however good private companies not all of them but the great ones they're still growing 3x year over year so if you're able to grow 3x year over year and you do it 2 years in a row you're 9x where you were even if the ar multiple collapsed 80 you can still get an up round it's not going to be the 9x up round it might be a 2x up round i know how that's mathematically true but listen if you're a 100 million dollar arr business let's just say you were able to raise at 10 or 11 billion yes you're mathematically right that you know 100 million times 9 is 900 million but i think it's important to first say how many actual software companies are there that generate a billion dollars of arr do you remember when salesforce first passed a billion dollars of ar we thought my gosh and then they said so this is exceptionally rare error and i think that it behooves people to understand that law of large numbers aren't often violated and so you know before you go and do that simple math and convince yourself that it's possible maybe you should actually no i'm not saying that to you saks i'm saying that to the founder or to the boards maybe you guys should actually just go in and have somebody run a screen and say how many actual companies exist that have actually managed to generate more than a billion dollars of ar especially in a moment where people are cutting back on spend how does that happen so yeah look i agree getting from a hundred to a billion is really hard you know if you're good billion dollar company's supposed to do because in this math they have to get to two billion dollars of ar to be worth 10 billion i do think a lot of how do we do that how does the random fast company that you and i have never heard of how do they generate 2 billion of ar i can tell you the handful of companies that generate 2 billion of ar there are some incredible companies today that don't even yet you know like look at an incredible company like unity incredible the backbone of all you know gaming and you know the move to 3d this year if they crush they'll do 1.3 billion incredible business it's an increase yeah it just went down 35 years went down 35 it's unbelievable it's trading at four times revenue guys some of these things are hard to believe like open door has 2.3 billion in cash and a 3.7 billion dollar market cap enterprise value 1.4 and i think they also have a couple of billion in real estate coinbase 6 billion cash 12 billion dollar market cap so i guess in this part in the discussion even with all these headwinds can we give the protective mechanisms for employees because i again i just yes okay good good point let's do it let's do it when you start a company and you're a founder you have you're taking the most risk you're the person with the idea you should be justly rewarded for that the way that that happens economically in a company is you get founder shares the basis of those founders shares are effectively zero and you're able to do a bunch of structuring when you first start a company that gives founders specifically some incredible tax advantages you can you know do an 83b election which is effectively you buying the stock starting the clock on long-term capital gains etc etc then you have stock that you give to employees they're one of two kinds non-qualified stock options and incentivized stock options nsos and isos and you know those have different tax treatments but again you know when you're a very early employee you get a mixture of these things also hugely accretive it has a very low basis you're building value but here's what people don't understand when a venture investor like myself or jason explain basis by the way for people who are foreign the price of your stock is effectively zero you know like a penny for it or something yeah like like the my stock at facebook costs like half a penny got it you know whatever it goes public it's 15 20 you get the spread got it you get the spread and you pay long-term capital gains on that if you've been able to not income yeah and and and shift it to long-term capital gains okay so now saks or jason or myself come and invest in your company what happens we actually don't get equity we don't get common stock we actually get a synthetic form of debt called the preferred share okay and typically the way that it works is when we invest in a company and this is how the entire venture ecosystem works we actually create what's called a preference stack which means we get an instrument that is senior to the common equity now what does that mean well it means that if your business goes out of business we get our money back first we also get an interest rate and we're able to convert all of that at some point the magical moment when a company goes public into common stock and we give up our preferred rights and we now have the same instrument as everybody else when a company goes public that's the typical mechanism why does that exist by the way the preferred shares may be explaining the why why do vcs need that protection to be honest i don't know why it started but it's a historical artifact of you know the 1960s and 70s i think i know why it started okay so the the this got lawyered because let's say you start a company and just to use some round numbers a investor wants to give you 10 million to start the company and for 10 of the company 100 million valuation if you didn't have preferred shares then the founders could basically on the for the day after the money comes in could say hey we want to liquidate the company we decided we don't want to do this anymore and they own 90 of the company and they could basically then distribute out the 10 million to all the shareholders and they would keep nine and one million would go back to the investor so that's why lawyers came with this idea of seniority so that okay if you disband the company with the investors money still in there it goes back first to the people who put in the money that was the idea and well and the second piece was if the company gets sold for less than the cash put into it at least the people with the cash and get their money out first right so if it sells for 10 million you get your 10 million back or 11 you get 1 million after that so let's just say jason does the first million so there now there's a million of preferred then sax does the series a and he puts in 10 now there's 11 million of preferred even if it's at a much higher valuation and then i come in and i give 100 at an even higher valuation so now there's a 111 million dollars of preferred shares now if the company goes through all kinds of um complications and mess and let's just say we have to sell it to somebody else for 200 million dollars well guess what happens the first 111 of it comes back to myself jason and david plus interest so this is why venture investors have an incentive to pay and set these crazy valuations because they don't really care what the valuation is as much as they care how much of all this preference is building and do i rationally believe that the liquidation value of the company is at least that much money so if i think that friedberg's company is worth at least 111 million dollars i'll do it and i add my hundred now why is this important for employees before you join a startup especially in this moment i think it's very important for you to understand how much money have they raised how much is this preference stack that exists and do you believe that the company is going to be worth much more than that because that's the only way that you're going to actually participate in the equity and we know now what the public markets say so if you go back to that tweet you know if it's a 10 or an 11 billion dollar company okay well you need to generate uh two billion dollars of revenue and if you're at 100 million that means you have to 20x the revenue for the valuation to be worthwhile for you to believe that this valuation is real so this is just a little guide for employees i just think it's very important that you guys start to do the math and start to figure this out ask the hard questions how many shares are outstanding how many preferred shares what's the overhang what's my strike price it's a preference stack yes you know how much is the total prep stack how much revenue are we generating now you should go and do the work to figure out what the public market comps are those are widely available hopefully somebody could actually just create a website that helps you do this but all of these things are going to be very important for you otherwise what will happen is if you join a company in this moment at a fake valuation and the valuation gets reset you can effectively assume your options are worth zero so if that was a important part of how you made the decision to join that company you're being somewhat misled in a moment like this and you need to have your own rational sense of what that company's worth conversely i think boards and ceos have a real responsibility now to do the hard work of resetting this and explaining it to their employees if they want to retain them because in a moment like this if you have evaluation reset you don't allow people to understand it and you don't figure out a way to allow them to participate in some incremental way i think it's going to be very problematic for employee retention okay you know in those contexts look there's a couple things that i always support you know if if you need to reprice the options you know you can reprice the options and give employees the benefit of a new r9a so the company doesn't set the option price that's set by an external foreign a audit but if that foreign ina goes down because of these factors we're talking about you can basically the board can vote to reprice everyone's options so at least they get the benefit of the lower explain what a 409 a is just broad strokes it's uh basically when stock options are issued the law requires that the strike price of the option be the fair market price and because of some accounting shenanigans a while back that got companies in trouble it is now the case that companies don't set don't determine their own fair market price they go out and they get some external auditor to do a 409 a audit and then the foreign aid that gives you the fair market price and specifically it's a fair market price of the common stock because what investors are buying is the preferred because of the dynamic that chamath is talking about where the preferred gets paid back first the common stock is worth less per share because it's got this overhang typically a fraction a fifth a tenth something in that range is typically so if the shares were worth a dollar for preferred the fair market value of the common could be five cents 10 cents 15 cents depends on if the company's going to run out of money how many months of runway they have are they profitable and so it is a fair thing to do and but you have to know that in a down market like this if you have massive compression boards need to look at that founders need to look at and say hey listen if the if the sas multiples come down so much well our fair market value should come down that much the fair market value might be worth 50 less 75 percent less correct sacks yeah i mean so so the way it works is that when a company ipos you get rid of all the different classes of stock you know the everything basically the preferred converts to common in an ipo one class of shares yeah yeah maybe you have like the dual stocks of the founder can maintain control but from an economic perspective you basically collapse into um common stock so when you ipo common and preferred are the same and so economically they're converging to one to one as the company gets more and more mature and heads towards an exit the earlier that you are the riskier the company is the more that the prep stack matters the more overhang that creates but the benefit to employees is it creates a larger discount on their strike price on the 409 a so that is the offsetting benefit if the 499 a goes down because the market's changed then the board can vote to apply a new 498 to the employees that's a beneficial thing to do for everybody so that that's something you know i've always supported the other thing is that if you're in a turnaround situation where you're actually worried that the pref stack is larger than the value of the company in other words more money has gone into the company than the company may be worth at exit then what you need to do because then then there's nothing for the employees there's no incentive anymore what you need to do is create a basically an employee participation you create a corridor where you say okay 30 of any acquisition price for this company is going to go to the employees you created a management or employee carve out really it should be an employee carve out not just management but all the employees of the company should benefit uh from an acquisition and sometimes you'll see boards be either unrealistic or stingy they'll be kind of pennywise and pound foolish they won't create the incentive for the employees to get that sort of over capitalized company across the finish line and um you know it can be pretty frustrating to see when that when that happens it's a good time for employees to understand this this is a giant reset that's occurring um i think there is some good news here i think we have a lot more people who are going to go back to work because they need to um and that'll be good for monetary velocity fill these jobs 11 million jobs i don't know if we've ever had this i think it's a record the number of jobs we've had and we're bouncing along record low unemployment those two things could be what saves us could save us during this recession and something distinctly unique about this recession is job openings and low unemployment we've never had a recession like this so that that's fascinating of itself but for employees and for companies the new discipline might be there's not going to be four or five offers for every tech employee if people are going to cut 10 to 25 percent this is the contagion moment and i think maybe just talking about layoff contagion in tech and how that works because facebook's on a hiring freeze and you're starting to see the series bc companies all do 10 to 25 layoffs uh uber dara said we're going to look at hiring as a luxury that's probably not going to happen the only person who said they were going to hire into this was google sundar today said maybe as many as 12 000 people over the next couple years a couple thousand a year and apple stunningly i don't know if you're watching this they have told people we're one day a week now two days a week in two weeks and then by the end of this month may they'll be three days a week in the office mandatory the head of machine learning said yeah that doesn't work for my team and they said okay and he said okay we don't have to do it and they said no okay we accept your resignation so i think even the mighty apple with unlimited cash reserves are saying you know what if we have to shed some people who don't want to come back to the office that's like a de facto layoff so maybe talking about this contagion because if you're a company that doesn't lay off people you're going to look pretty weird in this market to your investors and they're going to be wondering why aren't you laying people off go ahead i feel like an old guy now been working in silicon valley for 20 years 20 to 21 years and i remember like in one there was kind of this period of time when there was a bunch of layoffs and a bunch of companies reduced head count and you know there were other industries and people stayed employed and then in the years that followed like web 2 happened and people kind of came back but what was interesting is like the tech industry which at the time was silicon valley but is now fairly kind of you know um well dispersed attracted a lot of people from other industries right it used to be cool to get a job in financial services or investment banking out of college and then all of a sudden working at a startup was the cool thing and there are a lot of people that moved from new york in the last couple of years to sf um leading up to the most recent crash after the pandemic um and so you know look there is an ebb and a flow in and out of this industry i do think that this capital overhang however this quarter trillion dollars of dry powder that's sitting in vc coffers um is going to be significantly stimulatory in a very good way um i think it will create real jobs and and enable real progress it's not just about the companies that are on the brink of profitability or the companies that are profitable trying to juice profits if you take a step back jake how you you said something earlier that i thought was um kind of a really important statement which is like you're doing deals right you're making investments in startups and i'm more excited than i've been in years this is my time this is this is your time it's time to go and so i talked earlier about how the the capital stimulants that came out from the fed and uh and the and the bond buying they were doing and so on led to an inflation and a bunch of assets and that capital ultimately didn't find its way into productive assets but it's not about all of that capital finding its way into productive assets if enough of it finds its way into productive assets productive assets meaning businesses that create something of value for customers and make money doing so and as a result can grow and create new jobs and create new areas of the economy if that happens enough times over there is enough growth in the economy and enough new jobs that are created that really rationalizes all of the money that was freaking wasted on speculative nonsense over the past few years and i think the fact that we've got a quarter trillion dollars sitting in vc coffers more than we've ever had that's a quarter trillion dollars ready to fund the next generation of technology businesses that can build new jobs and create new areas of the economy new areas of growth that we've never seen before and that's what's happened in the past how do you think a person let's just say you're playing poker and you just get punched in the face seven rounds in a row you're stuck three buy-ins how does that person make that good next decision now i will i will tell you three stories from my last week because my last week has been filled with these experiences sorry go ahead so let me let me just talk about the the the business of investing in the psychology of investing so look at probably who has been the most incredible performer this year is ken griffin in citadel and right underneath him is this guy izzy englander who runs a place called millennium and then you know a close third would probably be stevie cohen at sec now how do these guys run their business they have hundreds and hundreds of teams investing in all kinds of different things and what they've figured out over time is how to dial up and dial down the volume of who's performing and what they have realized is that when you go through a pattern of losing money it is very difficult for you to then make incrementally good decisions and so they have a dynamic system that allows them to move capital away from those folks who are psychologically not in a great place to do it to move capital towards other folks who are as a result they are always winning and i just want you to react to that because i think there's one thing that we can say oh venture is a special thing it's not like anything else i personally don't think so operating across the entire life cycle and i think that there's something to be said and i saw it in 2000 folks who have lost a lot of money make incrementally poor decisions i think why jason is firing a little bit of a hot hand was he mostly let his companies get marked up and he was mostly frustrated the last couple years in valuations early stage valuations lack of discipline he's operating effectively between slate but i don't think it's a binary condition chamath um i think generally what you're saying is right i'll tell you the reaction i'm seeing in the market one last thing to add to your thing and on top of that there are only seven or eight people who've actually made money in this entire market the yeah stage investors had done well early stage investors have done we returned our first fund that was nice yeah i'm in the black stacks you yeah girly i mean what about all the other thousands of people that raises distributors people don't distribute shares we've talked about this a couple of times tomorrow like it's so hard to make money and you when you have a chance to distribute i feel really good about some of these companies um you know i i have a bloomberg at my desk and one thing that i look at every now and then is the ownership table of some of these high-flying stocks and you'll see some incredible things which is these folks have held on and they are holding billions of dollars now of paper losses that they have to go back to their lp's and say heart conversation mrs foundation i know that you wanted to fund cancer research you know i had nine billion dollars of gains and now it's two oops so look i think um what you're saying generally is right people are psychologically tainted when they take a big hit in the face everyone has this experience my observation over the past two weeks i've seen a lot of pms and public pms a portfolio managers as well as private vcs all react to me in the same way when opportunities have kind of been discussed which is i'm sitting on my hands i mean there's a pm i saw this week of uh you know anyway uh i would say i've never seen him jarred like i've never seen him just shocked like we were talking about something that was so uh obviously up his alley you know such a great fit for him but he is just not doing anything and because they're worried about careerists now so no i mean i i had i had a crossover investor tell me tell me that look i think that things are oversold right now this is an attractive time right because because look if i'm right that they're oversold and it goes up great i make a little bit of money but if i'm wrong i'm not not just losing money i'm risking i'm risking my career i'm catching knives yeah so why would i do that i'm just going to sit and wait i'm the opposite right now yeah guys the same is true in vc so i had several vcs this week who kind of shared the same point of view which is at our partnership meetings i don't know what you guys are doing saks at your fund but they're like at our partnership meetings we just cannot align on whether or not we're paying the right valuation and so we're at a standstill we're just waiting to see when the quote market settles out and then we'll make decisions because i don't want to be the guy in the vc context catching knives but look that's a near-term psychological phenomenon i think the reaction to moth is everyone sitting on their hands but over time it's not i just told you the data for the last 30 years only 22 out of 1300 funds have returned more than 2.3 times a billion dollars it's not near-term that's not the point i was i was trying to make earlier which was there's a quarter trillion dollars this is a macro point about the fact that there is going to be funding available i it doesn't matter if these guys are going to make money or not or they're going to make shitty investments or not there is going to be a stimulatory fact all you need is one of the next trillion dollar mega caps to emerge from the quarter trillion that's sitting and there will be for the entire industry to look fantastic and for that business to transform the landscape of some part yeah we've never seen that in history we've never had this much dry powder sitting on the sidelines and this is where the free money should go it should go to creating new companies that create new jobs and it is it's found its way there in the trillions of dollars that have fueled crazy asset bubbles left and right some amount of it made its way into funding the creation of new companies that are going to create jobs and that is the good thing of what's happened over the last couple of years despite the asset implosion of all these bubbly things that that have happened amazing shaman i wanted to answer your question what do you do if you get punched in the face seven times you're you're running bad in a poker game you know if you look at phil hellmuth or other people who you know go through that variance i think where you take a break go for a walk around the pool pick up your chips and you did pick a different small game one thing i like to think about is hey i'm going to play a better play better cards to start your hand and maybe play in position and in in the analogy here playing better cards you know backing better founders and better products and then playing a position knowing where in the life cycle of a company value is created and that goes to valuation so i'm laser focused right now on just you know world-class teams that are running their business as well and that i can invest in early and if there are founders out there like who are trying to figure this out and they're not getting funding i think looking i think you said this last week's actually maybe two weeks ago hey listen your last valuation last year is a great valuation this year and if you had people who wanted to invest last year who couldn't get in going back to your 30 million valuation last year and topping off 3 million with the people who couldn't get in and you told them you know i'll come back to you when it's 90 million go see if they still want to put that bet in and then for the vcs are out there in the early stage you know making bets on some 15 million sub 12 million dollar companies in the seed round um if if they're focused on customers and product you know got a couple 100k in revenue it's i think it's a good bet uh and and i'm i'm going to increase our investing in those type of companies under 20 million under 15 million focused teams who understand that the climate has changed if you're not taking the medicine you have to sacs's excellent tweet storm you're dequeued from funding i think it's very important that people understand what sac said if you do not accept the reality a vc who has lived through one two or three of these cycles is going to disqualify you and they're not telling you why they're disqualifying you it's just not a fit couldn't get my partners around it you know let's keep in touch let me know how it could be helpful the other thing is an entire generation of investors have been coddling entrepreneurs and in moments like this sometimes you need to actually have hard conversations and if you train yes i don't know how you tell that entrepreneur listen you need to be actually five days a week in the office you need to do a 25 riff you need to stop all the extraneous spend forget the exposed brick walls and the kind bars we need to get down to just ones and zeros that's also an entire generation of capital capital allocators who don't know how to do this job in a moment like this they've never had those conversations they've never had those conversations just to build on free brook's point the idea that you you would be at a standstill about price in a moment like this to me is shocking if i mean if i was an lp in that venture fund i would write it to zero there should be no intellectual stance still whatsoever in a moment like this right yeah obviously we're still investigating what the prices are yeah we're still investing it's just that lower valuations there should be no stand still exactly this is the time to invest sex right i mean yeah i want to say something sort of positive because a lot of founders watch the show it's like look what jason said if you need to accept reality and if you don't you're going to have a bucket of you know very cold water dumped on your head when you go out and fundraise and realize that you're not going to make it and then you know all of a sudden you're going to be packing up shop very quickly so you got to get you got to get a reality check and understand but look great companies are built during downturns you know paypal was built during the dotcom crash uh my company yammer was built during the great recession google uber totally i mean the list goes on and on so downturns are great times to build companies because the war for talent subsides so it's so much easier to recruit people there's a lot fewer competitors getting funded so there's way less noise in the ecosystem the only thing that gets harder is fundraising so you need to make sure that your money lasts you do the right things you focus on business fundamentals you don't dq yourself david and if you do that you'll be fine you just brought up something incredible i remember we raised money from microsoft at a 15.3 billion dollar the great financial crisis took hold and marked his credit reset the valuation we were already profitable so we didn't necessarily need to raise that money but we i think we raised a billion dollars at like a nine billion dollar valuation so we took a you know thirty three forty percent haircut a down round facebook had a down round we patted our balance sheet and we said we are now going to go and crush and to your point we were really able to compete much more effectively coming out of the gfc against google for talent and against everybody else in that moment yeah and so if if this is what people like zuck are willing to do you have to really hold um people's feet to the fire for founders who are not him what is the fast doc founder willing to do you know like shut it down like like literally there's some founders i find this very disturbing but there are some founders who are so unwilling to make the cuts or take the medicine that they would rather run the car into the wall then hit the brakes like hit the brakes save your company live to fight another day if you have six months of runway get to 12 and then try to lift another raise your prices you're totally right every single company that hits the wall and goes out of business that didn't do a round of layoffs 12 months before was asleep at the wheel but they were just like testing and driving they were texting and driving where was the round of layoffs a year before they ran out of money that at least gave them more runway they didn't even do it they just assumed they could go david if you think about it your series your seed round was hard getting into y combinator was hard you're serious a okay it was it was hard you had to do 25 meetings but you got a term sheet your series b you had five people offer you term sheets your series d c and d were people begging you to take their money and saying name a price so what does that founder think the next round of funding is gonna be each round became less work and higher valuations and you know what a generation also not all founders but there's a group of founders who became better at selling vcs on investing in their company than selling customers on buying their product you have to take the same focus you had of selling people on buying shares in your company and put that into your product the actual service and raise your prices so many people are charging so little for their sas product or software and they're like i can't make this business work and we say to them if you doubled or tripled your price would you lose what percentage of customers would you lose and they say we'd lose like 10 and i'm like did you just you have a million in revenue 2 million 10 off 2 million you've got 1.8 would you rather make 800 000 more and be break even right now and they're sometimes founders just have this amazing moment where like oh yeah i guess we could charge more and if we lost some customers that wouldn't be the end of the world and we'd be profitable i think this speaks to the fact that you know it takes a very specific skill to be a very good founder you need a level of intellectual curiosity you need some some moments to listen but at some moments to know just when to do what you feel is right but it takes a lot of skill to be an investor and i think we've glossed over how hard that business is as well because the reality is if if if michael moritz were to tell you that you'd do it you'd be hard-pressed to not to not say yes of course if early told you to do that you would do it because you know these are these are sort of the big the big names in our industry but the reality is the fact that it's not happening also speaks to the fact that there's probably there shouldn't be a quarter trillion dollars of funds that are probably stranded in the hands of really inexperienced allocators um who are going to light it on fire for the most part and they're not going to have the courage to sort of lead these see what happens all you need is all you need is one everybody should think about what i don't know how you phrase it to founder sacks but i say to them when i invest in their companies listen whenever things get really hard and you have a conversation that is the hardest conversation that's making you the most nervous that's making you stare at the ceiling and grind your teeth to your gums i want you to just call me and i can tell you like i you know i'm not speaking out of turn here but you know travis called me once or twice on a saturday and said hey we're struggling with x what do you think and travis knows how to run a business a thousand times better than me but being a sounding board and giving your founders permission to come to you when things are up is critically important as an investor and being able to have it intellectually honest to your point jamal discussion about the hardest issues is really what the job is in my mind what is going to send this company off the rails what is the big fear you have and let's just put it on the table and let's as as travis would say let's have a jam session let's jam on that until we solve the problem so if you're suffering out there you're scared you know there's got to be an investor in your group who will have a candid discussion if i had to give a punch list of things if i was a founder right now here are the things that i would do is i would sit down and really look at your growth and your burn and have an honest conversation with your co-founder or with one or two of your trusted board members and really say what is the real evaluation of this business today and what could it actually be and if there's a big gap between that and where you've last raised money the right thing to do is to think about in one bucket resetting the valuation in a second bucket making your employees whole and in a third bucket managing your burn so that you extend your runway i think if you could do those three things and take the hard medicine now you will be much better off for it you'll be appreciated by your employees and you'll have shown some real metal um in a real crucible moment to use a sequoia phrase how do you guys think the market's gonna settle out you have any predictions on the bottom i will tell you a statistic i think michael bury put this out yesterday he did not um he deletes his tweets every day um very interesting character by the way but um he pointed out how from top to bottom uh during the kind of o2 era 01 you know 2000 era and then during the 2009 era uh you know kind of those those big drawdowns in the market he looked at companies like microsoft jp morgan um i forgot which others but highlighted that you know on average it took six times their total shares outstanding for them to go from top to bottom meaning that the shares ultimately turned over 6x the total you know diluted shares out and so far in those stocks we've only seen half of the total shares outstanding turnover since peak so his and he's been making this case for you know kind of a few days in a few weeks now which is like you know the dead cat bounce day where the market's going to be tanking for quite a while and these days that are big updates everyone's trying to call the bottom he's like no this is the dead cat bounce moment and he's like if you look at kind of the structural rotation that's necessary for these markets to ultimately find their bottom you know we've got several multiple still to go with respect to volume that needs to trade before you find what the true market bottom is so you know it was a really interesting kind of insight this kind of statistical insight that he pulled together and put on twitter i wanted to see if you guys kind of think that that might be the right way to think about it and how you react to you know these conversations around where's the bottom going to be can i just pull up this one chart because it kind of speaks to this so um this is cpi inflation versus the fed funds rate so if you look at this it goes all the way back to 1954 i shared it with you guys in the chat the the two have moved more or less in lockstep with each other which makes sense because the fed raises the fed funds rate in order to combat inflation so fed funds and inflation sort of move in lockstep if you look at what's happened over the past year these two things have moved violently out of sync with each other you have inflation now going all the way up to eight percent meanwhile the fed funds rate's only down at like one percent even with all the rate hikes and the talk of rate hikes that we've had we're only at a one percent you know uh fed funds rate now the expectation is it's gonna go higher the ten-year table is over 3 but the point is the fed is in a really tough spot here because it feels like we're going into recession which would normally mean you cut rates but then you've got inflation demanding that we jack up rates far more and i think this is the problem and this is what's going to be very tough about our current situation is if we go into recession over the next six months what does the fed do about that i mean they don't really have much dry powder here in previous recessions like the gfc and 08 i mean interest rates were around five percent so when they slosh them to zero they had some serious you know that was some serious relief here you're at one percent what do you do you drop that to zero and then meanwhile inflation's still rampaging at five percent this is what's so hard about it then look at this other chart which is this came from a blog a blog post called the most reckless fed ever so in this most reckless fed ever they basically just took the fed funds rate and subtracted inflation to get the real fed funds rates the fed's funds rate debt of inflation and what you could see here is that starting around 2018-19 the real fed funds rate started going negative and then very very negative to the point now where it's basically a negative seven percent so you know why is that because the fed waited way too long to basically take away the punch bowl and start reacting to inflation you had powell say a year ago that inflation was transitory and then they didn't react to it until the end of the year they should have stopped the qe right then and there and then gradually started raising rates instead of these violent moves that we've had this year that are plunging the economy into recession that have caused the stock market crash now what did powell just say a week or two ago he said he doesn't see a risk of recession on the horizon it's like what are you smoking i mean this is just like his inflationist transfer comment a year ago you're wondering like do we have better data than the than the fed chair does because from where we're sitting we're seeing a stock market crash a panic and a recession and he doesn't even see it it's like denial is not just a river in egypt this is crazy look i mean we call it a crash but you know some people might just say that investors are violently reacting uh to the shifting tides on capital availability but i will tell you i'll say this one more time because i think it's so important um and it's my kind of prediction of the week i really think we're going to run into a consumer credit bubble here i do not think that consumers are going to slow down their spending or change their lifestyle as quickly as investors are changing their investing style we have seen investors in public markets and private markets take massive corrective hits this week and last week and they're changing their behavior and some of the stories we share today but consumers are taking on more credit they're opening credit cards they're taking out bigger loans prices are going up 10 year-over-year for them and so the concern is if we actually do hit a recession and we don't see real wage growth and the consumer credit bubble continues to grow we're going to face a credit crisis and call it nine to you know nine months to a year where we're all going to wake up and be like wait a second how are consumers going to be able to afford all this credit very i don't know how you pay i don't know end of the great resignation that whole concept of like fun employed and i'm going to flip nfts and i'm not going to go to work that's out the window so we've been enjoying it if you're going to need that there are there are more shoes to drop here and i think consumer is one of them and maybe there's systemic risks in the system that haven't been flushed out yet and meanwhile you've got a fetch chair in denial about what's happening and you've got to present the united states sue's more focused on what's happening in ukraine and what's happening in the united states we are let we have tweedledee and tweedledum on this case biden and powell are going to go down as the worst president and fetchers of all times no it is it is like the anti-reagan volcker combination i mean they've caused this problem so first of all that's a long i don't know if i agree it's a longer conversation i gotta run but yeah like you know what i think we all we all want to blame someone the reality is there was a massive leveraging that happened going into 2008 and we got to work it out we thought we were delivering and i don't think we've been delivering since 2008. and all of a sudden the chickens coming home to roost or whatever the term is and we're all sort of waking up to the fact that wait a second flooded this system with 10 trillion money in the last two years that's the cause it's not and more recently consumers at all 14 years ago it's over 14 years ago austerity measures cycle here go if you look back through time roughly if you look at like the average mean pe for the s p 500 it can go down to as low as 3 000. it could but i think the reality is there's a fed put somewhere in between here because you know um if we see the credit markets really seize up which we would if the equity markets continue to retrench um the fed will be forced to step in with liquidity and we back to where we were before so you know i actually think we're probably close to a near bottom ish here 3 800 ish in the s p 500 you're actually starting to see some of these early green shoots of a market bottom what are those it's when the most heavily shorted stocks start to rip up you know sort of the gain stop gamestop like rallies and you're seeing that actually today so it's a it's a really interesting day when the market is roughly flat slightly down but some of these companies you know percent square five six percent five percent even lift went up five percent so i this is the battery there was definitely something excellent on the bottom yeah there was so much panic selling yesterday that the market's bouncing up from that look the market is a leading indicator not a lagging indicator and so it's it adjusts first and then the real economy adjusts after that and the risk right now is the stock market is telling us something about where the real economy is headed and the problem is that the fed and the central government don't really have the tools to fight the recession because interest rates are already so low and you know buying already spent all the money i mean they broke the glass in case of emergency last year they spent that last two trillion dollars of emergency relief when look larry summers told him they didn't need to do it remember that larry summers told him it would lead to inflation nobody i know no one wants to listen to larry summers he's like one of those guys you never want to know this is correct but larry summers was correct the administration did not listen to him larry who i know very well and a wife who who i love uh is like girly as well he's he's generally right in the end and so i would just kind of yeah you know he was right i mean we do need to get back to the clinton you know moderate like balance the budget stop spending some austerity measures like we can only work our way out of this and i think what we're going to learn from this is the concept of free money and printing money is not sustainable and the concept of americans not going to work is not going to make the economy that americans want to live in i know this sounds crazy but if you want to spend money and you want to enjoy life you got to work you can't we can't have this kind of labor participation we can't have people flipping nfts for a living that's not work yeah you're right jason you're right about that i saw this thing where um there's a there's a new product implementation on airbnb that allows you to kind of like you know search by campgrounds or search by castles or something it's my vibe it's vibe search and and uh it's it's a perfect encapsulation of this moment where there are folks who have all of this flexibility they've never enjoyed before that their mindset you know especially if you're like a social striver like you can signal that you're different from everybody else by living this lifestyle but that works in a in a world where there's lots of free money and when that free money gets taken away i'm not sure that you're renting castles to spend a week here and a week there well i mean we all want to talk about ubi i think it's a very virtuous signaling thing to do and it's a very like world positive thing to do oh there's gonna be so much money that we can just drop it from the heavens and everybody's gonna get a private jet and everybody's gonna get to flip their nfts and your board apes gonna become worth a million dollars your bitcoin's gonna be a million dollars each this is not reality folks value is created when you make stuff in the world when you write code when you build companies when you go to work but it's going to take a long time i mean at some point maybe we'll have some energy source and and you know robots building everything for us but we got a wrap here we'll see everybody at the all summit uh there'll be uh a bunch of stuff dropping do just a couple of programming notes please please please there are no more tickets up do not try and crash the party there's gonna be security there everybody with a badge we're gonna be checking the badges jim off everybody's got a photo on their badge please don't bring a plus one and please please please please do not try to crash thank you love you i love you talk to you soon everybody we'll see you next time on the all-in podcast bye-bye let your winners [Music] and they've just gone crazy with it [Music] one big huge orgy because they're all just useless it's like this like sexual tension that they just need to release [Music] your feet [Music]








so uh live from an undisclosed location with the sultry filter on very sultry filter on yeah having a great hair day yeah that is a good hair day great hair day my pal and your favorite ceo and twitterer mr elon musk how you doing palette [Applause] [Music] [Music] appreciate you uh coming to the event and um or coming zooming in um what's new in your world um well let's see um i guess right now uh i'm sort of debating the number of bots on twitter [Music] [Applause] on twitter um and um the currently i'd like to what what i'm being told is that the uh there's just no way to know the number of bots it's like as unknowable as the human soul basically so you have an idea witchcraft and alchemy is needed to determine these for the spot percentage i said like why don't i try calling people but i haven't got a response you know like if you tried calling people or something you know like maybe trying to answer it's not about no no no i don't know but i think like that would be one of the things to do to say like have you tried calling them as opposed to trying to read the tea leaves here that's like impossible you know uh obviously you can have an account that looks exactly like a human account or is being operated where one person is operating a thousand accounts or something um but that person can only buy one toaster they're not gonna buy a thousand toasters so you care about like number of unique real people that are on the system it's extremely fundamental and anyone who uses twitter is well aware that uh the their comment the comment threads are are full of spam scam and and um just a lot of you know fake accounts so um it's it seems uh beyond beyond reasonable for twitter to claim that the number of uh essentially the number of re said another way the number of real unique humans uh that you see making comments on a daily basis on twitter is above 95 percent that is what they're claiming does anyone have that experience [Music] [Laughter] i'd like to sell you you know you know and also you can buy the brooklyn bridge um what do you think it is what yeah what's what's the uh i mean it's not five percent what is it um i think it's some number that is probably at least uh four or five times that number the i'd say it at uh if you did sort of the the lowest estimate would be probably 20 um and uh and this and this is a a bunch of uh quite smart outside firms have done analysis of twitter and uh looked at the the the daily daily users and their conclusion is also about is about 20 but that's a lower bound it's not an upper bound if you look at say um the most liked tweets on twitter um so i i have the uh the honor of having the most liked tweet of any living human um this is thank you everyone for liking my tweet including you some of the bots out there but that tweet is less than 5 million likes it's like 4.7 or something like that and that that that was the where i tweeted about um that next time buying coca-cola to put the cocaine back in it's definitely it's clearly something that the public really wants and you know uh coca-cola corporation should really think about going back to their roots um coca-cola um i mean this this i guess is the reason why our grandparents could sort of walk 20 miles in the snow because they had coca-cola with cocaine this is a real reason so um anyway that was that's that is literally the most popular tweet um of any of any living human um and but twitter says that the daily monet the sort of monetizable daily act of uses is 217 million um so why would it be that the most popular tweet ever basically is only you know two two and a half percent of the entire user base this this seems a very very low number um and um and the most popular tweets generally are clustered around that sort of four million uh like level so it's like sort of caller like basically two percent or that or less than two percent of of the uh daily active users and and technically monetizable daily active users is how twitter refers to it so it just seems how is this possible um surely there's something that maybe you know ten percent of people would like not merely two percent well actually you know if you think about it elon um there's a corollary on youtube what do what's the total user base of youtube and what have the most popular videos gotten there yes and i think there's a billion or two maybe a billion people using youtube and those the most popular videos have tens of billions of views that might be instructive exactly that ratio makes a lot more sense um so something doesn't add up here um and my concern is isn't it's not that is it like you know is it five or or seven or eight percent but is it potentially eighty percent or ninety percent bots yeah um you know uh is it i mean i i certainly know there's some real people on twitter but uh but what's if is it an order of magnitude is it is it 50 instead of five and that's obviously an incredibly material number um especially since twitter uh relies uh primarily on brand advertising as opposed to specific click-through advertising where you make a purchase if you if you make a purchase it it doesn't really matter that much but for brand advertising which is really just awareness advertising it matters if real humans are seeing that or not yeah and and so i guess stepping back for a second people are curious why you want to buy twitter why is this so important to you and then i guess what are the chances you think the deal gets done at this point so a two-parter why is it so important to me i mean some of this i've articulated before but i think there's a need for a a public town square digital town square that uh where people can debate uh issues of all kinds um including the most substantive issues and in order for for that to be the case you have to have something that is as broadly inclusive as possible that has as much of the the people on the platform as possible uh where it's uh it feels uh balanced from a political standpoint uh it's not biased one way or the other um and where the system is transparent this is why i think it's important to put the algorithm on on github and actually allow the public to see it and critique it and improve it and if there are any manual changes uh sort of shadow banning as it's called or increasing or decreasing the prominence of a tweet that's done manually that that should be noted uh so you know what has happened and it's not just uh you know you're just where it is right now we don't know what the heck is going on why is one tweet doing well why isn't that sweet not is it the algorithm did someone manually intervene uh why are some accounts banned uh with no recourse apparently um and um you know the the reality is uh that twitter at this point you know has uh a very far-left bias um and i would class myself as a moderate and you know neither the republican nor nor democrat um and in fact uh i have voted vote overwhelmingly for democrats uh historically overwhelmingly like i'm not sure i might never have voted for a republican just to be clear right now now this election i would well david you okay how are you gonna die he keep going keep going he's fine he's fine we're gonna resuscitate him we're gonna resuscitate david sacks i mean let me ask you a person the point i'm trying to make is that this is not some sort of attempt to uh you know it's not some right wing takeover uh as as say people in life may fear uh but rather a moderate wing takeover um and an attempt to uh ensure that that people of of all uh you know political uh beliefs feel welcome on on a digital town square that and they can express uh their their beliefs uh without fear of being banned or shadow banned um and and and that we we obviously need to get rid of the bots uh and and scams and trials and people that are operating uh huge bot armies in an attempt to uh unduly influence the the public opinion so this is what i think it's very important that we have that like the the some of the smartest people in history have have thought about it and said like free speech is important for a for a healthy democracy it is important and free speech only matters like say when does prestige matter most it's when someone when it's someone you don't like saying something you don't like uh that's when it actually matters um so um you know obviously and and and it's pretty annoying when someone you don't like says something you don't like that's that's that's bad but it's actually a good sign of uh that that you have free speech um so i mean i get trashed by the media all the time it's fine i don't care uh go do do it twice as much i couldn't care less um but it's indicative of the fact that even though um i you know i have like a lot of resources i do not actually have the ability to stop the media from trashing me and that's actually a good thing yeah i i have to ask um with regard to this current administration i know how hard you work uh on the car company and then biden you know you've been a lifelong democrat you've donated to obama and to everybody probably never voted republican and yet and the same is true for joe rogan joe rogan is you know a bernie sanders supporter and that the democratic party has been openly hostile to joe rogan and biden can't even say the word tesla or invite you to the white house when they do an eevee summit i'm curious just on a very personal basis what does it feel like to have that experience where the party you supported is won't even say the name of your company or invite you there they should be celebrating the work you're doing yeah i mean it it definitely feels like this is not right like this is [Music] the the issue here is that there's just an uh this the democrat party is overly overly controlled by the unions and by the trial lawyers particularly the class action uh lawyers um and generally if you if you'll see something that doesn't that is not in the interest of the of the people um on the on the democrat side it's going to come because of the unions uh which is just another form of monopoly and the uh the trial lawyers uh that that's where actions will be happening from democrats side they're not in the interests of the people and then um to be fair on the republican side uh there's this if you say like where is something like not not ideal happening it's because of corporate evil um and uh religious zealotry um but that's generally where the bad things will be coming from on the republican side um that are not representative of the people so um in the case of biden he is simply too too much uh captured by the unions um which was not the case with obama um so in the case of obama you could have you know he was sort of quite reasonable um and i think he took more of a view of that you know obviously take the concerns of the unions into account but uh there are there are bigger issues at stake and and unfortunately biden does not do that you'll have a tesla question i read today it's incredible there was a bloomberg article that said the following so the setup is this it said since you went public tesla's up 22 000 uh 11 quarters of prof sequential profitability so hitting on all cylinders but the a public analyst we had to look at it [Laughter] but analysts uh when they put out their projections okay it's it's one of the most enormous bands for any company in america the the price targets for tesla despite all of this success some have it at 200 some have it at 1600 it's all over the place you tweeted a couple months ago tesla's not a company it's like six companies inside of a company like you've had yeah maybe more can you just explain to people all these companies inside this super company just so folks have a sense of what had to be done to get here okay i mean this question requires thought and i'll probably be leaving out quite a few things but if you look and say what what does a typical uh car company do uh what what they do is they they um assemble vehicles um and they send them to dealers and they manage the supply chain uh the they they might make the engine uh or typically we'll make the engine but most of the parts are made by suppliers and a lot of the actual technology development is done by suppliers and most most of the vehicle software is done by suppliers so the actual amount of uh real work done by car companies that what you think of sort of like a gmo ford is not actually that much um and but like so they don't do they don't do uh sales they don't do service um they uh so so in the case of tesla for example we we do we we do our own sales and service we don't have dealerships um then uh tesla also has by far the biggest network of superchargers sort of the electric equivalent of gas stations so we built an entire global supercharger network which is still the most advanced and by far the best uh way to charge your car when traveling long distance or if you live in a city um and uh and don't have the ability to charge your car there's a street parking or an apartment so the whole supercharged network we developed the supercharged network we deployed it i think we have i don't know 15 000 supercharges globally um you can travel anywhere in america right now with uh the tesla supercharger network um then uh in terms of vertical integration uh we uh we make the the battery pack uh the the power electronics the drive unit um we uh we actually make we're more integrated in in the parts we actually make so much of the car uh internally uh we're vertically integrated um not necessarily because we think that there's some religious reason to be a product integrator but because uh the pace that we needed to move was just much faster than the supply chain could move and to the degree that you inherit the legacy supply chain and hurt the legacy constraints including their speed uh cost and uh and technology and then tesla is as much a software company as it is a hardware company so the software that runs in tesla operates the car operates the screen uh does the charging uh all of that stuff is developed by tesla and um so we have sort of a car a tesla os in the car when you and then very importantly uh tesla has built uh an uh an autopilot ai team from scratch uh that is the best real world ai team on earth and if anyone else has got a better one i'd like to see it demonstrated in a car um the full self-driving beta at this point can very often take you with zero interventions across the bay area from san jose to marin so through complex traffic it's really quite sophisticated um and i invite anyone to to join the beta or or look at the videos of those who are in the beta we've got like 100 000 people in the beta so it's not tiny and we'll be expanding that to i know probably a million people or a million i don't know on that order by the end of the year so um it's um we also we also built a chip team to because there wasn't it wasn't hardware to that we could run the freaking uh ai on uh we couldn't just uh fill the trunk with a whole bunch of gpus um and and you know they would would have taken a trunk full of gpus that would have been very expensive and take massive amount of power and cooling uh just to be able to do what the tesla designed uh full self-driving computer can do so and we started a chip team from scratch designed it it was the best in the world and still is the best in the world several years later um and we also then developed we were designing a dojo supercomputer to be able to process the all the video that's coming in from billions miles of data because just sort of like the way that it's critical to compete with google because they have so much data and they have all these people doing searches all the time and humanity is training it but the same is true of tesla you really need billions of miles ultimately tens of billions of miles of training data combined with a sort of a vast training computer and then uh optimize uh inference hardware in the car and stay the ai and training and specialized software across the board to be able to achieve a full self-driving solution i uh when when he opened tesla gigafactory remember this 67 years ago i'll just tell the audience a story quickly elon he puts a slide up there and he says guys we're not actually building a factory we're building a machine that makes machines and he puts the layout of the factory and it looks like a chip and it was basically like how you would actually lay out a microchip if you were or you know you were like a layout engineer it was the craziest thing i'd ever seen i was like that was when i first got it yeah you know you walk in tend and you see what's happening and you have an insurance company now you're doing insurance for tesla owners and an uber competitor right and eventually a robo taxi uber competitor alright um yeah i mean insurance is like quite significant now are you okay i'm okay okay okay because the the car insurance thing is a bigger deal it may seem a lot of people are paying um you know 30 40 as much as their lease payment for the car in in car insurance um so the car insurance industry is incredibly inefficient because they they're just uh first of all you got like so many um sort of middle entities you've got from the insurance agent all the way to the final sort of reinsurer there's like a half dozen companies each taking a cut um and then uh the it's all very statistical so that this um even if you're a very good driver like you could be like you know 20 years old and a great driver but they they're it's all statistical so you can't get either can't get insurance or it's extremely expensive um so what tesla allows for real-time insurance based on your how you actually drive the car um you can actually if you drive the car in a safer way you actually have lower insurance so ours is is insurance is based on how you actually drive not how you know historically people that you know fit your whatever demographic have drive it's and and then you can close the loop around your uh insurance rate by simply driving better and looking at your score and and and lowering your insurance in real time and people do it actually promotes safer driving i actually have had this experience because in my household two people drive my car and one of them has a 93 score and the other one does not they have like a 60 score and you may have met this other person but i've been trying to work with her on the aggressive turns and stops in advance of our insurance bill uh which we're hoping will go down at some point um you didn't oh the one question are is this twitter deal going to get close do you think are the chances here well i mean it really depends on a lot of factors here um i'm still waiting for uh some sort of a logical explanation for the number of sort of fake or spam accounts on twitter and twitter is is refusing to tell us so you know this just seems like a strange thing um wait sorry is are they refusing to tell you or you don't think they really know i mean there's a good chance they may just have no idea they claim that they do know yeah and they claim that they've got this complex methodology that only they can understand um [Laughter] but the guy who landed two rockets simultaneously you stir this cauldron and then you throw the knuckle boom and um it comes to you in a dream i don't know um but but there should be some uh you know objective way to assert the uh thing because this is a this is a material public state threshold issue yeah it it you know it's it's a you know it's a material adverse uh misstatement uh you know if if they in fact uh have been um vociferously claiming less than five percent of faker spam accounts but in fact it is four or five times that number or perhaps 10 times that number this is a big deal um it's not this it seems like if you said okay um i'm gonna i agree to buy your house you say the house has less than five percent termites that's that's an acceptable number but if it turns out it is 90 percent termites that's uh not okay you know it's not the same house um made most your house will disappear because it's mostly made in two months um so it you know that that would obviously just not be appropriate so in in making the twitter offer i was obviously reliant upon the the truth and accuracy of their public filings and if those those filings are not accurate it's simply not that's that it's it's not you you can't pay the same price for something that is much worse than they claimed and you know they say elon life's a negotiation so at a different price it might be a totally viable deal correct i mean that i mean it's not out of the question um okay but i really would you know this is you know the more the more questions i ask the more i the more my concerns uh grow um so you know at the end of the day acquiring it has to be fixable um and and fixable you know with reason reasonable time frame and without revenues collapsing along the way and all that sort of stuff um and so you know i really need to see how these things have been calculated and it it can't be some deep mystery that is like more complex than the human soul or something like that um it's got to be you know i think we can apply the scientific method to this and try to figure out what's really going on and um twitter's revenue is is primarily dependent i think 70 or some that order on brand advertising as opposed to specific purchase advertising this is a big deal because brand advertising is not there's not a there's not a purchase that results from that so it's basically you know how much mind share or like basically if you're a big company how how often do they hear your name um it's as opposed to something that where you can directly measure the outcome um so that that means that they're somewhat going on faith um and if that faith is undermined or or reduced because of the reality of the situation coming to the fore then that the tesla's revenue twitter starts with the t um the quarter's revenue uh will be uh significantly impaired and that's a major problem elon did you have a chance to ask these questions during your negotiation uh the i like i said i was reliant upon their public filings so to the degree that that they're probably public and this is normal for a public company if you you know if if you make a formal filing um that that that is what investors are lying up relying on whether they are making an acquisition offer or simply buying some shares so this this the accuracy of these filings is important whether you're buying one share or the whole company and so if these filings are inaccurate or if they're sort of potentially blatant it's a big deal you know do you have a sense of why this has been such a persistent problem for twitter do they not have the technical capabilities to solve the the bot problem or is it more of like just a they've underprioritized the issue or been unwilling to because potentially their implications for uh ad revenue i i i i don't know it's sort of speculative at this point so the you know the the uh the worst interpretation would be that they don't want to look too closely at the thing because they might not like the answer that would be the worst interpretation um the bet i'm not sure what the best interpretation is but the least bad interpretation would be maybe they thought it was this way but they're the way they were doing it was wrong and they didn't realize they were mistaken and simply weren't paying enough attention um it does seem as though it should be a lot easier to get rid of the bots and and spam and trolls then uh like this is not some we're not trying to split the atom here you know uh we're not trying to get to the moon okay we're just trying to uh limit the amount of obviously scammy accounts if it's if it's if it's like your bitcoin giveaway um you know probably it's f it's a spammer you know like it does maybe you know wait you're not giving away a hundred bitcoin i just sent you danny if if if you send me two bitcoin i'll send you one back right that's my what if i send you 20. actually um i thought one of the interesting things that came up in your product roadmap um or i guess this was released and people covered it was the um possibility of twitter becoming kind of a super app with payments included um maybe perhaps even doge or something this seems to me uh based on your work with with david a paypal like a pretty brilliant idea what's what's the vision there in terms of if you were able to buy it you know perhaps at the right price um what would it look like if you know i could add jason to at elon musk you know 10 bucks or something if you know we were splitting a check or something sure well for those that have used wechat i think that's wechat's actually a good model um if you're in china it's basically you kind of live on wechat it does everything um it's sort of like twitter plus paypal plus a whole bunch of other things and we'll roll into one with actually a great interface and it's really an excellent app and we don't have anything like that um outside of china so uh i think such such an app um would be really uh useful um and it just like the utility of it uh of of sort of a a spam free thing where you could you can make comments you can post videos you can uh you know i think it's important for content creators to have a revenue share um now now this this does not need to be done on twitter it could be done from something that's created from scratch so it could be something new um so really but but i think this thing needs to exist whether it is uh converting twitter to uh be the sort of like kind of all-encompassing app that that like said everything from digital town square where important ideas are debated uh you know maximally trusted and inclusive and at a point where you sort of have a high trust situation than than payments uh uh whether it's uh crypto or fiat uh can make a lot of sense just what you just want something that's incredibly useful and that people love using um so that but it it's it's either convert twitter to that or start something new those are the two but it does need to happen somehow well it's interesting you bring that up because the price of twitter is pretty high and you've built a couple of companies and some engineers like to come work for you and you've now gone through the intellectual exercise of studying all this um if you're looking at the two choices now fixing twitter given all these problems and maybe just starting your own version which one are you leaning towards because it i have watched you build a couple of companies and the products have turned out pretty good so is it easier for someone like you to just start from scratch i mean i mean it's certainly the my my default inclination is to start things from scratch uh i mean i'm not really i don't buy things like there's still this sort of you know uh um yeah like like spacex was started from scratch you know in the case of of tesla uh you know it was like five people it was still this guy everhart who's the worst guy i've ever worked with who tries to claim like soul credit essentially for equating tesla if he's so damn great why didn't he just go you know create another car company when he was fired um but anyway um so well i mean that's a pretty good story i mean yeah i remember jesus i mean no but i i remember having this conversation with you we were having a conversation about the roadster i think i can tell the story i said how's it going pal and you said well i got one problem um it turns out the roadster parts and putting it together cost 190 000. yeah and i said i gave you 150 for number 16. so if you make 2000 of these you're gonna lose 80 million dollars and you're like yeah or double that i mean they basically the parts of the car cost more than they were selling it for when you were starting to get involved that's it it was difficult no no i i got involved well before before that yes when twitter when tesla was was nothing but a piece of paper let me be crystal clear [ __ ] clear no they didn't bring me in either [Music] i was gonna start i was gonna start an ed company with jv struggle and based on the the ac propulsion t0 and when i when i asked ac propulsion if it was okay to do that they said well there's also some others who want to create an ev company but have not created one yet yes would you like to join forces with them and i said okay well we'll do that that was a huge mistake jb and i should have just started the car company ourselves instead uh we uh teamed up with everhard topping and right um big mistake uh the the the actual moral error here was me trying to have my cake and eat it too which is like uh i just want to work on the technology and the product and have someone else be the ceo and and sort of run the business operations because i just like working on technology and product and design and um and and also i was like doing spacex uh you know at the time in our rockets were blowing up so it seemed like uh okay this is like i always wanted to an electric car company this is how i can have my cake and eat a two that was a huge mistake and fundamentally a moral error um and uh so so uh in the end i had to freaking be ceo and i didn't want to be basically um so but it's either that or a company's gonna die so uh so we started with with really just nothing and uh the uh you know the t0 prototype from ac propulsion not not if that's that's the precursor to tesla um clear once again uh when uh we created tesla i when i when i joined there were no no employees there was no intellectual property there was no prototype there was no and nothing yeah we crystal [ __ ] clear and it almost bankrupted you i mean you that sent you to the cliff of india i mean that was yes we were on the ragged edge of bankruptcy so many times it was ridiculous um so um and what 2008 was one of the worst years where basically the you know gm and ford just a gm jammer ford almost went bankrupt and um you know trying to raise money for a startup electric car company in 2008 while gm's going bankrupt was uh difficult to say the least um you know people were angry that i even asked them uh they're like [ __ ] you and hang up so the only way that that that tesla actually made it through 2008 was uh a subset of the existing investors um which includes like people like antonio gracias and uh you know um steve jobson and and a few other key people our aaron price uh who who i've uh hold a debt of gratitude to the state um and and i i put in all the money i had left and they said everything literally everything um uh i didn't have a house uh so uh this is my actually so i've had the house so i was like staying actually in jeff skull's bedroom spare bedroom um and uh and but they were the the uh the subset of the investors would say okay i put in they're putting as much as i put in so i put in everything um and and then we closed that round 6 p.m uh christmas eve 2008 it was last hour of the last day that was possible because after that people were like kept breaking for the holidays and we were to bounce payroll two days after christmas it was uh pretty that's doorstop i mean it was an incredible moment in time and and people also forget at the time that the first two rockets spacex sent up uh didn't exactly make it to orbit like one of those yeah the first three and i remember having dinner with you at that time and i asked you hey how's it going i heard glocker says you got four weeks of payroll left and you said that's not true and i said thank god and you said we have two [Music] i said no i mean both spacex and tesla in 2008 if we'd simply paid our suppliers on time we would have gone bankrupt immediately hey tell us tell us actually uh it was it was a pretty crazy moment because i also remember asking you that we were having dinner at boa and i said well certainly it's got to be some good news and you took out your blackberry to date the conversation i don't remember it and you said don't tell anybody jacob is it right no problem and you showed me the clay version of the model s yeah the most beautiful car i'd ever seen and i said oh my god it's stunning how much is it gonna cost you said i think i can make it for fifty thousand i remember it was yesterday i said if you make that car for fifty thousand you'll change the [ __ ] world and you did it you know it was a little more than fifty thousand but uh how's your let's ask about spacex okay well that's what's basically but i want to ask one more personal question has life gotten easier for you as these companies have hit scale or has the complexity made life even more challenging because those early days it was just fighting to survive nobody knew who you were you were anonymous and it was really just about the work and now let's face it you're the world's most famous guy and everybody's watching everything you do but these companies are also very big so what's life like for you today are you enjoying what you're doing every day um well i mean it's it's somewhat of a roller coaster so there are like good days and bad days um and there's there also crisis issues um and you know like sort of you know knock on wood like we're not like uh facing you know death in the face like like it's it's definitely like quite stressful when like you know death is like trying to eat your face off and like the foam is like you know just getting it and like right there you know you know that's it's pretty stressful in that situation um so like right you know both spacex and tesla have um you know significant cash reserves so like you know it's like we're sharing death in the face we could sort of see it over in the horizon you know so i don't want to get complacent or entitled because it um but but if it's not like just sort of foaming at the mouth and actually trying to eat your face off on a daily basis that's that's certainly we've moved on from that point um and hopefully never never return um but but there are a lot of issues that need to be it's just like the if you're a ceo of a company the chore level is high and if you don't do your chores then the company goes to hell and i hate doing doing chores frankly so uh who does uh so that's the real like there's a whole bunch of sort of uh you know personnel issues and legal issues and and and things that i i i don't find enjoyable to work on but if i don't work on them the company suffers so it's more like just the sheer volume of work is insane that's the uh and then and then you know go do some go add to it with you know twitter or something like that yeah i mean honestly i'm an extra processor yeah yeah i mean i i have a habit of biting off more than i can chew and then just sitting there with like chipmunk cheeks alice tell us a little bit about where we are at spacex like how you fund the ability to go to mars but then also commercially still build um a conventional space business domestically i think this russia thing was probably really good for spacex if you want to just tell us a little bit about that sure um well i mean the goal of spacex is to develop the technology that enables life to become multi-planetary um and uh and make humanity a space sparring civilization which i think is a very exciting inspiring thing and it's like some one of those things where you can that i think just makes kids like be excited about the future and we need things that are inspiring and exciting and make the future seem like it's going to be better than the past life can't just be about solving one miserable problem after another it's got to be like like what's what's inspiring and exciting and i think that a future where we are space-bank civilization is is one that we can all get excited about um and and we can go out there and find out what what's what's out there in the universe and what's the meaning of life and you know where are the aliens and hopefully they're friendly and that kind of um so uh you know it's interesting i do get asked about the aliens question a lot and i've i've not seen any evidence of aliens um and i'll i'll be the first to you know tweet about it or whatever if i found it if i see something i mean you'll tell us if you find him i will tell you i will definitely tell you if there's aliens um and um you know uh i think it'd be quite helpful for you know like like if if we found aliens like probably spacex would get a ton more revenue because people like oh man aliens we're gonna upgrade on space technology pronto because what if you're unfriendly you know um it's like you know uh the idea of that is the idea that you build um basically the ability to do orbital cargo take all those profits launch starlink take all those profits and move it all into building something that can get to mars is that the kind of rough plan pretty much it's if it was like a three step a three slide power point it would be pretty much as you described which is um develop rockets that are that are capable of of taking uh satellites to orbit and uh crew to the space station um you know basically servicing government commercial space launch needs um and then uh uh build a global communication system in space uh that obviously it does a lot of good for earth but by providing uh internet connect internet connectivity to the least served because a satellite system is really great for remote locations um and you know countryside or or remote islands or or places where someone's trying to cut off their internet as a prelude to a war we take that system like in star wars yeah yeah so it's like you know so it can be pretty pretty helpful like i think like a song like basically i think is a a sort of forceful grid on its own right um by providing uh connectivity to the the least served where they've got either no connection or a a very expensive or poor connection uh you know um the like we're like we're connecting a lot of schools remote schools in brazil right now i'm actually kind of going to be headed there uh to sort of kick things off but they've got a lot of schools that have no connectivity at all and in a modern age uh how do you learn with no connectivity i mean you get i guess old textbooks and stuff but it's really you're at a huge disadvantage if you have no digital connectivity um so i think there's just a lot of good that starling can do in it just by by itself but but then the the revenue generated from starlink is what can enable the uh of a permanently uh crude base on the moon which would be the next you know next step from apollo which is like let's just not go there for a few hours and and then head back let's have a opponent at the occupied science station on the moon um and we could also build um some pretty epic uh telescopes uh on the moon uh that uh would enable us to learn more about the nature of the universe and figure out what's going on and maybe detect those aliens um do you do you um do you think that there's enough profit in those businesses to fund all this or do you need wall street and other investors to come share the load with you is kind of going to mars a partnership with the government does it need to partner with governments to get there um well i think technically it does not need to partner with governments um but of course uh government support would be helpful um so i mean it's going to be very expensive to build a self-sustaining city on mars like in order for us to become multi-planetary in a way that's meaningful um the the key threshold is at which point does the city become self-sustaining such that if the ships from earth stopped coming for any reason and it could be any reason could be world war iii or it could be just you know civilization subsided and um and and just gradually got decrepit or something but but if the ship's stuff coming the three supply ships from earth stop coming to mars for any reason does the city still survive and that's like really a large base of resources that are that that are needed uh on mars you can't be missing any one critical ingredient uh the so and you can think of this like there are these various great filters um you know that that perhaps stop civilizations and one of the great filters is will we become a multi-planet species or not will humanity be one of those species that passes the great filter of going beyond one planet and being a multi-planet species and this is certainly something we'll have to do at some point because this the sun is expanding and will eventually boil the oceans and destroy your life on earth so if you care about life on earth you should really care about life becoming multi-planetary and ultimately multi-stellar because otherwise you're basically saying you're signing the sort of death warrant for all life as we know it it's inevitable um and then there's also the the various things that kill the you know the dinosaurs and and i mean you look at the fossil record they've been five major extinctions uh that are sort of on the order of eighty nine eighty to ninety percent of all creatures on earth dying um for a wide range of reasons um but uh and then humans can also you know with us the world war three danger um that were that that other creatures didn't have where we could do ourselves in um by sort of misusing advanced technology and and sort of just you know having some radioactive hellhole that's all that's left after world war three so um you know you want you could even characterize it potentially as which will come first world war three or uh life becoming multi-planetary on mars um yeah i'm sorry i was gonna shift but um you know when you think about the importance of going to mars versus solving critical energy and climate change problems here on earth obviously the effort with tesla is related to sustainable energy and i think going back to like probably the 1950s there were engineering designs around plasma fusion or fusion-based systems that have evolved to these plasma systems to these tokamak systems and every year every decade it's like hey next decade we're going to have it what's your point of view on where plasma fusion systems are are we going to have fusion energy this century this decade and does it create limitless energy where the electricity production goes up by ten thousand fold and the price of electricity drops by ten thousand fold and then what does that world on earth look like if that happens so i guess question is like is that technology real when does it happen and what happens to the world here when and if that happens i'll answer that question but then i'll let me sort of point out what the what the actual issue is uh if the question is like uh is it possible to solve uh fusion energy uh 100 yes definitely definitely definitely definitely is for sure um so the the and and and really just using a takamak style which is like it basically a doughnut ring with uh uh with electromagnets that control the the plasma uh the the way to solve that is simply scale up the tokamak uh fusion is uh very much a scale based thing you want to minimize your surface volume ratio so as you scale up a tokamak you reduce your surface volume ratio which means like the the the volume you have relative to this the surface uh you you now have much more uh like you can basically have a hot zone in the center that's relatively far away from the walls and and more of a hot zone um so the the so it's not in my mind a question as to whether which fusion can work but there is a question as to whether it is economically viable um and and whether it is competitive with uh with with alternatives i think that the economic viability of fusion is a much bigger question and i i think the answer probably is that a fusion earth fusion is not competitive economically i think that is that is uh i would say it's probably not competitive economically by an order of magnitude where does it break is it a materials breakdown or where does it break down economically well so so you can't just um use uh normal hydrogen you know you you need to use like deuterium and tritium like unusual forms of hydrogen helium-3 uh you know that there are um there are some uh some uh other types of fusion that could be used uh but um these are just not they're not like there's not a lot of this raw material it's quite difficult to get the raw material so first you have to get the raw material uh that's that's expensive raw material um and then um it's not just about generating the the energy you've got to um turn that energy into usable electricity you can't just have a hot thing okay so the hot thing has to translate to usable electricity so i think you got you've got a cost of a fuel issue which is very significant uh you've got you've got a whole bunch of knockdowns from when you generate the heat to when you actually convert that into electricity you've got some very difficult maintenance issues with with the effusion reactor [Music] so uh and that should be then compared to alternatives uh the the sustainable energy alternatives that i think uh are overwhelmingly more competitive are [Music] solar energy wind geothermal hydro uh some tidal and energy but it's really primarily uh solar uh and and wind um now and you can really say like what why bother creating a fusion on earth when we have a gigantic fusion reactor in the sky that just works with zero maintenance and it shows up every day right it's pretty consistent yeah but elon can we scale to 1000 x or 100 x our electricity production here using solar and other renewable sources yes so the the amount of uh surface area you need to power the united states is remarkably tiny um so you need like basically roughly a hundred miles by a hundred miles of territory and it obviously doesn't need to be in one place uh in the united states to power the united states it's like a little corner of texas or utah the entire country um and and then if you if you you could you could basically power uh you you probably 10x the just with solar alone um without displacing uh anyone's home uh power an economy ten times the size of the united states in the united states on land what when energy prices if you say if you extend that to water because earth is 70 percent water yeah i mean you could you could say okay now we could probably have a civilization that is a hundred times as energy intensive as we currently have it and so what does that look like with the last part of my question which is a world where energy costs are saying it's a hundred times cheaper than they are today and we have a hundred times more energy production capacity what what changes about civilization what do we do differently and what do we see change most kind of dramatically well currently we're not because of of just generally low birth rates almost worldwide civilization is not headed to have a population that is an order of magnitude greater than where where we're kind of we're currently headed towards a population decline uh and this is almost everywhere in the world um so you know it basically seems as as though as soon as you have like urbanization um and and and education beyond a certain level and income being on a certain level birth rates plummet um and so as countries get get wealthier their birth rates plummet it's it's somewhat counterintuitive because people will say like well it's too expensive to have a baby nope the the wealthier they are are the fewer kids you have um the more educated you are the fewer kids you have so um it's it's a it's it's it's the inverse um so so i'm not sure who to use all that energy um unless there's a significant change in the growth rate um or we have a very robot oriented economy so that's also possible so if we've got a lot of um you know four wheeled robots informed cars and uh androids humanoid robots then you could certainly see that there'd be perhaps a need for an order of magnitude more energy but it's not coming from the humans unless something major changes on the on the human uh birth rate uh level uh this by the way is i think the biggest single threat to civilization uh right now is the why why do you think societally people just make those decisions when they become more affluent is it that they just become more selfish or there's more things for them to do and they have more money to spend on themselves and they say you know what i don't want to have a large family i want to you know go to coachella yeah well there is this like weird like mind viruses thing where some people are think like having fewer kids is is like better for the environment yeah that's crazy total nonsense the environment is going to be fine they're going to be fine even if we if we doubled the size of the humans um this is and i know a lot about environmental stuff so um you know uh you that we can't have civilization just dwindle into nothing um and you know japan's leading indicator here like the japan's population declined by 600 000 people last year that lowest birth rate in history uh it's you know it's pretty bad um so we i don't know we and i think so so this one element of this is it's a lot of people just think that having kids is somehow bad for the environment i want to be clear it's not it's essential for me for maintaining civilization that would at least maintain our numbers we don't necessarily need to grow dramatically but at least let's not uh you know gradually dwindle away and until uh civilization ends with us all in adult diapers and and in a whimper like we don't want a civilization to end in an adult diapers with a whimper that would kind of suck yeah lee well i mean and you and i have had this conversation i mean in japan i had two people tell me when i was there like i think it's immoral to bring humans into the world i mean people have gotten very sad about the future it's kind of crazy it's great life's awesome yes no this there's literally i've heard many times how like how can i bring a child into this terrible world i'm like have you read history because let me tell you it was way worse back then okay yeah now it's a good time it's a good time hey you know listen i i know you're super busy but i want to ask you about the move to texas because i've been thinking about it uh austin california i don't know some senator told you to go [ __ ] yourself and like you know like we don't know he's been a couple senators said that actually yeah it seems to be turning into a bit of a trend um but how has building the tesla gigafactory which i got to see in austin a couple weeks ago and it was one of the most inspiring things i've ever seen i mean i don't know how many months it took to build there but how long did it take to build that dreadnought and then what would have taken to build that in california california under gavin newsom so we built the the gigatexas which is the biggest factor in north america i think possibly the biggest factor in the world um and it's three times the size of the pentagon to give you a sense of scale okay this is freaking big it's like it's weird it's like so big it's weird like you just like i was trying to find you in it and i was trying to drive around and it took me about 45 minutes to find you yeah like no you have to like call you can't like find someone in the world you have to call them on their cell phone and say where are you you know um so i mean the building is like uh just under a mile long and we're actually gonna extend it it will be like literally a mile long um and about a quarter mile wide uh and it's uh 80 feet tall so it's just uh ridiculously big um and when you think about like for manufacturing situation like what what what are the two the two things that really define manufacturing competitiveness are economies of scale and technology and so if you got an ace on economy like if you sort of maximize your ace level on technology and you maximize your ace level on scale this is obviously going to be the most competitive situation and that's why they're so freaking giant um and the the gigatexas will go all the way from raw materials like like basically rail cars of cell raw materials coming in and then forming the the battery cell then the battery pack uh building the the motor uh casting we also have introduced a major innovation which is to cast the entire front third and rear third of the car and as a single piece um i got this idea from toys actually because i was like how do they make toys those are cheap they just cast them i was like well can you build a casting machine that big and they're like well no one ever has i'm like is it are we breaking physics like no well let's just ask them and there were six major casting machine suppliers in the world and five of them said no and the six said maybe i'm like i'll take that as a yes um well i mean this you wanted to do this for the model 3 but it was just too soon huh and and now it's almost there yeah actually this this partly comes from the model 3 which is actually a fantastic car in many ways but we were rightly criticized for an inefficient design uh with for the front and rear body um like sandy monroe who i think is really has excellent from an engineering standpoint and and really a very fair critic he pistol wept us for um the design of the the battery and piece by piece told you why you suck yeah and then he did the why and told you why you were awesome he took it apart and tells us exactly why he's why we sucked and he was correct um and then and i was like well that's pretty embarrassing so uh no there he was complimentary of other parts of the car but not the body design and uh and so it's like okay we're gonna go from like you know uh the it's just an incredibly difficult party to make it's made out of like 120 different pieces with dissimilar metals that are joined and you've got galvanic corrosion challenges it's very difficult to make um to a single piece casting that's one piece so like 120 pieces went down to like one so um it's it's it's a it's a huge and the the like the model y body shop especially the new one where we cast both the front and rear is 60 smaller than the model 3 body shop so it's you know gigantic it's quite this there's a lot of innovations of tesla besides the stuff that is is obvious yeah um so anyway so yeah the the but if and and really you know to to be fair to gavin newsom like uh you know if you if you had a gun to gavin's head okay um and said we need to build start building this factory in california right now he couldn't do it because there are so many uh regulatory agencies um and so many uh litigators in california that want to stop you from doing anything that even if you're the governor of the of the state you cannot get it done um so something's got to be done to to to to you know because california used to be the land of opportunity and it's a beautiful state and i love i loved living there and i still spend a lot of time in california even though every time i go there i get every literally every day i go there i get the jesus taxes big tax bill by day yeah like the sheer cost per day of me going and working in california days boggles the mind and but i still do it you know um but but it the california's gone from a land of opportunity to to the land of of of sort of taxes uh over regulation and litigation and this is not a good situation and really there's got to be like a serious cleaning out of the pipes in california how many months was it to get the giga austin done took a year and a half two years yeah 18 18 months to build something three times the size of the pentagon incredible and you just basically the answer to how many months it would take in california is infinity we would still be working on the permits yeah elon this this begs a good question which is like i'm ready graduating and you just keep signing paperwork but we have one more form for you what's a better model yes what's a better model for government so you know like all governments tend to increase in complexity dictatorship capacity is the dictatorship the right model and um you know like like how do we solve this let's say you go to mars or let's say you have to fix california is california permanently broken is there a way to fix it or like how do you set up a better model so that you don't end up having this this kind of special interest complexity situation that eventually kills the uh population i mean i think ultimately with california the people of california just have to get fed up and and demand change um that's the thing that really has to happen um and and there's there's gotta be an above zero percent chance of the of the republicans winning in california if if if if it's just the democrats every time you've got to be you know and this is this is like occasionally uh it the thing is that right right now uh and plus the level of level of gerrymandering uh which is basically just treating the people like sheep uh and and it's terrible um that's gone on in california is outrageous so california uh the dems have a super majority in um the house and senate in california and the governor and everything and so how responsive is any political party going to be to the people if they are guaranteed to win it's a one-party state and so i'm not saying that you know go sort of elect the republicans every time but if it's never you're you're just making california a one-party state they will no longer be responsible responses to people and will only be responsive to those that funded their political campaigns clip elon saying that 30 seconds on tv over and over go ahead sex yeah so elon shifting gears to the economy um you know we saw this uh surprise report of negative 1.4 gdp growth in q1 uh interest rates been rising that increased the cost of the consumer of getting loans things like that we've had a stock market correction really a crash in a lot of growth stocks software stocks um what from where you sit and the data that you see uh where do you think the economy is is headed right now do you think we're in a recession or is it just a risk how do you how do you assess our current economic situation well predicting economic record economics is always difficult um and and want to assign probabilities to these things um but ironically i did last year people asked me what i think about the economy i said well i think we might enter a recession in approximately uh uh spring of 2020 of 2022. called it nailed it um yeah um so uh now the thing is that recessions are not necessarily a bad thing uh they they you know um what i i've now been through a few of them and what has happened is if you have um a boom that goes on for too long you get misallocation of capital uh it starts raining money on fools basically it's like any any dumb thing gets money and i'm sure you've seen a few of those um so at first at some point it gets just out of control and you just have a misallocation of of human capital uh where people are doing things that are silly and not useful to their fellow human beings um and and then those companies there needs to be sort of an economic enema if you will um to have everyone sort of shift uncomfortably in their seats [Music] um sorry it's just like visualizing it the economic enemy i mean listen it's got alliteration um so this too shall pass eventually the economic enemy does its job it clears out the pipes if you will yes and um and and sort of the the the [ __ ] companies um uh go bankrupt and the ones that are doing useful products uh are prosperous um and um but there's certainly a lesson here that if one is making useful product and and doing has a company that makes sense uh make sure you're not running things too close to the edge from a capital standpoint they've got some capital reserves to last through uh irrational times because in the in the past when there's been a recession um it has gone it's amazing it's flipped like a light switch i mean david do you remember this when from the from the paypal you know ex-paypal days when we uh raised 100 million dollars in march of 2000 uh and we literally we had the demand was so high we had uh people like vcs like just literally without even a term sheet wiring money into our account um we'll send the term sheet later literally we're like we like sleuth out our our bank account number and wire money in and we're like where'd this come from and it's like um they so it was like there was literally fire hosing money in march of 2000 and and then in april 2000 the market went into free fall and it went from money raising money was trivial to even good companies could not raise money uh in a month um so it's just important to bear in mind like that you know paypal almost went bankrupt in in 2000 uh we came close um but but thankfully we would raise that that hundred million dollars in in march 2000 uh without which would be uh could be a game over basically um uh and we kind of saw it coming so it's like we we we got that the the x confinity merger done in like three weeks and raised 100 million dollars because we were like oh how we see this coming to an end pretty soon and then a month later it was like you know a nightmare basically um and and uh anyway so it's just important make sure if you're a healthy company you've got some capital to get through things um and and then what what's your costs and uh if you if if it is a recession which it more likely than not it is a recession not saying it is but it probably is um then just uh make what's your cash flow and get the cop positive cash flow soon as you can um so um yeah uh but i think we probably are that are in a recession and that that recession will get get worse um but you know these things pass and then there will be boom times again um so it'll probably be some some tough going for i don't know a year uh maybe maybe you know 12 to 18 months is usually um the amount of time that it takes for for the a correction to to happen um what do you guys think yeah i david uh how do you feel about it yeah i mean it feels like it started um you know what started as a slowdown earlier this year um now seems like i mean technically i guess we need two quarters of negative growth to be in a recession but it feels like we're in one feels like it started um you know the growth stock the software businesses that we invest in are sort of the canaries in the coal mine and there's a lot of a lot of dead canaries uh having a hard time breathing yeah [Laughter] it got stunned for a brief moment and and it just it'll be fine um it it reminds me of the the parrot that you know the pet shop sketch or the parrot it was monty python um it's pining was parrot is pining for the fjords hey um elon a lot has been talked about as we wrap here and you've been incredibly gracious giving us so much time thank you for that um a lot of talk about american exceptionalism over the last couple years waning and maybe this country had seen its best days and uh we see the work you're doing and other people in this great country are doing and the debates we're having about the future and yeah china's doing pretty fantastic rushes on the ropes but it does seem like uh america is still producing some of the greatest companies uh the world has ever seen some of the greatest innovations what are your thoughts on america and our future and what we need to keep this country and this beacon of hope that you know four of the five of us were not born here you know two of you came from south africa and no three of you three of you came from south africa one of you from canada i don't know what they're putting in from sri lanka and from sri lanka and through canada canada via canada he came through canada too yeah i know it seems like that's the that's the way canada is a gateway it is a gateway and how do we it's a well i'm hinting at the answer here but you know it does seem like our immigration policy is absolutely insane and uh maybe we need to keep collecting some of the great individuals that i get to share the stage with here and yourself we need to keep bringing great people to this country why can't we get that in our heads that yeah it's talent recruitment no absolutely i think uh it's incredibly important that the united states be like the destination for the world's best talent i mean you can think of this like like like a pro sports team if you want to win the league um and and uh you know you want the best players on your team um there now there are obviously a lot of very talented people born in the united states um but if you can add a few aces from uh from uh outside the country to the team you're gonna win the league um and and and here's the thing those aces actually want to work for your team they don't want to compete against you they want to they want why don't we want to be on team america and and so it's like we have to like fight them off to not be on team america that's the crazy thing um and so it's like if you got some aces that that are the difference between winning and losing we should be like really recruiting them like you'd recruit like a star basketball player or football player that's what we should be doing um active recruiting um just like if you're a company that once wants to succeed you actively recruit the best talent and then and and that that's the way to win and and if if that stops happening america will stop winning and we have two administrations in a row biden and trump who don't want to let the greatest minds the most talented people into this country is absolutely insane i mean i think they deal with this every day reality is like actually any anyone who who's gonna who wants to to to work hard and be and do useful things um and in this you know uh we we want in the united states um and it's not just people who are sort of intellectually strong but it's just anyone with a with a strong work ethic you know if if they're coming from mexico or if they're coming from you know europe or china wherever it's just if they're like going to come here and crank hard and and contribute more than they take hell yeah i mean that's just it's a no-brainer have you been have you been disappointed in the similarities between biden and trump on this like maybe you could have expected it from trump because that was a rhetoric he needed to use to get elected but it's not as if biden has flipped the script and said okay we're going to go 180 degrees in the other direction he's kind of kept it the same which has been really surprising actually man it's hard to tell what bite is doing if we told frank um yeah like i feel like it's weaker than bernie's the the the real president is whoever controls the teleprompter you know it's like it's like the path to power is the path to the teleprompter you know like what what because that then he just reads the teleprompter so you know i do feel like like if if somebody would accidentally lead on lean on the teleprompter it's going to be like anchorman it's going to be like qqq asdf123 you know type of thing um i mean in fairness to biden he he hasn't been napping as much as he needs to but it's just it's hard hard things that are getting done you know i mean this administration just it doesn't seem to get a lot done like and you know um whatever like the trump administration leaving trump aside there were a lot of people in the administration who were effective at getting things done so uh but this this administration seems just just to not have like the drive to just get you done uh that that um that that's my it's it's that's my impression um so um you know we definitely need to fix immigration policy like we had covert which was an issue and and and so that was like one reason like not you know i guess clamp down it on but now now we've moved on and so let's let's just make sure we're getting tough talent uh in the united states um and and really i'd say broadly it's anyone who who wants to work for [ __ ] um and and uh and contribute more than they take to the economy like that's just necessarily going to make for a stronger better society in america elon did you see uh jeff's uh bezos's tweet back and forth with biden um where biden i think was talking about inflation inflation but then he correlated that to taxing corporations and bezos said this is misinformation and disinformation et cetera et cetera what do you what do you think about that whole exchange then back and forth i mean the obvious reason for inflation is that the government printed a zillion amount more money than it had uh obviously um so it's like the government can't just uh you know have [Music] um issue checks far in excess of revenue without there being inflation um you know velocity of money held constant so unless something would change with velocity of money but but it it just look the the if the federal government writes checks they don't they never bounce so that is effectively creation of more of more dollars and if if there are more dollars created than the increase in the goods and services output of the economy then you have inflation again velocity money held constant um but so uh this is just this is very basic this is not like uh you know uh super complicated um and if if the government could just issue uh massive amounts of money and have it and deficits didn't matter then why don't we just make the deficit a hundred times bigger okay the answer is you can't because it will basically turn the dollar into something that is worthless so um and various countries have have tried this experiment multiple times it's not like oh i wonder what happens if this if if this is done yeah have you seen venezuela like the the poor people of venezuela are you know have been just run roughshod by their government um and so obviously you can't simply uh create money the the true economy is very important like the true economy is the output of goods and services it's not money it's it's literally what is the output of goods and services money is simply a way to to for us to or anything that you call money uh is is a way for us to conveniently exchange goods and services without having to engage in barter and also to shift obligations in time that those are the two reasons that you have money this thing called money it's it's really it's a database the money is an information system for uh for labor allocation and for exchange of goods and services and for translating in time and the quality of that information is a function of it's like you basically you can apply information theory to money and and i think it it helps explain why one money system is or why one action is better than another and so if like the the money you you just just like a an internet connection you'd want something that's high bandwidth uh low latency and jitter and uh is not dropping packets does not have a lot of errors in the system um and the same is true true of money um you you want then and really like you said what did paypal really really do that helped improve the the the bandwidth that the speed at which money could move um instead of of mailing checks back and forth which amazingly that was what people did uh in 2000 um uh you you could now do real-time exchange of of money um and and now you could ship your goods immediately instead of mailing a check and waiting for the bank to clear the check so uh like and and the the ultimate thing that with paypal or or if it sort of was in the x.com sort of went more less sort of niche payments more sort of broad financial would be to simply just that uh just mediate all the heterogeneous uh cobalt databases out there running on mainframes during batch processing and have a single real-time system that uh that was secure um and not batch processing um and so it would just be from an information standpoint more efficient and and eventually it would all the the batch processing cobal mainframes operated by the banks would cease to exist you've um spent more time uh and built more in china than almost anybody i mean apple would be the only company i could think of that's probably got a bigger footprint but i'm not certain of that what have you learned about china that you didn't know before you opened the factories there and started delivering cars there and what should we know about china you know as americans how should we think about china and our relationship with it because we haven't spent time there sure well i'd say like china first of all is not monolithic it's not like uh everything everything is not some plot by the chinese government um the uh the the there are many uh factions within china that compete uh vigorously within china um and uh so um and and and perhaps most important is that there's just a just a tremendous number of hard-working smart people in china who want to get ahead and get things done um and they're not complacent and they're not entitled um and they're gonna they're they want to get things done and they they want to make a better life for themselves um and what we're gonna see uh which was china for uh for the first time that anyone can remember who is alive is an economy that is twice the size of the us possibly three times the size of the us is going to be very weird living in that world so uh we we better stop the infighting in the u.s and start punching ourselves in the face because like there's a whole there's way too much uh you know of america punching itself in the damn face it's just just dumb um and and think about like hey we got to be competitive here and and uh there's a new kid on the block that's going to be two to three times our size we better step up our game um and uh you know and stop infighting um you think it's easier to stop in fighting once we're beaten or do you think that there's a way folks here can actually just you know get their political and commercial act together but or does it not happen until we've realized we've lost or do we need a war i mean we i sure hope we don't need a war um uh but there will be certainly um you know an economic competition that i think will will blow people away um when they realize just how competitive they have to be to be competitive with companies in china it's very difficult you know tesla is competitive hotels is competitive because we have an awesome team in china that uh you know so um like do your tesla china employees work some meaningful percentage more or harder than your tesla non-china employees do you find like it's two different companies basically well i mean i i think tesla is somewhat it it tells us sort of pretty far out there in terms of work ethic uh anywhere in the world so uh the tales of work ethic in the us i think is substantially greater than any other car company or or any large manufacturing company that i'm aware of so you know tesla tesla does have a a strong worth work ethic in in the u.s but but to be totally frank it it the work that work ethic is exceeded um uh on balance by uh it tells a china team that that is i think objectively true so does not say there aren't lots of hard-working people that tells the u.s they certainly are but if you say on average the the the work ethic in china is higher it's just tell us tell us what you're calling it like it is you know so what about if you're an american ceo how do you deal with do you think just the need for managing all these political factions inside of a company you probably saw you know all the sturm and wrong related to disney and what happened to them and what's continuing to happen to them on both sides between their employees as well as the governments etc um do you have any advice or what do you tell like young ceos that you hang out with about how to deal with that how to make those decisions where you land in the spectrum of dealing with all of this stuff the non-work issues that are related to now you know going to work every day i'm not sure i entirely understand what you mean like uh you know although whether it's the the need for political correctness or the need for having political points of view and having to bring that and balance that in the workplace how do you deal with that how do you give advice to other folks about having to deal with it look i think it you know the the point of a company is to produce useful products and services for your fellow human beings it is not uh you know some political gathering place or a thing where if that's the point of a company like it's i'd say like it's you know politics and other stuff should let's not lose sight of why companies should exist um [Music] so i i i i gotta i gotta i'm i'm actually late for yeah i apologize i'm gonna work on the rocket guys uh yeah um we're gonna go ahead and let you uh get to mars and uh i'll see you soon [Music] and they've just gone crazy [Music] we need to get mercies [Music]








pg square this is our bg squared panel uh everybody knows friends of the pod brad gerstner and bill gurley give it up for our yes [Music] [Music] bill you predicted five of the last three recessions a broken clock is still right twice a day i mean here we are again you you've sounded the alarm bell and of course you're right and you've seen this movie before for all of us younger capital allocators um who uh are experiencing it for the second or third time but you've experienced it a couple more times um how i mean it's pretty old um how does it how does this one measure up to great recession dot com bust you know 87 and the mini ones we've seen in between you know one thing that i think's super important to put this into context now i'll try and tell this quick i had a meeting once with howard marks who i'd wanted to meet for a long period of time he's a famous bond investor that does a lot of writing and for 15 minutes he asked me questions about the venture industry a lot of structural questions and i told him my answer as best i could and he said man that's a really shitty industry and i said well why do you say that what do you mean he says he says you know cyclical collapse is built into the structure and so we have funds that you know are taken you know committed to that have 10 to 15-year life so you have low barriers to entry but yeah very high barriers to exit and so he felt that it was just systematically set up to to rise and crash rise and crash um and one thing that that i realized coming out of that is that it it doesn't happen like a sine curve which is what we all imagine when we think of a cyclical business it's more like a sawtooth it risk risk on is a very slow process and it and it's it's reflexive so it grows and grows and grows and grows and then risk off tends to be very abrupt and we've seen that here right this this cycle risk on was from 09 that's what i said two five months ago that's really well said and risk off is five months and and the thing that that's really tough about that is it it requires uh mental adjustment very quickly like because it it didn't gradually change to abruptly changed and so you know cap charts might have you know systematic issues that are stuck because too much lick pref relative to the new reality valuations have shifted cost capital is radically different you may have you know on the way up as risk got people took more risk you tried crazier things you you're willing to to take take make investments in businesses you might not if the cost of capital is a lot lower you name a stadium for five years as a crypto company you might do that and then but then all of a sudden it's it's gone and now the commitment to naming the stadium is greater than that than the market well i i assume you're fragile that may not be true for ftx but for well i mean just as an example it might be a disproportionate value of your yeah yeah so anyway it's tough and and in this particular case because that's what you ask so it turns out 09 wasn't that bad if we if we have an 09 that'll be pretty good things got turned around pretty quickly 01 was very abrupt and we didn't you know really start to see liquidity again until with a few exceptions elon mentioned paypal but like 0.506 yeah it was a long walk in the desert i mean a lot of great companies were started but a lot of founders gave up at that time right yeah and and and look i mean i think to the if you're an early stage investor or if you're an early stage founder that's just getting going or even an early stage company because if you haven't scaled out yet this probably hasn't affected you it could be it could be wonderful like your access to talent's gonna be a lot easier people are going to be more pragmatic and rational but it's a lot it's usually a long window on the other side the other the other challenge you have here is in 20 you mean we basically had a mini pull back in march of 2020 but then the fed hit so hard that things just blasted off again and now and now you guys have talked about this but that tool is not in the toolbox anymore brad um so one of the things i i was talking to somebody last night and this audience is amazing i was talking to somebody last night and they said you know so how does it work you just get together and talk and i said you know what i'm what i love about this group is there are hundreds of hours of like data and research that we're constantly challenged with we all know where we are we know what just happened and i think grounding ourselves in just a few facts to try to figure out what the next six months are going to be because we have founders here trying to run their businesses can i raise capital are we bouncing straight back from where we were so very quickly this chart just tells us you know the iron law of investing is interest rates a one percent change in rates leads to a 15 or 20 change uh in a multiple and so the reason multiples have collapsed here for all these businesses is because expectations as to inflation and rates has changed dramatically i hear a lot of talk about 1999-2000 so if it's all about rates let's just look at those two things we plotted them here together this is 19 to 22 on the bottom it shows what rates did we took them to zero the fed is now saying our neutral rate is two to three percent people are hyperventilating look at where we were in 2000 look at what the cost of capital was in two credits right right and so this this by the way the delta there right we went from just above five up to six and a half right so we're talking about going from two and a half back to two and a half or three but the big question is are we going back to two and a half or three or are they behind the curve lost in the weeds and we're gonna have to go to four to five to kill inflation well everybody was saying inflation you know inflation is here to stay forever remember when when we report on core cpi it's what happened last month it is not a forward-looking indicator so we peaked in core cpi consumer price index explain what it is consumer price is the basket of goods and services that we all go out and spend money on so the fed is focused on the demand side of the equation they know they hopped us up on a bunch of red bull and cocaine to survive the pandemic and now we were talking about last night for sacks you still haven't said a word all day look at so this chart this chart we deconstructed 20 bank models to say what are the components of cpi how do they differ the red line's where goldman thinks we're going the green line is ubs i just told you the fed thinks we'll exit the year at four we just decelerated significantly and when they look at eight or when they look at may in june it's going to be down yet further and here's why it's going to be down when the fed stimulated the economy all the prices we pay for everything went haywire okay the price for a used car was 20 000 bucks for 10 years and then just coincidentally okay they give us a bunch of red bull and the price goes to 29 000 for two months in a row we've had sequential declines you tell me is the price of the used car this time next year higher than 29 or lower than 29. it's going to be lower because we're destroying demand by raising interest rates same for home prices so what's plotted here is the home affordability index somebody who can afford to pay twelve hundred dollars a month in december could afford a three hundred and fifty thousand dollar home today can afford a two hundred and forty thousand dollar home you tell me are the number of new home searches on zillow going up or down go run your google trends they're going down because people's ability to buy homes is going down and then finally airline tickets same deal right and so when you put that all together you say okay sequentially month over month forward looking this stuff's starting to tip over if you look at what consumer confidence is it's the lowest in 10 years right consumer confidence is a leading indicator of slowing down so again everybody on television is telling us about what just happened it's like the nightly news big red arrows inflation going up this is what's going to happen and what we all care about is what's going to happen we've destroyed 15 trillion you said this on pod 80 we destroyed 15 trillion of household net worth in the last five months so the expected path of household net worth would have taken us from 110 trillion to 125 trillion over the course of the last two years that was the trend we were on instead we got all hopped up and went from 110 to 142 but now we're all the way back to 127. that's what i call on path on trend so the fed has done exactly what it wanted to do it ruined all the specs it ruined everything took all the juice sorry sorry i did one too all right so it took the juice out of the system that and consumer confidence tells me forward-looking inflation is rolling finally bernanke says this morning or over the weekend he said ignore what you everybody else is saying follow the tips no we've been saying this since may of last year so this is the break even this is the bond market when that goes positive that means the bond market is saying that inflation is rolling over because this is the 10-year less inflation and so now we have anecdotal information about cars about houses about we have our common sense we know that those prices are not sustainable and we have the bond market telling us the same thing that's why i don't think you should believe the hyperinflation narrative got it any thoughts on nfts i mean here's the thing what about my board ape what will happen to that when you're going through this and you start to understand the logic of it you realize what a mirage we were in that certain assets that had no underlying value you know they weren't cars airline tickets or homes were also being exacerbated during all of this and i think that was probably one of the things that made this less fun in this cycle bill you're a fundamental investor you really think about consumers you think about the total addressable market you give a lot of thoughts to that what was the last couple of years like when because you were saying three or four years ago hey this is kind of disconnecting from reality you know back when um back when i had that conversation with howard i started doing some more research i went back and i talked to some of our fund of funds that have data over a very long period of time and i mean it sounds ridiculous but what i realized was that the the irr numbers and the ri numbers on the venture capital category were heavily dependent on performance in the in the hottest part of the cycle and so in the tip of that sawtooth and that's when we came up with this phrase that the best way to protect yourself against the downside is to enjoy every last bit of the upside so while you get anxious about the rollover you actually can't afford as a venture capital firm and maybe this contributes to the to the collapse as fast as it does you can't afford not to play the game because it's too hard to predict when it's going to change 250 billion dollars of committed capital unallocated into companies what happens in the cycle over the next five years if there is this expectation that we're not going to be in the good part of the the risk on part of the curve that capital needs to be deployed at this point in the cycle and do we end up having these like crazy bifurcations in the market where high quality companies get 10x evaluation of the mean and all the money plows into a few companies that that are kind of available [Music] and i know brad has some too because we were talking about this this morning um first of all i i've never ever felt as a as a venture investor that i have to invest money like like and if you remember most of it's committed but not drawn down right and so you're gonna have to go ask for it if you're if you're if you you know deployed two-thirds of your fund into uh crypto assets with no board seat in the past 12 months are you gonna call harvard and penn and say hey i need some more right now um i don't think you're gonna make that call i wouldn't know you're saying they let the capital sit there and never call it well here well you guys were talking about this on one of the recent pods you know in one a lot of people actually returned the commitment and it was actually an act of greed not not an act it came across like they were being nice but they were getting out i caught the burnt waffle theory they were killing the fun and getting out of the overhang uh and starting fresh just like uh i guess it was melvin that attempted to do it was a version it's like a recap in a way yeah well they just want to get started without the overhang of the look back they deployed 200 to 300 million i think one thing you know bill not to interrupt you know the the the the assumption of the question was will they be forced to deploy capital into a really bad vintage right i actually think the upcoming vintage is going to start getting real it's going to be a good vintage i think that that that was bill's point i think we both feel that way i think the vintage of the last 18 months will be lousy so the capital deployed over the last 18 months won't have a lot of return all of our lps know it right i was just sitting with an lp you know one of my investors at lunch today right imagine this they have 50 investments like benchmark and altimeter right all of them are going down and now you're going to call them up and say i want all this money right now to go invest in a bunch of stuff that still may not yet have corrected enough these are partnerships partnership means a partnership with me and my partners all the people who gave me the money we're not going to put our partners in a headlock and drag their money into the market and put it into things that we don't think accurately reflect the new world order if you go back to that first chart you can underwrite to the five-year average the 10-year average where we've been i think we're going back to trend but you cannot underwrite to where we were last year disabuse yourself one of the bill tweeted this last week it's spot on the biggest mistake we will all make is to anchor ourselves to prices that we saw in the world over the last 18 months pretend you never saw them not in venture not in the stock market because that is a delusional place to think we're getting back there we're not unless we have another pandemic or a nuclear war and rates go to zero and then we have bigger problems so re-underwrite and underwrite to the five-year average de novo for all your businesses that's how you survive through this uh and ultimately come out winning and the other the other point i would make david is that the the the new reality is apparent to all of us because of public comps so like you just have a new world order and so it's very hard i don't think i mean there might be someone so sloppy that they just keep investing headstrong but i think most of them look at where things are and the type of business that you're investing in and then they feel like they want to make a return i think i think you're using the right word it is borderline it's well it's definitely unprofessional and it's borderline idiotic for anybody with organized capital right now to be ripping money in because you don't know what the terminal valuation of a business is like at the end of the day investing is like a line it starts here with guys like jason and it ends here with guys like me and brad say and in the middle are these guys that are helping along the way and it's all hot potato but by the time the hot potato gets to us there is there is a price and that price has alternatives meaning if you come to me and say this thing is worth ten dollars and i and i say actually no it's worth two because that other thing which is better than you is actually worth five and that's what's happened in the stock market you get the potato you put it on the scale there is there is a terminal endpoint to valuation right at the end of the day there's a buyer of last resort and that is the public market investor and he and she has said no mas that's what this chart says nomas you don't tell me that your thing is worth 50 times 80 times 90 times it's worth 5.6 times i saw something this morning from morgan stanley that said if however you're a massive grower 50 plus grower there's 30 companies in the sas index that grow but only 30 in the entire world that grow above 50 you know what that multiple is just take a wild guess 8.5 i mean we're not talking 50 times we're talking 5.6 or 8.6 so all of a sudden demand is this to be clear this is so those games to your point are over i mean growing by 50 a year for those of you guys have that built businesses that do it that is still very hard you know that's massive compounding so the game is over and the idea that there's a quarter trillion i think that that's a fallacy what do you think ultimately gets deployed to the quarter trillion just pick a number what do you say over the next three years of the quarter trillion i think you're probably counting 50 percent of that is private equity or more maybe 70 percent traditional private already leveraged buyout firms are going to have a field day field day i mean so tomah bravo and all these guys they will spend all of that so you tell me what percentage of these okay so let's see three years over three years 100 billion of vc how much 20 billion goes into the next three years 25 or 30 percent depends on price adjusting i wish we had i wish we had the numbers from one and because because you had similar things where they're raising because that's freaking tiny right i mean if you're saying 25 billion over three years that's like eight billion of total vc dollars deployed a year which you know to your trend line thing that's tiny wonderful went back six years where that number was let's be honest what number of people at these companies is necessary to run them we're looking at a twitter with a thousand you're looking at a google and even some of the startups they got fast i think i think and they had huge salaries and there's no way by the way there's like we just talked we just talked about a whole capex cycle and a need for hardware and a need for capital equipment there's a whole semiconductor space there's biotech i mean a huge segment of that venture market jason is not software it's it's very capital intensive businesses which by the way are really critical in this but in this economics people have been living high on the hog let's be honest no but like i like for example like our investing focus we've moved in the last 18 months to focus a lot on these things lithium mines i mean the stuff that we're doing seems insane if you had asked me would you be sweating a a mine in india you know and sending our cfo and a partner to go and make sure the mine exists i never would have thought that it's possible but the reason is because of this chart because those trade-offs on dollars make so much more sense to put money into an overgrow like an overbloated software business comes with a lot of baggage valuation baggage team baggage technical craft all of these things have to get balanced and so if you get a really cheap deal you do it super interesting bill you i mean you're like the software guru i mean like do you feel the same way i mean yeah we'll call it yeah actually i want to make a quick comment on especially with this slide on sas multiples so obviously it's a price to revenue multiple slide and and price to revenue is like this really crude evaluation tool it's like the crudest you could possibly have um i published a blog post once where i took all the internet stocks and laid them beginning to end on their price to revenue multiple and it was like just a massive diversion there was no such thing um and so what really values companies you know it's typically a discounted cash flows and so now all of a sudden the buy side's asking sas companies about net dollar retention about long-term operating margin about whether their free cash flow is greater or less than their net income about sbc as a percentage of free cash flow stock based comp yeah and all so all of a sudden the uh you know everyone's brought out the microscope on how they're evaluating these companies and and these crude tools that maybe the only like there are entrepreneurs who who probably think the only way you measure yourself sorry sure you know the companies that you know in your example were all of a sudden run away with it and get all the money think about the problem they have their growth is going to right yeah nobody grows at 500 percent when you're at a billion dollars right you're lucky to grow at 25 30 right okay so when your growth is slowing uh and your valuation is outsized like you were gonna get to five billion dollars how do they attract more capital this is this is why this whole game is very complicated right now there was also something that that took hold over the course the last two years specifically with respect to software that this was an easy business you just send us your data i pop out a term sheet it's formulaic as though all software companies are created equal and you guys asked a question last week on the pod how many software companies are actually over a billion dollars in revenue how many are over two billion well we actually went and counted oh good right public software companies over 2 billion in revenue we got to 21. okay there are only 21 that are worth more than 25 billion dollars in all the public markets of all the millions of software companies that have been started but what happened last year was you could be making dog walking software okay and somebody looked at your multiple and slapped 100x on it and said you were worth that as though that was the equivalent of building a database that would disrupt the entire database market so the thing that is returning to markets is something that we all do for a living called dispersion some shit's going to be really great and the rest is going to be below the mean and if you look at software the history of software right is that there are very very few companies that ever get to a billion dollars in revenue and so if you were slapping a hundred xar revenue or multiple on a company doing 50 million in revenue it's highly likely that they will never see that price again whatever you paid for that asset because the dilution and the deceleration and their growth rate will absolutely eviscerate any return you have as an investor and so when you're looking at this back to your point you know not only are we looking at revenue multiples but we're also looking at something like snowflake and saying now they're doing 15 free cash flow and expanding those multiple all that stuff is critical girl girly do you think it's weird that vcs don't try to underwrite lower valuations like the incentive is always to up your valuation even if the company's performing plan you don't generally do these like market driven value it's like oh you're worth 500 million last round we'll give you a billion dollars this round and are we going to see more vcs do down rounds i just think that the companies that they're in there's no there's no vc club where they get together and discuss how they're all going to behave yeah but um you're looking at it the price fixing but keep in mind as as that as that risk on goes slowly up and up and up and you know and and especially in silicon valley we've had a systematic shift of power from the investor to the founder over a very long period of time people are friendly because they want deal flow so nobody nobody does it nobody let's talk about that so interesting you've seen deals happen where you know one term sheet seems great for all shareholders and then this term sheet includes some secondary for the founders and no governance seems pretty great for the founders and somehow this one magically wins and then somebody wins the deal by not taking a board seat you know in the three decades you've been doing this now i think it's three or four going into he's in the fourth decade you know when you when you look at governance um what what is the mistake we've made over this last bull run well once again what should it be i think well i think it i mean that's the right partnership i think what it should be is that the market gets to decide so if you know if someone wants if someone can raise you know 100 million with no board seat no rights and they want that i think they should be able to do that like right but what's in the best interest of i mean our industry of all shareholders the employees the the i'm not dodging the question it's just super complicated we we put money behind rich barton and so both of us did um and he had super voting and but he also i think is very um honorable about his duty to shareholders and so there was a track record there yeah and and it wasn't it never it never was an issue in the entire uh history of the company and so you know but you know if there's a first-time founder that's doing that like you know it who knows who knows what the motivation is and um but but once again it's a market it's a free market and i think that there are certain people or founders that decide hey you bring something to the table that i want and i understand there's a government's requirement to it and we'll opt into that and you know willing buyer meets willing seller gurley what are you guys brett um what is your attitude when you guys actually have a win you do the job company goes public and you have the chance to distribute to your lps there's been a movement in silicon valley where some firms have said you know what guys i'm going to hold this forever i'm gonna create permanent capital structures evergreen funds you know if you know you foundation want a distribution for me just tell me and i'll give you money magically somehow et cetera what do you guys think about that versus just distributing and walking away booking the win and if you want to hold the stock you just hold it in your own private well let me just start by saying that investing is really hard and there's there's a lot of ways you can lose you know and when you guys started the podcast this i was listening to one of the episodes today and it really hit me um in the in the song that you put together david says let your renters ride and i remember that i remember that so from the the brief history of the podcast you've gone from talking about that as a strategy to this question that you've posed to me on the opposite end [Applause] we have all these great minds here so i figured i'd give them a chance to talk like some of the people on the pod who like to hear themselves talk a little bit too much i was resting his eyes he was resting his eyes all right now in fairness when we had that conversation as i recall the context was that way back when like for example when i got uh when i had facebook and facebook went public the urge was just to sell it all and so i think where we landed on that was don't sell 100 keep twenty percent keep fifty percent but that was you personally schmuck insurance basically yeah but that was for you personally as an investment what about you as a fund manager yeah i think for me as a fund manager so i think we i think we did a pretty good job over the last six months distributing out um some gains some realizations we actually paid back our whole first fund but in our second fund we had about a 120 million of a firm stock and we were sitting on it because we believe in the company and still do and we're still sitting on it and that was that was like a 100 million dollar mistake so right so i think you know what's not forgiving from now on honestly my energy from now on is probably going to be distributed so my first chance to actually return any real money to our lps was when slack did our direct listing and it was like you know there are three or four of us on the board me andrew brochett excel john o'farrell from andreessen two independents in stuart and they had gone through a couple direct listings before bring in our bankers and they go through this whole rigmarole and i remember being so amped up in the whole thing and i thought oh i believe in this company i believe in all of this blah blah blah long story short the point is i held the stock i didn't distribute it the pandemic hit i then distributed in sheer panic and uh we left a lot of money on the table that i could have just booked the win for the lps and then from that point i said never again i'll hold it for myself but the minute that i get a distribution if i'm in the business of managing money for other people it's out the door when it's liquid and i'm not going to take i'll t i'll be happy to take a point of view from my own shares but god i felt so horrible i felt so stupid i took a 50 loss trying to be a hero i mean and then also we we have the issue of selling in secondary when those opportunities arise and we all just watched the we crashed documentary which one of your partners um plays a role in i don't know obviously it's probably five percent reality but benchmark did make a pretty amazing um trade in selling wework shares early and booking an enormous win correct bill correct okay so so just an alternative wait let me just wait what's the answer to the question or not yes yes he's going to give you it's going to actually be a secondary option so so the to me the most important thing is tell your partners what you're going to do yeah and then do it because you're making a deal up front so for us the deal was if we invest in something in our venture fund and it's real and it's realized it goes public if we see venture-like returns which we define and they with them as two to three x over a three year time horizon we will hold if we don't we distributed last year we distributed over six billion dollars which was more than all the venture we raised in our first five funds why not because i didn't like unity or i didn't like snowflake everybody knows how we feel about these businesses but because we realized that according to the deal we had made with our partners the framework was triggered and the second thing i would argue is because people are talking about permanent funds now and all this that i'm not sure that's the deal people made yeah for me if you're an investor or a limited partner in our fund and you want to hold on to it then also invest in my hedge fund because there we haven't sold a share a snowflake but that is a different liquidity profile but what i was getting to bill and just let's put work on the side um just in general when the opportunities for a firm to do a secondary arises what's the right that's rare i mean that's rare for i mean for an angel i think it's very different but it's rare for a venture firm to meet a secondary that has the the um fire power to absorb the type that was masa i mean that was very you need a unique situation we typically distribute over three to six quarters following the lock-up release unless there's something just systematically yeah yeah dollar cost averaging yeah there were been a few exceptions we took open table republican 09 at a very low value knowingly at a low valuation and i held that until we sold it to booking but because i felt the network effect was there and it was going to keep compounding and that kind of thing and look if you i mean look clearly you know what bezos has done or zuckerberg like if you think you're sitting on one of those and you i mean you have to ask well those are two yeah well i know i know but if you think you are like you know maybe maybe the collison brothers are another one um if it's going to play out the way those did you're going to want to hold it but they're very rare have you and your partners watched uh both we crashed and the drop-off i can't speak for all i've watched both of them you watch both of them um i think that well i don't know about accurate because i i only i don't know we um super pump was not accurate just because they made up a lot of scenes like drummond wasn't very active at all but he's in a lot of the scenes so a lot of them were made up um i think lido did a better job of showing you who adam newman is um and really got into the character he was incredible as well he's so good as an actor yeah and accurate yeah to your mean having met yeah and equally on the other side i think that travis and you know him well is is way more nuanced he is he's one of the grittiest hardest working investors i mean founders i've ever worked with he's super intelligent he can be really charming and those dimensions weren't explored in the characters right which i think is unfortunate i remember you telling me this was i don't know in the height of wework you said chamath this is the single greatest salesman i've ever met him yeah you told me you said you told me also about adam newman you said the first time adam newman came in you and your partners he left the room and you guys looked at each other and you guys were like we just have to invest in this guy because he can just i said we should never invest in real estate we have to do this deal yeah what what let's uh let's ask brad a question oh wow wow i watched it jade and i were watching we crashed i watched the first two episodes and the only thing i could think of bill was what's adam newman's next company and where do i send the check because i think he already well i don't know he's got something brewing i have a question for brad so so let's go back you know i've been up here for like eight hours today jacob i don't know how much more you want me to do i'm exhausted an hour of these things i honestly don't know how you do it [Applause] he's been interviewing people for like 10 hours i'm like done after an hour and a half anyway brad so let's go back to the hundred times arr multiple that people are paying last year because these investors you know with the benefit of 2020 hindsight they may look kind of sheepish but we know these investors and the pace car setting the valuations for the whole industry you know as these big giant hedge funds we all know i'm talking about they're super sophisticated people i mean you know they're been very successful investors for a long period of time you know what's the ex the word used when we talked about it privately was was gaslight we gaslighted that you know the market was sort of gaslighting all of us into thinking that the public comps for these companies was were much higher than they were is that why is that behind the psychology of why these very sophisticated investors made these big mistakes or how do you explain that yeah well i i think there's a massive amount of research that's been done that buffett and marx and many others have quoted that your ability to calculate risk goes down when you see a bunch of other people doing that thing right right because your body your mind's telling you well i won't die because i'm just doing what those other 100 people are that's why there's herd mentality that's why the lemming effect confirmation bias confirmation and so it's not that i mean you know you didn't name them but tiger right we know them they're great investors etc but you had to understand they were playing a different game right and so when people who were building portfolios of 20 names were trying to play the same game as a firm building a portfolio of 400 names right it was like trying to follow you know softbank in 2017. so i'm not i mean listen we all thought masa softbank was going to be a wipeout envision one it wasn't right now i know he just had a huge recent mark we'll see where it ultimately settles out so i mean i think from my perspective you know like bill said you get forced onto the field there's a certain amount you have to do to stay in the game to have the conversation but listen as far back as you know last april we were sitting around the table on thursday thursday at your place saying this can't continue right and then in the fall it was bezos is selling musk is selling like all the signals were going off right and so i think you have to know the game that you're playing if you're a seed investor an early stage investor it doesn't matter what everybody else is doing you you have an obligation to play a differentiated game and what i would say today is if somebody calls me up tomorrow and says hey tiger's doing this deal at 75 times arr do you want to do it they would have to pry the dollar out of my hand with a crowbar i'm not risking my money or my partner's money doing something that we're not underwriting you know to no i'm willing to underwrite david to that five year average i think what you have in the market now is a huge opportunity because people are in a fetal position under their desk scared that the world is forever changed because the ceos of big banks go on cnbc and start hyperventilating about deglobalization and hyperinflation and all this stuff and not one of them has actually built a model and you know deconstructed the components of cpi i think the much more likely explanation is that the trends that existed for 20 years still exist they were interrupted temporarily by us saving ourselves from a catastrophe with covid the transient thing that everybody has come to make fun of right transient can be a year two years three years we will look back at this graph and that inflation will roll over and i suspect that those trends will continue so i'm willing to underwrite to that but if you told me you thought inflation was going to be five percent for the next decade and the ten year was going to seven percent i would say sure every tech company every company in the market no no short everything short everything in the market and don't invest a dollar in venture until you have line of sight and the market has repriced it that's what the market is wrestling with right now we have some people who are saying you know it's markets abhor uncertainty and you have peak uncertainty we have a war we have this is the hardest forecasting job of my career i'll shut up you have filibustering but you know like that is you know i think that is that ultimately the question if you're a founder your investor what are you willing to underwrite too yeah and bill uh what what are your thoughts in terms of early stage and yeah that's exactly exactly what i was thinking like he said he said don't take it like if if we we we love to invest in two people in a powerpoint like if if that investment can happen today and all the it doesn't matter it doesn't matter if the for sure inflation pops or interest rates go up it won't affect does it even matter it might work it might help actually yes because you're hiring people at town half price right and there's less competition i mean my biggest problem of the past six years was hyper competition finding a cfo no just not just challenging i'm talking about billions of dollars of money raising the private market and shot onto the playing field out of a cannon that's brutal and that's that's not happening if inflation's going up it doesn't it doesn't allow the market to really sort out the winners and losers properly because the the companies that should contract get propped up for a little bit longer there's some talented people in those companies that don't then end up in the right home you know i said this last week the most transformational moment in our company's history at facebook's history was during the gfc because of the fact that there weren't any other alternatives to go to work but by the way i found and i shared this with my partners the other day i found through my career which wasn't four decades but okay um overthrow the window after the correction is the calmest where there's least anxiety for me at least like everything slows down people talk rationally people aren't doing silly it's like a walk on the beach there's a lot more there's a lot more communication that seems rational and pragmatic well and you can also maybe get to know a founder understand the business over three four five weeks and make a decision as opposed to three four five hours and they tell you hey term sheets when people think more unit like think about unit economics in a more reasonable way and you're not you know this is this is why i mean the two of you invested in uber i know because we've had this conversation in buildings well he mentions it pretty you're you're too humble to take credit i did get it for 25 million but you know bills talked about you know the benchmarks legendary for investing in ebay and it was winner take all oh winner take all yeah and i suspect that when you invested in uber you saw similar network effects you said oh my god an even bigger map this is going to be this is going to be winner take all unfortunately what you didn't plan on was masa raiding saudi arabia getting a hundred billion dollars of free money and then blowing it out of a cannon into the market so lyft and everybody else could do dis-economic things and literally i did not foresee that for seven years the confetti count so the entire profit margin of uber was competed away by stupidity and you tweeted last week and i noticed it because jason and i may have a little something on the line here you know with respect to uber for the first time you tweeted after their quarterly earnings maybe we're starting to see network effects show up at uber because if you listen to the lift call it was a train wreck a decade what what that money did was it made those businesses what we call the consumer surplus meaning what is a consumer surplus business it's when all you win nobody else wins the employees don't win the shareholders don't win the investors don't win consumers win you're getting subsidized rides you're getting subsidized food delivery you're getting some subsidized form of content and there are these consumer surplus businesses that abound right now that still exist which are propped up by dollars that aren't being that they're not being allocated because they're competitive that's just because they had negative negative unit economics to drive growth i mean lyft said on their call that they were going to continue subsidizing in fact they were going to increase their coupons while the plane is about to hit the mountain sorry bill i just want to ask you the negative unit economics and drive growth trend was a big one for the last eight years and it certainly seemed to have played out at uber but a lot of other delivery companies do you think that as a strategy assuming capital availability negative unit economics to drive growth and then once you have the network and once you grab the market you make money is a reasonable strategy it all depends on whether you can rein it back in or not and um you know i think doordash did an incredible job i think jeff bezos did an incredible job back in 01. um i think if if if 50 entrepreneurs try that trick 49 are going to algorithm by the way that's by the way that's the best that's i think that's such a key takeaway well there's another there's another part about it you can only pull it off as well as if in that moment you have an effective monopoly which bezos effectively did and tony did in those markets where he was operating nobody else was competing in palo alto california and you know well they weren't competing the way he was they weren't yeah for sure i have a question for the two of you guys what do you guys think about something like instacart in a moment like this so 40 odd billion dollar valuation maybe gets reset to 24. who knows they failed to go public confidentially are you guys investors i'm not i'm not no so candidly what do you what's going on here i mean i think it's a i think it's a provocative question because you have a you have a business that's raised a ton of capital that was born of the air that we're talking about that probably did things that were unnatural it were if they weren't negative unit economics they were close and they talked about it because they would say publicly we're going to roll in advertising and then that's going to bring us i got i got in trouble once i was um this is on bloomberg so i think you can find this clip but i was i was talking emily chang and she said something to the effect of um what did you just see this latest sequoia around and i said i made this joke it was a complete joke it's not true i was like yeah i went to instacart i bought one mango had it delivered for free then i bought a second mango i sent an email to doug leone thanks for the second mango what a douche i bought four grapes and i said it's hard to it's hard to judge your company from the outside because you can't look at the financials but from the product experience has evolved over a very long period of time it's actually pretty good and i suspect there's an asset value there and whether that can match up with what someone can afford to pay it all right we got it but i think we got we got a wrap okay uh bill just the final question here uh wait wait wait why do you get that question all right brad uh where's the market going to be uh at this time next year we will be higher for growth stocks this time next year but we may very well get there by way of lower and potentially meaningfully lower because the counter factual to the hyperinflation argument is not you can't deliver the counter factual for at least four to five months the facts don't exist until we actually see the facts play out but my suspicion is we return to trend things become more predictable and investable again and we bounce back up to the five-year average all right back now for you bill final question i don't get that one no too easy you can answer it if you like but i got a more 6.385 percent higher okay uh i know you're not gonna answer it so i got a better one for you you uh you're not in the next benchmark fund essentially that means retirement of the spurs now the market's down you seem like you're a little bit bored are you gonna get back into early stage investing yes or no and are you missing it um i think i don't know what that was um i i think i could i might get intrigued with doing angel stuff the way bezos did i don't think i want to practice the art taking board seats i'm still on ten that i'm serving dutifully and and i've played that game you know maybe similar to what david said about operating a business meet a great founder they got a good idea you vibe you put in a 500k chat yeah i'd be open to that do you want to you want to tell them i'm very excited about public stocks here actually really yeah continue excited about what public stock like the valuations are crazy super interesting such great deals super interesting yeah you want to do your bill gurley uh imitation oh yeah you guys got to hear that that's the poker at the poker table j cow takeout that's a great question do i have to stay out here for this i've been investing for the better part of three or four decades group of the four and ten boards i doodily served on every time i shove it all in with kings sucks out on me with a 9 10 suited and that's just my luck right now so maybe i'll just look at the public market i'll just have be liquid i'll be liquid all right ladies and gentlemen bg squared gg squared baby we'll let your winners ride rain man david sacks and it said we open source it to the fans and they've just gone crazy with them [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension but they just need to release [Music] your feet we need to get murky [Music]








we're really excited to have claire with us come on out claire are you here right what are we welcome what will we be talking about today we're going to be talking about china you know just as everything has been all spicy yeah well just again we're trying to make today about just easy breezy topics that you know the most easiest things to manage so we armaments ukraine let's go to china sure please welcome claire [Music] we are going to actually keep this pretty apolitical today and maybe talk a bit about the parts about china that are less discussed in the highla in the headlines and you know jason reached out and he said he wanted to really understand what were some some problems and i wanted to see salt that we wanted to see salt so i'm a property developer i run greater china for heinz we're the largest private real estate firm in the world and we have an incredible greater china team i know i see these folks in the front they're like where is she i can't possibly spot her in there so so we have a team that is working across beijing shanghai shenzhen dongguan and hong kong and we get to work really across the real estate spectrum so we built the greenest skyscraper uh in in china we built some of the first international service departments uh in the country and are doing some really interesting innovative projects like in hong kong we bought a distressed hotel that we're turning into really a new kind of living collaborative living that's super technology enabled for a young population there where the average white collar young person it takes them 20 years of salary to be able to buy an apartment so we get to approach these problems that are not unique to our part of the world but often the solution is a combination of east meets west so back to kind of what's the the problem well you know we're sitting right now in miami a place that is super exciting thanks to a lot of the things that are happening right here that have been hyped by a pretty awesome mayor right what did he do we got on twitter and he talked to all of us about what this city had to offer it had key ingredients it had universities it had an upward trajectory it had young people looking to collaborate and at the end of the day that's where we want to be right we want to be sitting together in awesome spaces like this exchanging ideas with other interesting people that's how you do cool stuff and so as property developers we think you know how do you create spaces where people want to be their best right collaborate with others and build a better future so that's a lot of jargon but what does that actually mean back to the problem well first these ingredients are pretty clear i teach a class at stanford on this called who owns your city and the students usually pick it up in the first 10 minutes it's a place that has pretty good infrastructure can i get a job can i afford to live here and is there cool cultural stuff that keeps it from being too bland but then you know you'd say okay well cities can learn from each other right you can just take those ingredients and apply it and that's what suarez did a great job of here but we are living in a time where the east and west have never been more divided right and building a city building building is really hard it's it's like the most extreme version of hardware so as a property developer we spend our time really thinking about what are the big macro trends what are startups focused on where do they want to be because our spaces need to be relevant for 50 70 100 years and we can't pick up our building and move it somewhere else and so you try to take the arbitrage of what's working in one part of the world and try to apply that to another and solve problems and that's where you find great returns but it's also where you build places that are going to be relevant for folks and so you know just a couple examples up here behind me so you know we talked about the living challenges uh so for folks to be able to be able to afford a place to buy but the concept of rental apartments so like multi-family if anyone lives in a multi-family building with one landlord that isn't totally a thing in greater china often people are left to rent from an individual landlord pay a deposit that's enormous uh cross prohibit you know cost prohibitive and get you know quality of of product that that really is not up to what they would expect and so taking a very in some ways kind of western concept and applying it in a place that technologically is probably about 10 to 15 years ahead in terms of what that average user is used to okay they're used to unlocking a door with their phone their wechat is their id it's the way they meet new people they can physically shake hands on wechat to introduce themselves to a friend it's where they keep their coupons it's how they pay their rent it's how they pay their taxes in some regards right we don't have that in america but if you're like me and you live in greater china you do and so how do you combine those things together to create something that doesn't exist you see up behind me a logistics building but it's actually six stories high something we're developing it is a giant almost like a refrigerator uh but a high-rise super tech enabled and that's because you know they've got a lot of people that building will be sitting within a 45 minute driving radius to 45 million people and yet china only has a quarter of the cold storage capacity per capita that the us does okay it doesn't take a genius to see that this trajectory is you know lower left to upper right and so again you're taking this concept of east meets meets west building up here uh just behind me is is in shanghai it's about a million foot tower you have a lot of those here in the united states big fancy office buildings you know where people used to go to sit at their computers and do work um but this one is very different from one that you may have walked into earlier this week this entire building is on wechat you can interact with the building on wechat you can interact with the landlord you can interact with your other tenants you can have chance encounters or organize a yoga trip in the afternoon with the people with the space using this digital interface so in a way it's really combining the way we live right now we live in a physical world but so much of our idea sharing our collaboration is happening in the air right in a digital experience that we can't see and so it's another combination of this east meets west and so what becomes a problem and an opportunity the problem uh when you sit in the middle of this world like my team has the honor to do uh is you see that there are all of these opportunities for us to be able to share this really the best of what the west has to offer with the innovation that's happening on the ground in china but it is so hard to talk about in this very divided world and so we like to take the positive side and say you know we're living in this world of like magic and larry and how can we make each other better so i thought i'd use just a few minutes and then we'll hang out with the besties um to to maybe share a story that maybe y'all haven't read so much about so that you get the benefit of knowing a little bit about what's happening over there and you can see an example of where sort of east meets west and that collaboration can make us all better so up here as a gentleman you all will probably recognize stung xiaoping famous for really the opening up of china and you know he was an experimenter you know he had this vision of what china could be and he saw what the importance of the physical world the physical infrastructure what a role that could play uh in in to enable the economy to jump further and so the picture to the other side is shenzhen which in 1980 was barely a fishing village it had about 58 000 people very few paved roads and deng xiaoping he was from sichuan so we really understood what it was like to not be from the big city and so he declared it a special economic zone special economic zone so jinji and that meant that it would be this place to experiment with uh bits of capitalism with free trade etc so what is it today well first there's that same road along progression just a few years after it was declared a zone and then up here behind me is what it looks like now shenzhen is over 12 million people the average age is 29. it's really the tech hub of china so companies like dji which makes 70 of the world's drones uh they call this area home and uh and just within this area if you were to go shortly from where this picture is taken you'll have two of the world's five biggest ports by tonnage okay so how do you take that head start and turn it into something further well they took a lesson out of the book of the west and they created something called the greater bay area that's like the yeah yeah okay you guys get it and so what is the greater bay area well it is a collection of nine cities on the mainland side uh some of which may be familiar to you guys so shenzhen as mentioned and guangzhou guangzhou is about 18 million people places like juhai do you all remember you know several years ago there was this thing about china building the longest bridge in the world everyone's like where is that okay it was in july and then so nine cities on the china side and then hong kong and macau and together this this area it's about the size of called west virginia today has a gdp that's sitting right around canada and south korea okay about 1.7 trillion in 2017 they declared this great greater bay area name and and it was there to really back up a lot of the investment frankly that it already started to join these cities together to create a super region so within that super region they spent about 300 billion to build infrastructure to further connect it so within just four years they built 2 000 miles of speed rail like high-speed trains here we have like a little you know one from here that goes to fort lauderdale you know texas is going to get one in the year 2090. uh and so so what does that mean that means that i can walk out of my office with my teammates in hong kong which is right next to that big ferris wheel thing that everybody recognizes i can take one stop onto metro in 13 minutes on a speed train i could be in shenzhen or i could keep on going and i could access about 23 000 miles of high-speed trains and get to beijing get to you know further than guangzhou get to western china it is amazing and it is happening so quickly and that number will soon be 40 000 as they continue to build but it's not just speed trains these are interconnected nodes with further metro right with transit-oriented development on top of the meetings of these trains so back to the so what so we know that if you take cool people and put them in cool places and you give them an opportunity to interact well what can you do so this area again the size of west virginia now with 70 million people who are all quite young and again back to the ingredients we talked about what sort of fosters innovation well they've incentivized universities to put additional campuses here and these are the best universities in china so chinwa fudan etc they funded further life science they funded further tax increment zones to encourage businesses to come and set up nodes of activity focused on areas of excellence so remember we talked earlier about in 1980 there were 58 000 people in all of shenzhen so just between 2010 and 2020 in one small neighborhood on the western side of shenzhen they filed 58 000 patents it's pretty amazing and that shouldn't be scary that should be exciting guys this is where we get innovation this is how we get better back to the magic and larry right thank you yes you can clap for that you're glad for that [Applause] so what does that mean for us what does that mean for folks who are sort of getting to work in this interstitial space in between getting to live within it uh you know up here you know behind me i have i i'll clear the visual for you it's further disconnecting showing these metro lanes these trams buses etc leading to these speed trains back down here that's hong kong island and then this takes you through a bit of the bay area before you get out to the rest of of china well why does it matter it's because these things layer together okay so china's e-commerce percentage is about 25 of their overall retail here it's about 14 again y'all are smart we can see where this is going so you can take some notes on the preview and see what things and trends may be coming here in china about 85-ish their transactions are mobile here that's barely 30 percent where is that going how does that work and you can see what's happening another is you can look at trends that are just part of the world there that haven't made it here and you sit there and you're like wow what a chance to iterate so the example there again we'll stick with with shopping and retail is social shopping so this idea of streaming while shopping that's layered with a full experience and imagine what it can do again if you layer that on top of this wechat platform we're just talking about a place where i can go and i could make a new friend right now you by looking at you showing my phone to you putting them together so we can introduce a product introduce a lecture a concept together imagine what we can do elon likes wechat he was just talking about it yesterday so the point is uh that we all have this opportunity um to really you know again the headlines can be exciting they can be crispy but to look beneath them and to take an opportunity to further connect with the people because again those folks who are hopping on these trains for you know probably the equivalent of about 45 cents right to get on the public transit here going around and exchanging ideas these people most of them are not politicians right most of them are not big world global leaders they're folks who are trying to to create something for themselves to create something for their children to build a better world right so we're really all on the same team so with that bring the besties out i guess try not to get too spicy all right center stage for you right here right there in the middle seat oh baby well done well done um be nice guys be nice of course well uh saks is in here so of course we'll be nice um that's kind of by default uh and meet uh our uh ryan peterson from flexport claire uh maybe you guys have ryan claire ryan i'm introducing [Laughter] what do we as americans not understand about our rival and what does our rival most not understand about us in your estimation having operated in both countries for so long um you know the term rival is an an interesting one obviously i love sports analogies and came from the track and field world myself claire was in the olympics guys claire was injured claire was like i used to go running sometimes kind of fast at the olympics but you know your job in the sport is to find the person who is better than you in some ways uh and maybe they're strong where you're weak you're weak where they're strong you find each other and you you shore up together and i think that is what becomes so clear when you you know live there when you live on the other side of the world um but maybe we're born here or uh you know i you know i'm a minority so i've maybe always lived in that interstitial space personally or even our team our team is very representative of modern china we have people from nearly every province they're really across the uh the education bracket highly trained engineers but who might be quite young uh to folks in their their 60s who have really seen china evolve and so i i do think the thing that can get uh missed is almost that concept like we talked about that as rivals you know they're not monoliths just as america is not a monolith right and we can take the best of each other so we're we're best of rivals in a way there we go is there a model for the century for cooperation between the two nations that's enhancing to both i think it's happening in enterprise i really think it is so when i look at again younger people um the products that they use or the things that the young tech uh you know entrepreneurs in china are working on versus here they're they're approaching a lot of the same problems right so on the social side uh uh you know looking at doing and what made it so catchy right what it is for us yeah it's tick-tock it's tick-tock and back to that one about you know cheat codes and a preview uh you know doing was popular years ago and uh and so you know i remember first looking at the at the app and being like wow this is very catchy and there's effectively no difference between do you read and write mandarin fluently as well as speak it or well you will never confuse me for uh but you know enough to get by and so when you do business in china do you conduct in english or do you conduct in mandarin yeah so with the team we work fully across what's appropriate because we also work in hong kong where it's cantonese right but all of my communications that go out to my full team everything in full team is in mandarin we do have a large part of our team that only functions within mandarin um so when you're for example like you know you showed some of these buildings and the idea that came to me is this is a massive coordination problem that's almost impossible in the united states which is if you have this idea of like this living breathing monolithic building that is connected via the internet it'd probably be 50 organizations in the united states that would have to have a say or want to say the perception that we get is there is a individual that can effectively make that right decision in china whether it's at the city level or at the state level is that how it's really like like when you guys have super ambitious ideas is there one place you go to and then it just kind of all gets decided or is it just like here where it's messy so it's kind of neither actually and and this is where i think it takes the the best of both which is at a local level so you have you know a local we have a party secretary you have a block leader and and ultimately it goes all the way up to you know the the big guy um but china does this amazing thing they have a five-year plan they call it the five-year plan last year was the 14th five-year plan and it sets kpis and areas of focus for the entire country and those are things around carbon neutrality education care for seniors agriculture industry and it's a lot like you know for you guys who are running companies setting goals and how are you going to get there what's the road map but that filters all the way down and so at a local level those kpis for the local leader are you know how did you make your district greener how did you increase revenue from higher quality services and technologically advanced companies like what happens if you don't achieve it you get fired you get kicked out of the party like what is the mechanism of reward yeah or you know well it's quite high accountability and so if you perform very well uh within that system as a leader then you can move to higher and more advanced posts to a bigger city right so yeah so from a block to a bigger city to a higher you know up to a uh higher career stalled out if you don't hit them but again it gets accelerated right and so that creates a very interesting set of opportunities and so to put it to maybe a tangible example uh is so for the things that you know are really great for communities like park space or building a building that's green uh the the last building that i showed up there is wright sits right on top of a metro and is next to a natural history museum and we needed to work with the local government to ensure that we were relating to the area properly creating like leaving it better than we found it you know we look at projects where you can't do the project unless you show that it's going to be green and additive or restore historic buildings in the area there's a real handshake there that i firmly believe creates better outcomes i know our team would say the same thing claire what what's going to happen with the capital markets for your business with evergrande and like some of these big kind of property developers that have had major debt problems and have you seen that already flowing over and you understand the market very well you probably are able to navigate this but the foreign capital and other investors like might group everybody into the same block and get scared off sure sure so certainly we get a lot of questions um but it's another one where the the headlines out versus you know inside the country certainly um the the built environment the construction and the real estate industries if you combine that all together you've got about 27 of the economy um if you include the full integrated stack one of the things in five-year plan is to diversify away from from that in a way but is you know evergrande and the other developers the real focus at the local and the higher level is to help the regular people get good on their deposits and ultimately get the homes that they were promised so it's very interesting for developers uh like us and acquisitions people as for some of those smaller developers who got into trouble has there been a bailout is it is that is that the wrong word the way that it's been characterized in the u.s media that the chinese government had to step in shore up the balance sheet make sure every grand wouldn't default on some of their i think there was a concern that there would be an entire meltdown of the full chinese economy which is not what we feel on the ground and i think if anything it's created a set of opportunities to really level set especially on the living sector it's really accelerated some policies to make it easier to to build and to create rental housing which creates more access which therefore maybe takes away some of the pressure on the condominium system um you know they're for for the debt markets to create a space that is uh maybe taking on projects that are appropriate for the system a little bit again more diversification and development in the right places in the right markets when we look at the relationship between the united states and china we've had three four five hundred million people come out of abject poverty on the planet because of this great engagement i don't know if that's a term but i'll call it the great engagement we started using their factories we started making iphones there this has created despite all of the handwringing about the relationship and all the various issues on both sides um a lot less suffering in the world absolutely and so there is something that i think we don't recognize sometimes is that people who are living for under a dollar a day three or four 500 million of them are now gone um and and that leaves some areas in africa and southeast asia that we still need to do that work um which paradoxically or ironically it seems like china is doing in africa what i'm curious about is what you're seeing on the ground with their middle class which to me seems analogous to what we went through in the 30s 40s and 50s this establishment of a middle class which then established you know education and prosperity for for the decades to come and specifically for the boomers and gen x um so so tell us about that middle class that's emerging we hear about it yeah how many of them are there and qualitatively what do they want from life yeah well jason in a word it's incredible right like again i talk about infrastructure so much because you you see it up there right china's only as urbanized as the us was in about 1950. so we read a lot about these today today so we read a lot about these bullet trains right and so that leads this incredible consolidation of people to cities and younger younger people to cities it's a demographic you know spark that maybe gets talked about a little bit less but also if you look at the change that that person you're talking about has seen in their lifetime so they went from a you know rural lifestyle frankly most of them um and something of a village setting that had not changed in decades to this future world that in many ways can only be imagined in in movies and so i think you know i sort of struggle to put it into terms because he asks you know what what do they want what are they looking towards and i'd say on a you know to use a personal example right i'm the luckiest girl in the world i get to live in this amazing place and work with this incredible team and you know yet you know my parents you know graduated in a fully segregated world the elder people when they were growing up were not just slaves they were the slaves that we talk about on juneteenth the ones in galveston who walked across the bridge and followed railroad tracks to houston texas right that's amazing that is amazing and so i think when a generation or collection of generations sees that amount of change what they want is first of all they're grateful but what do they want they want to be able to build and create and be people themselves yeah i have a question japan in the 80s had a moment where everything came together for that country great population growth great economic growth great systems like kaizen and all of this other stuff that they would export and the headlines in the 80s was japan was taking over the united states or japan was going to lap the united states but really one of the biggest things that it had working against it was a demographic wave right and you had massive negative birth rate that has really compounded japan's stagnation china is on the precipice of this because of this one china policy i think the the stat that i saw which is stunning is there's 1.2 billion people in china 1.4 by 2100 it's going to be around 600 million if that's true the point is just that there's just there's a real issue yeah um is there something in these five-year plans around how to become sort of more culturally integrated with the rest of the world you know meaning how do you use immigration as an example to subsidize some of the negative birth rate do you teach english more so that you're more integrated into the world economy all these things can you just talk about that so first i think the the urbanization trend of folks consolidating to the cities really can't be overstated just in the way that it shifts sort of how how the country will work and what's happening on the ground um you know it's still relatively early days but when we look at things like belt and road you know as i walk around beijing and i compare it to you know when when we first started there when we were working with capital partners there i see a lot more brown faces really going to the universities around beijing now these are still what belt and road is for folks who maybe haven't heard the term yeah yeah so many places you guys can read about it and before i forget talking about so sort of just i know everybody loves recommendations here so if you haven't read dalia's latest book on changing world order or there's actually a great you read it free burger she read it you know yeah greenberg talked about it every podcast for the last 20 so you've got to read it listen to your besties uh there's also a very good uh very good illustration of it as sunrises but you do do read that because you know china has been a major participant in the global south so you know the short version of felton road is uh working really across a set of countries around southeast southeast asia and africa bringing in uh infrastructure and kind of what it sounds like roads uh roads ports airports etc really building out this network for that part of part of the world but i think what gets sort of bumped over on that is uh again things like like this so folks coming to china to be educated the number of folks on the african continent now learning chinese and again i think this is something that is exciting at the end of the day the opportunity to to further exchange to lift more people out of poverty to create further infrastructure and claire i was hoping you would stay with us and be a bestie for ryan who's the next speaker would you be willing to help us interview ryan i would be honored you're going to switch seats no no there we are oh yes switch so give it up for claire now ryan congratulations um cnbc does their top innovator or private company awards um every year and you made it to the top 50 list today i didn't check which ranking you got but being on the list in and of itself is a big win what do they call it disrupters list uh disruptor 50 and my view of these list is you should never share any list about your company unless you're number one and we were number one this morning well done you truly helped us navigate i think um the the uh challenge of us as besties and the audience understanding supply chain we appreciate that you've been on the show twice i think or one just once just once apart and then here's your second time and uh apologies i was uh filming the interview for that during uh palmer's talk this morning you missed nothing yeah i don't know what i meant but when uh palmer and i woke up this morning we're writing our speeches together and deciding you know what we were gonna say oh do would you do you have some feelings seems to be a theme i mean this is turning into therapy yeah uh no i don't have any i don't know many enemies no enemies i got i just said nice things about people jkl i got covered i couldn't think of a single person who do i want to give this to i was like i like everybody i don't know so um tell us he was going to do a talk right are you doing a talk for a couple of minutes well he's going to talk from there yeah let's hear a little bit about what we're seeing um so first off what flexport is is we're a global logistics platform we help uh businesses of all sizes ship products all over the world from anywhere in the world to anywhere else in the world we do a lot of business in china um probably about half of all of our volumes come out of china i know a landlord if you're looking for one right if you need anything something we'll do some business after this um and so we see a lot we're sort of like a front row backstage pass to the world economy of what's really happening and unfolding um and it's been a crazy few years we to give you context so flexport started in um 2013 first revenue was in 2014 we did 2 million dollars in revenue that year we're on track this year to do 5 billion in revenue so from uh very exhausting yeah and um this time period is i assume it's always like this in this industry i have only been in the business for about eight or ten years here but uh just to take you through that timeline uh in 2015 there was a port strike on the west coast and you couldn't import anything into the united states for like three months um total pandemonium by the way that might happen again july first their contract that they negotiated back then is up for renewal on july 1st so we might talk about that uh 2016 there was so much excess capacity of ocean shipping oh so many extra ships were purchased that the price of ocean freight hit the lowest in all of human history it was like six hundred dollars to ship a container this past year was twenty thousand bucks in 2016. so we go through these boom and bust cycles it's an asset business that'll happen uh 2017 18 and 19 our president would launch a new tariff war every couple of months and you couldn't predict anything uh 2020 a pandemic hits you couldn't ship anything for a couple of months out of china where like they were really hard zero kovid shut down factory shut down all the purchase orders everyone thought the great depression was coming canceled all the purchase orders then it turned out the opposite happened it was this crazy boom and you couldn't import anything because the ports were over crowded it went from in 2019 it took about 50 days to ship a container from like when the goods are ready when the factory raises their hand and says hey come and pick up these goods to right now it's about 120 days so you're doubling more than doubling the transit time um and it is just incredibly hard to operate in this environment if you're trying to run a business and so we've we've had to learn how to navigate through chaos as flexport it's like we kind of welcome it at this point um we found that it's probably it might actually be good for our business we try not to talk about that because it's so bad for our customers and uh has been hard to fulfill the customer promises but if you put yourself in the shoes of those customers so like a direct to consumer e-commerce business and we ship for probably 80 or 90 percent of the hot new ddc brands a lot of ipos recently a lot of a lot of really cool hot new brands they're going through an almost a perfect storm right now uh in in like a really really bad way like the movie the perfect storm um because ocean freight rates are sky high i mentioned this 10 20 000 to ship a container rule of thumb long term is like two grand so really really elevated cost walmart announced really high costs this morning and it's no it's not just small companies but walmart announced their costs were through the roof from supply chain and their stock fell 10 today wiping off 40 billion dollars of market cap this morning um so so it hits companies of all sizes but these d2c brands got a double whammy because apple last what it was last year when they changed their privacy rules and their customer acquisition models on instagram facebook facebook all these things stopped working and so you at the same moment your cact stops working you can't acquire customers your supply chain costs through the roof uh and then add to that that consumers are now starting to come back to conferences like this going back to the restaurants and the clubs and doing the travel and during the pandemic everybody just bought stuff uh you got to get your dopamine from somewhere and everybody was just buying goods so that uh is like a triple whammy for these companies i'm incredibly worried about the whole ddc brand the whole ddc space the d2c space physical goods you saw it in like the i think it was thrashio that just announced they're laying off 25 percent of their russia was buying a collection of those amazon d2c brands putting them together and trying to have some economies of scale yeah but when your supply and demand both get 10xed in the wrong direction it's game over it's i don't know if it's game over but it definitely changes the rules of the game the reality is look people still going to buy stuff there are going to be successful there are going to be some winners they're going to be brands what price though at what price well so you're so you're saying that your thesis that you're making the statement that you're making today is hey we're seeing real significant risk to d2c companies because of this confluence of issues right now and this could be a big threat to a lot of businesses particularly in an environment where venture funding is i think again venture funding oh my gosh capital markets public and private investors like you all will look at this and go hey maybe i you know put more into saskatchewan he said it's just easier to not do anything it might be easier to not do anything so what does that mean how do you manage this and um fundamentally one of the problems that's that that comes about in all supply chains it's been written about um the famous phd paper from like the 60s or something called the bullwhip effect and a bull whip if you like crack a whip the end of that whip is moving incredibly fast um and it's it's a bit like that in supply chains because you have imperfect information and so the people doing demand planning are limiting one system they're selling goods they're looking at this data set the people producing stuff it's on a different system uh how long is it taking to produce things that's getting longer the transit time is getting longer this data is living across all these different domains and becoming very very hard for a brand to make a decision how many goods should we buy when should we buy them so how much do we want to have in stock how do we avoid being way over stock and then and what we're seeing right now is these warehouses are overflowing and uh people can't so what change is that like what breaks it open so you know like in china pinduodua didn't exist in 2015 now 800 million plus right users but it was technology that broke it open like what's the breakout moment to solve this exact problem you're talking yeah i mean actually china's got one of the companies to watch is um shane uh s-h-e-i-n it's this chinese uh kind of like the new zara that uh is taking over the world i think they're gonna do 20 billion dollars in revenue this year fast fashion fast fashion they're launching a thousand skus a day a thousand new skus a day all like ai generated and then if people order enough yeah they produce it and it's like uh really incredible you're saying a robot says make these skews this is where this shirt is from actually oh wait you're screaming i can't do that yeah see like i did that shirt and it was like it's gonna be a million i'm gonna be ordering i'm sorry sorry tell us sorry this shirt so it's literally a shirt from xi'an but but yes so if zara so if zara is seeing something on a runway determining that that trend will hit and then they can have it in stores i think within like eight or nine days something you know pretty wild uh she ends about as close to instantaneous as you can get so very fast moving skews at sort of hyper speed fashion so they can have things like pre-columns like from minority but they're predicting that this puffy shirt is going to be like women are going to want to go for pipes but it's a fly shirt i agree and and i think one of the one of the key things here is is that the transit time of how long does it take you from when the thing is made to when it gets to the customer because if it stretches out the way it has right now in ocean freight market where it's taking forever if that takes three months four months five months might not be flying six months all of a sudden you've placed these orders and then the demand went away because people started going to night clubs instead of buying their gardening equipment and so the tighter you can make that and it does speak to spending a little bit more on logistics where where you know traditional procurement person in logistics only thinks about like i'm just gonna buy the cheapest freight i can ever buy because they don't understand that your goods in transit are just money that's taking a different form for a period of time and money has a cost to it and if you're sitting there in six months that's already expensive because of you know you've got to pay interest on that there's opportunity cost what else could you do with the money but now that cost has gotten much worse because by the time the goods arrive maybe nobody wants them um you saw that with christmas where you know you import christmas that's the classic that you import christmas stuff and in january it's worthless what price do people just find alternate ways whether it's you establish domestic 3d printing or you buy a fleet of planes or like there's got to be a work because like i saw this image i think maybe you tweeted it of this entire massive traffic jam basically trying to get the ships even into china because the covet 19 lockdowns are so strict that that's also exacerbated all of this but and and last year walmart jimmy announced they're spending 10 billion verticalizing their supply chain and building out their own infrastructure for moving goods you're seeing a lot of companies do this uh much easier said than done yeah um you've seen at least a few of the big box retailers walmart i want to say home depot costco number these guys have said hey we're gonna charge target was the other one maybe target um amazon of course yeah go charter their own ships go solve the problem their own way um it's really hard to do run these things at scale and operate it looks good at the powerpoint slide uh hit you know when when you have to get down to it it's really hard so is there a big capex play here ryan for the next decade i think um like a big capital equipment hard asset play so the world's ocean carriers that's what we call the people that are on the ships have actually ordered 25 more ships increase the fleet by 25 over the next three years wow so it could be ugly the other way real quick you have too many ships and nobody you know the same is happening in mining i mean like it's a similar sort of but anyway ryan ryan said it best the problem is you can't forecast demand accurately for these long lead time categories that are highly capex intensive so whether it's mining or whether it's shipping how do you make a 500 million dollar capex decision for a business demand cycle that's five years into this but they're all taken they're all taking profit hits and saying we have to make this investment because we need the security we need the redundancy i mean walmart did it right they were optimized to to a team also and then all of a sudden it's like hey that optimized system doesn't work look the way that mining for example deals with this which is really interesting is they get these companies to sign up what's called take or pay agreements right and so they can actually smooth out the demand curve five or six simple consumers take or pay means i'll do a deal that says okay i'm gonna rip the lithium out of the ground you take it or you pay for it i don't care what you do right but i'm gonna get the revenue assurance i need to go to wall street to get the money we've started to see those signs for the first time so we've signed three-year contracts flexport was the first ever to sign a multi-year contract where we commit we will pay for this rate whether or not uh whether or not we ship anything we're gonna we're gonna pay up front yeah okay take her pay um and and you asked a little bit uh air freight what's gonna happen there well remember uh 50 of all the world's air freight flies in the belly of passenger planes there's way less people traveling to and from asia than there were is that right yeah fifty percent of their freight which is a little scary when you think about like what's under the belly of that yeah is that getting scanned uh it is it is there's there's good controls on that but uh but you never know it's always yeah it's just a little nerve-wracking um so and he seemed to be not so sure uh you know you work in any industry long enough you start to question uh whether everything's perfect um so we've actually uh got 10 passenger planes that we've leased and we'll keep doing more that are not flying any passengers we're just filling them with freight we started doing this in the pandemic there's seats in them flying masks with other seats at the top there's still seats and some of them some we've ripped out the seats like castaway you got the big plane yeah if you want to go to asia i've got a 787 just nobody on there could be a private flight just you but exactly this is why you've seen the rise of logistics real estate as a deeply institutional asset class because that math that you talk about the algorithms of determining what is ordered how long will it sit and how fast do people want it that takes infrastructure on land to be able to get it to people and coming back to the question about assets is there a play here probably yes because most of wall street has been trained they've gone to all the same business schools and everybody's been trained that like assets are terrible get them off your books don't carry them don't this is what happened with oil and gas you know going into last year and then everything and everyone missed it you want to be asset light it's still the trend and almost everywhere until somebody like tsmc comes along and says you know what you don't want assets intel like fine we'll build the fabs another 400 billion dollar company because they're willing to have assets on the books but it's a different investor and now they have the power in the equation and they can they can get a better uh share of value and i believe i've been answering this question that's the real estate business the hardest question for me to answer and i i know that there's some entrepreneurs out there who have the same question anytime someone asked me is flexport a software company or a logistics company are you going to own assets or not own assets yes and you know i think the correct answer is to ask the investor which one they'll give you a higher multiple for and then just say that um try to figure out who you're talking to but it is on some level you know maybe another answer is like kind of buddhist dualism like you can't do logistics without the tech you can't do the dirt without the list i think you're bringing up something which is that today the problem with the capital markets is actually that it is very balkanized so meaning you know let's just say you take a company public like yours the problem that you'll have in the public markets is that there are folks that you'll go to in that room that understand sas software understand margin structure of a software business etc and then there's folks over here who run the industrials business and folks over here who run consumer the problem is those three folks don't talk they have three completely different conceptions of what a good business is and the problem for you will be and i'm not forecasting this for you to be correct is that you can get orphaned in any one of these groups and now all of a sudden the capital markets could be totally shut for you this is a very important point that you're bringing up the the thing that i think we need to change is like the capital people that control the money flows do need to have a little bit more of an open mind sure it's true that you'd love a 90 gross margin business but it is also true in the tsmc case you'd rather have a business doing 20 on 500 billion dollars well and if we look you know we also have some examples of amazon the market seems to have worked out this business that's very factory and asset heavy in delivering goods to us and you know the cloud business even even amazon like look amazon got escape velocity on less than you know a billion dollars of investor capital the problem is you know if ryan for example decides hey i'm going to go and actually vertically integrate and buy an entire fleet of ships that's probably a 10 to 20 billion dollar capex cycle over 10 years and you think about replacement costs it may make a ton of sense actually right i wonder when amazon is cap expenses for those servers started to hit he's thinking about it but giving the capital markets little boy in me definitely you know there's two plays you know fundamentally your bull whip effect means the data can't flow and people can't make decisions optimally because the data's trapped in multiple places you don't know how to run an efficient supply chain because you don't know how many trucks do i need when the ship arrives like actually even not even like long-term demand for forecasting how many ships but like literally that ship is going to arrive how many trucks should i dispatch when should i dispatch them like there's two ways to solve this problem one is to own the asset and the other is to create a data network effect such that the asset owner benefits enough from putting it on your platform your machine learning your op your algorithms are helping them make more money from their asset they want to tell you or you can invest further down into the change i mean one of them's a lot hopefully simpler and don't need to manage as many people and life is easier if you can solve the data machine learning problem sorry we looked at alibaba and alibaba investing down into china like there is a middle road of being able to tie now so logistics warehouse i mean wait for them to push goods as stupid as it sounds you having purchased a shipping company and putting it over here to your point claire and saying here's the little thing we bought it's a bunch of ships it's his own balance sheet and then here's the really great business but we have this little subsidiary over here is a potential middle ground it's what makes flexport fun business there's like a million strategies and ways to play out and i'm not a big believer in like predicting the future and you know you want to have a vision and know where you're going but i think be sort of flexible yeah in that what's in the name we talk about our culture what's the goal of what's the goal of a company's culture um and elon talked about the goal of a company the purpose is like hey we've got to create valuable products and services for fellow humans right but the goal of your culture is how do you maximize your velocity in that direction and velocity is a really important word because we forget a lot like normal people forget that velocity is different from speed if you remember your physics velocity has a direction you got to know where you're going and sometimes going really really fast is actually negative velocity because you're going the wrong way and so how do you stay agile the world's going to throw all kinds of chaos at you be nimble be able to change like we don't know exactly the strategy i don't have everything now as we wrap here um question for both you and claire um which is uh china has played before you do your rap question can i just can i ask him to can you tell us the audience about what you did during the uk crisis um oh this is beautiful it's just just like 30 seconds about you know i didn't go there like antonio crazy man but um what so we started this group in 2017 called flexport.org to do humanitarian relief shipping uh really at that time the crisis was syria and trying to help uh refugees it was really a simple idea it's like look we got all this stuff here we know they need stuff at the refugee camps what if we shipped it there uh seemed like a radical idea we maintain a database of partners so we have agents that we can operate on behalf of flexport in over 120 countries and at that time i simply emailed our syria partner who was literally based in aleppo where a lot of this destruction was happening and i emailed i said hey we'd like to ship a container to this refugee camp down there and he was like sure what's the address where do you want to ship it and i was like wait it's that easy like i thought this was like and i realized you could do that no we didn't ship in this year because we didn't know who was going to end up in so we shipped to refugee camps in turkey and jordan um so we've been doing this now for five years shipping to over 50 different countries any kind of anytime there's a hurricane uh earthquakes but uh we're a war um and so when we saw this happening in ukraine we immediately kicked into high gear the flexport.org team has about 12 full-time people and then we have a model where employees at flexport can surge onto that so we've had about 60 people working on this uh in this case you know usually we offer pro bono shipping because we the shipping is expensive we can't just eat the full cost we are profitable but not enough to really solve the world's problems all by ourselves so we created a gofundme campaign partnered with ashton kutcher and mila kunis ashton's an early investor in flexport and we raised 25 million bucks to pay for shipping uh to deliver goods yeah thank you well and the way you did it for ashton and all of our investors a lot of great people you emailed the besties and said hey um it's forty four hundred dollars a container was that the number forty two or forty four it depends on where it's coming from ukraine specifically i mean for example we shipped nine ambulances from uh gibraltar into ukraine i thought we wouldn't be able to ship into ukraine because it's a war zone uh it turns out most i don't know most but a huge percentage of european truck drivers are ukrainian and they were just like stoked to go and do this uh so i so we delivered nine ambulances that cost like around 10 grand yeah it's a bunch of delivery ambulances i replied back to him and i said no problem and he said hey mention on the podcast i said no problem i donated a 400 container and then sherman said oh i donated the plane that 12 containers went on he did so was the flex on a flex reflect for it it was like a multi-layer flex so and then um it just snowballed and this hasn't gotten much attention but yuri milner who's an early flexboard investor just donated a hundred million dollars wow wow two yes uh you're really putting pressure on their side of the street it is an amazing model where but by the way over 60 000 people donated a little bit and i'm almost just as proud of that it's like people are getting involved stepping up realizing hey you can do something.org flexport.org and support congress final question for youtube um we had this great moment where you know we engaged china we built a bunch of iphones amazon basics you know whatever it is naked shoes um and it and it raised you know the standard of living for a lot of people we understand china's doing this now and they're doing it in africa and some other places what are you seeing in terms of that relationship how china is looking because towards other countries to become uh producers of goods and and they're kind of now uh becoming incredibly influential what's their intent and how is that going claire maybe you can start that's a big question um but i think it's it this is a long term play we're all in this for a long term right play and whether you know you take maybe the spicier view around know resources and protectionism uh versus one that's more just around progress and as we may have an increasingly vulcanizing east and west um the ability to they're there to control the bigger piece of their own supply chain but the end result as you're sort of saying is you look at places like niger right the average mother there is having six children we have a very young global south and the important thing is that they're fed they're clothed and that they have an upward trajectory and so that's it people living in abject poverty will probably end in our lifetime uh you know the only places it won't end is in places with dictators what are you seeing in terms of the shipping containers because you must see shipping containers increasingly leaving certain ports where is china sort of exporting production to and what are the up-and-coming production areas you know there's some really interesting trends going around around labor costs uh in china the reason people went there over the last 40 years to be honest was like cheap labor uh and but over time they became quite sophisticated they really learned how to manufacture things especially electronics they're if you want to make electronics you pretty much have to make them in shenzhen the greater bay area as she called it um so and that's but stuff that's just for cheap labor because that's no longer about cheap labor this is a whole supply chain ecosystem of components and other things but if it's just cheap labor two years ago mexico became cheaper than china in labor costs wow which is a huge shift and now mexico doesn't have the manufacturing capacity they don't have the skill sets they don't but they'll build it you know and people will respond to that trend as long as it takes 120 days to ship stuff from china to the u.s and we can't get this sorted out brands are going to respond to shipping closer to home so you're that is a trend that you're going to see more and more of uh if the delays stay the way they are i think china's big challenge is if if they become labor costs too expensive how do they keep moving up the value chain and this is what they're made in a made in china 2025 thing is it's like we've got to they've got to make more and more sophisticated products because it can't just be about dirt cheap migrate to services yeah and that that's a huge challenge and very few if anyone's really done it no one's at that scale because they're the biggest country in the world but japan and korea have kind of done that but not ten times as well bigger moving to a services-based economy india with i.t companies in mind and then they'll become entitled and want to retire at 55. like europe and oh by the way speech my favorite answer is someone that um i think was zuck although toby from shopify told me he lifted this line his employees were asking him about the four day work week and he was like well you know if i do think we should do some experimentation around how many days a week we work so but we're gonna start with the six day work week like china does and then we'll try the four day work week later ladies and gentlemen please join me in thanking thank you i am claire well done we'll let your winners ride rain man david and they've just gone crazy with it [Music] it's like this like sexual tension that they just need to release your feet [Music] i'm going on [Music]








hey everybody welcome to another episode of the all in podcast it's been a crazy uh couple of weeks here we had the all in summit and boy was it amazing our bestie david freeburg couldn't make it today uh he had uh some personal things he had to attend to so joining us again is brad gerstner welcome back to the fifth bestie uh on his is this your fourth appearance now including the uh all in summit i think you've been on four times now very good all right that's about five percent of the episodes a nice nice uh i think that's a nice little chip in your uh in your your belt there i mean unworthy replacement to freedberg but i do what i nobody can replace freeburg that is the truth [Music] [Music] just uh going around the horn here chamoth did you have a a favorite moment on stage a favorite moment off stage what is your general impressions of the all-in summit 2022 i thought the people i met were really impressive i really enjoyed meeting people and learning what they did i also thought you and your team organized really an incredible event and i forgot how good you are at these things but um so i give you a lot of credit i really enjoyed participating the only thing that i was nervous about during that whole thing which probably limited a little bit of my fun was my mom was coming she's 81 and so it's not i was not super psyched to really be in the throes of all the parties to be honest just because i was like i didn't i didn't necessarily want to get coveted and i didn't want to introduce it to her and got it yes you know nat ended up getting really really sick but more uh like a flu and a cold yeah um but you know i've been fine my mom's fine i know a bunch of folks that came unfortunately tested positive so that was the only that's the only downside where i would i would have wanted to be a little bit more carefree but um that was the only thing that was but that's not in anybody's control so yeah i i recall that when i had a christmas party back in december like a week later he called my christmas party a super shredder even though i tested everybody at the door every single person was negative at this summit so so my parents went to this conference they both got coveted my aunt who lives in miami who was in her 70s she got coveted are they okay by the way are they good yeah they're most important it's you know it's omicron it was like you know it's like bad for two days and then you get better so they're gonna be fine thank god or no yeah one did and one didn't so um my brothers got covered in so your brother's got it which one josh josh and jamie both got it and then josh's wife got it so she um took the pax love and everybody's great now but yeah if you go to my a lot of people who came to the event it was their first time out like this was for a lot of people i think very emotional and exciting because it was their first venture out and if you go to miami to a conference like you're gonna get getting a covet especially if the event organizer doesn't test anybody it's impractical to test 850 people nobody would come like no if you want to make a profit right nah it wouldn't have actually been that expensive you could put that on the people they could just you know share their results but i think at this point you know even on the planes going out there nobody's wearing masks i don't know if you know well you guys are flying private but you know my flight out there it was all you know nobody's wearing masks anymore but anyway j cal i think everybody who went to the conference took the risk upon themselves of getting coveted and you know it's not the end of the world or anything they're all fine but i'm just pointing out the hypocrisy my hypocrisy yes exactly it's like you're like nancy pelosi or something where you're criticizing every time a republican gets covet it's their fault but when you throw a super spreader and i think ais now stands for all in super spreader yeah it's not your fault it was well beyond your control it was the virus absolutely and in fact it was probably just florida it was just yes but in mine i tested yeah it's not even proven that mine was a super spreader all right in all seriousness did you have a favorite moment on stage or some reflections on the event uh i thought the elon thing was really good by the way and then the only thing i'll say is the the palmer lucky thing was pretty incredible um yeah which will be we will be releasing the podcast i think that that episode is uh eye-opening yeah we don't want to say too much but i think that you were uh really i think you handled yourself really well there oh thank you for that jamath what actually happened i wasn't there for that portion i haven't heard anything about we give a mini summary here of it i guess i'll give you the outside inversion he gives what i can only describe as an incredibly motivating breakdown of american defense and what his company and you know you have to remember to put it in context this is a 29 year old young man who has now started two multi-billion dollar unicorns so you know this he's going to be around for a long time doing amazing things but he talks about anderl which is his defense company really impressive and then the whole you know everybody's kind of like rousing and cheering and applauding and then he said you know i have something else that i want to get off my chest and i was standing beside jason backstage jason was looking at the monitor i was looking at the mirror at myself but uh and check out your sweater uh and uh he said uh you know there's a person here that that has been you know really hard on me you know tried to ruin my life attacked my family and represents you know these really this strain of very influential people in silicon valley who have gotten it totally wrong basically and he called out cancer culture and then he called out jacob and to jake all's credit after he was done jacob was the first one that walked out on stage shook palmer's hand and then we all sat down we talked to him and then the two ended up hugging it out at the end but there were moments that were very heated in the middle of it um the whole thing was incredible to watch i got to be honest with you super dramatic yeah incredible i the most shocking and surprising aspect of the whole thing was that a person as important as palmer lucky felt the need to get revenge on a person as unimportant as jason calcanis that was the part i mentioned when he was like my career was when he said important people in silicon valley i initially thought oh my god he's talking about me what did i say i that was i was thrown by that tip if i'm being honest he's like my entire career was stopped in its tracks and i had to claw my way back because jason calacana said this and i was like um no actually no i'm looking forward to when you're it's going to be a great episode it's going to be coming out next week thank you yeah and i i want to give a shout out to um glenn greenwald matt tybee and antonio garcia martinez for appearing and you know we did two different panels we did one on domestic politics with glenn and taibi and then the we did a debate on ukraine which has now been published between glenn and antonio and particularly i want to thank antonio because it did end up being a little bit of a two one at the end which wasn't my intention but i have my own views on it too although i did try to be somewhat restrained and even-handed in the moderation but it's a really good debate we should have had longer we only had about 30 minutes but you can see that online right now it actually is a great uh example of actually how to listen to somebody else having a completely diametrically opposed view and still be respectful i thought those guys were great to listen to i think it's a new format sax and i think you know somebody was like hey maybe you and j cow could do it i think you and i moderating like two people with different sides it could be like a really interesting format for us for future events brad did you have a favorite moment on stage maybe outside of elon of course you can mention i would say you know maybe both on stage and off stage you know i think listen i think this podcast has taken some shots and probably appropriately so at times for being a bunch of men in a little bro culture and the effort made to build authentic community and diversity into that room i've been to a lot of conferences whether it's claire thielke you know patty wexler extraordinary you know minds women all diverse cultures economic backgrounds when we walked around the floor p you know indiana kentucky west virginia everywhere right and who were starting companies having authentic conversations and frankly we're grateful for the community and the advice that they were being given these were from big startups to very small startups and so for me that was a highlight the effort you made i don't know almost 40 women you know both economic i thought as well as you know geographic uh diversity and then you know listen i had a moment after bill and i after gurley and i got off stage um i was stopped by a group of founders and they said hey we need your help i said what and they said we are that company you and bill were just talking about and said was screwed we raised 100 million dollars last november from from tiger at 100 times arr what do we do right and like like the fact that that you know that those conversations are going on of course they're not screwed and it's a very interesting company but it led to a real conversation that you don't often have um at conferences like that and so i thought it was much more than just a bunch of talking heads on stage i thought it was a real give and take in the you know uh in the crowd afterwards the parties the in-betweens and so i really enjoyed that the other big um thing that we avoided um failing on was uh putting back the amas i think these amas are some of the most interesting parts of that conference and i think that we should make sure that we probably do an ama jason like both days we do a two-day conference the amas are awesome yeah when the audience is asking us and just to explain to people how we were able to um you know curate the audience we ask people i think it's a good playbook for other people if they want to steal it to uh they could they could pick the price they wanted to pay based on their station in life and so people said i want to come i'll pay 500 i'll pay a thousand i'll pay 2500 instead of the 7 500 ticket price which was like 300 people in the audience and we just said hey what do you love about the show you know what would coming to the conference mean to you and we kind of just sorted that and we look for people who are passionate about the show and then you know the the thing that stuck out to me and i know freeburg uh had a great time as well was the passion of the audience and how much they appreciate what we do here every week and so the love that we got people asking to take selfies people telling us what the show meant to us you know and people coming from all different uh stations in life really it made it not elitist but it felt like the people who were there were all builders and that was really an interesting part what i instructed the team to do was anybody who was like a real estate broker or a money manager a sales executive a business development person i said let's not have them there no offense to those you know critical functions but a lot of people will come to these events to sell and get customers but i said anybody who's a builder an artist they're making something in the world let's give them the priority for these the scholarship tickets so you know when you met people they were all building something interesting in the world and and no press i think also created a certain vibe there we didn't have the media there criticizing every panel and you know every speaker and so it i think it just yeah made it magical well i think it really couldn't do it without all you guys uh freeberg and the besties and brad you were helping behind the scenes so couldn't do without everybody and my team turned out surprisingly well i thought i thought the whole thing was a j-cal grift and it actually turned out there's been there was there's some grifting going on for sure we still haven't seen an accounting of of exactly where all the money went so it's it's close we'll have that accounting any day now saks any day now what could you have done better what would you change for the next time um you know i it's a great question you know we we always do a document with lessons learned right after the event so i went through my team and i had 26 people from my team uh 21 from launch and i think five from insight came and uh you know helped staff the event a little more time to to work on the speakers in the agenda um if we had a little more time i would have teased out of each bestie you know maybe five or ten speakers or topics they wanted and worked backwards so just a little more time to to to to experiment with the format but i i took an experimental approach to it we did have people who did solo dolo like ted style talks we then had people come on stage uh with the besties and do discussions but having all besties on stage all the time is a little hard for for everybody i know david likes to focus on maybe a couple of things other people like chamoth and i like to be on stage for everything i think um but the format was experimental and there was a couple of great moments i think when we overlapped folks so i think nate silver overlapped with keith roboy uh you and bill gurley together tim robert i'm sorry overlapped with keith roboy um those were magical moments i think and so i have something in my brain about weaving individual talks and data points with the besties and then having the next speaker on the stage the next speaker and i would have liked to have more time to refine that format i think okay my only question is was the palmer lucky deal was that a plant did you plan that no did you put that in there i'll tell you the back story is i you know i i've had invited him on this weekend starts before all in came out many times he said [ __ ] you basically in so many words i hate jake out and then when all in came out he's a fan of this show um i think he's particularly a fan of david sax's and i think david knows a lot of the investors the investor pools i think overlap in a lot of different circles of ours and um i said would you like to come to the summit and i and i basically said to him heartfelt like listen i think the work you're doing to protect the country most people in silicon valley don't believe in building weapon systems but i kind of am with you on this so we probably have some common ground here i think the mission of what you're doing is more important than our disagreement from you know the hillary clinton versus trump days maybe we could just you know put that aside and have you speak and surprisingly these people were like yes i didn't know they were doing yes because he had a plot to dunk on me but who cares you know like i don't mind being dunked on if i'm wrong about something or i'm right it's the whole spirit of this show is to you know to learn and grow and have great conversations so with that maybe we start the show now let's do it all right let's go let me am i am i still allowed to do intros or is it too triggering because i do have interest for this week do it say do it okay i got thumbs up only if they're nice well you know that's the caveat that i cannot guarantee but anyway here we go getting ready to gallivant across the italian countryside he spent 40k at all in summit on food and wine he took 400 selfies in three hours those sweaters my lord the wreak of power the dictator himself is back shamath polly hoppity welcome back to the show thank you jason all right his body looks like he doesn't eat cake he's got a major steak in snowflake you might have heard him earlier on the week with bill gurley he's the crossover fund manager with that bde our fifth bestie the audience hangs on every word he has to say the dark knight of namaste welcome back to the program brad gerstner i like it what's bde if you don't know then you don't know you can look that up urban dictionary he's about to turn 50 but he looks like he's 65. after 72 hours in miami we're not sure he's still alive the [ __ ] keeper is jealous of the facts under his eyes his portfolio has been down for 35 straight days no surprise the rayman himself is back david sacks too rough on saks no it's okay is it okay i felt like i might have gone too rough on sax all right i guess we start with markets and um s p 500 down 15 year-to-date down down 11 two stocks of note uh that did particularly well during covet uh zoom and snowflake reported their earnings this week and they beat expectations of course that uh gives them no reprieve uh market cap for uh zoom 31 billion they got almost six billion dollars in cash uh which was a prescient move to cash up i guess during the the boom times their stock jumped 18 after the earnings so great for them uh q1 revenue 2023 1 billion 12 year-over-year they got an 80 gross margin for that business pretty impressive 500 million adjusted free cash flow 7 000 employees they're at almost 500 000 per employee uh at this point and stock is still down 43 year to date but a little bump here so i i guess we might be bumping along the bottom soon and just to quickly recap snowflake and get your comments after that snowflake reported their quarterly earnings yesterday 41 billion market cap they got almost 4 billion in cash they were down slightly at the taping of this episode today and they're down 67 from the peak of 409 a share in november so they're not in the 85 plus club like coinbase and peloton but still they've lost two-thirds of their market cap 422 million in revenue 85 year-over-year beat their expectations uh and um gross margin 72 net retention 174 percent uh 70 on growth within within their existing customers to david sacks's point about why sas is so great they got 4 000 employees uh 6 300 total customers so uh i guess maybe starting with you brad since you're in this in the vic of it thoughts on uh i know your major snowflake early supporter thoughts on what's happening in the market and maybe any indication uh from these two let's face it strong results uh in the bouncing along the bottom i think is how we'd all describe what's happening right now well i think listen what makes investing hard is sometimes you have to hold simultaneous truths right and the reality is there's a lot of cognitive dissonance when you see something down 30 40 50 but it may be still fair value right we were talking about last october like make no mistake about it just take snowflake as an example the move from 400 to 200 was probably just what i would describe as normalization in a world where rates were going back to two and a half or three percent right the market last october had gone too high we discussed it on this pod we discussed it on cnbc and so i expected a return to what we call the five year average as we discussed at the summit what's been surprising to me is the negative reflexivity that's kicked in as a result of the war in ukraine uncertainty about hyperinflation uncertainty about hyper rates and so now we're seeing software generally all risk assets growth assets trading now 30 40 50 below the five-year average right so i don't think it's helpful to say well none of that should have happened no the reality is meant that all of this stuff was going to be down 20 to 50 percent because it was way overvalued last fall we gaslighted ourselves in many respects we didn't hedge it perfectly in many respects but that's you know that's what happens in late market cycles so the question is where are we today and for example like why is the nasdaq up 300 basis points today right this it feels like whiplash i come in one day and you know you have market caps up 10 percent one day down to 10 the next and so i think it's really important to help the people listening understand you know like what happened this week and what's going on it has been kind of a uh a a pretty mixed bag this week in fact of of things going down chamoth what are you gonna take on this of what we're seeing in the market this week specifically with precipitous drops and then you know the bouncing up again look we we still had some amount of rate uncertainty from the fed i think people weren't sure how aggressively they were going to hike but by early this week it was pretty clear there's going to be two 50-point hikes one in june and one in july and then effectively a pause because then the fed funds rate will be at around two percent and everything from there will probably be path and data dependent okay that's effectively what they said now i think the the markets had actually already started to see that writing on the wall so if you go back to you know one of our favorite measures which is the 10-year break even it's effectively rolled over which meant that you know which means that from the highs in sort of late april it started to come down which says that you know they were thinking that you know the inflation was not going to be as bad in the back half of the year and then the second is that corporate credit which is really what matters in some ways to the fed because that's where they can intervene what is the spread above treasuries that a company can issue debt when it goes crazy and it goes up it means oh no the cost of capital is going up that's going to be hard for companies to raise money they may have to lay people off they may need to get into cost cutting mode right that's what goes through everybody's mind but that's also now about 35 and 40 days rolled over which means that the gap has started to shrink you know between the us treasury price and what you know decent corporates can can issue debt at so it looks like we are set up for potentially a decent little rally here the problem is is it a rally that is sustainable or is it a rally that's basically what we call a dead cat bounce or a bear market rally where you know you just get some one or two weeks of relief before the thing spears down again and we're not going to know although tomorrow on friday there's going to be a really important set of inflation data that gets released and i think everybody's going to be sweating these details so right now we're in a moment of pause and there is the potential if this data comes back as reasonably good which means prices are you know not escalating as much as we thought um inflation is not going to be as bad growth is going to be moderate that that gives a lot of ammo for the fed to kind of take their foot off the um off the gas here and in that case markets will go boom sax um the interesting note i think is uh what we talked about here everything was correcting except housing and we were wondering when this uh you know the increasing rates would hit mortgage rates mortgage is way above five percent uh in the last two weeks i think it's come down a little bit but the mortgage rate basically doubled and then we finally saw it earlier in this week um uh what day was it it was two days ago so we're taping this on thursday so i think on tuesday new home sales 591 thousand they expected 749 and i think the last month before that was 763 is that uh indicative of the uh raising the rates and slowing down inflation has finally occurred and that maybe we the fed maybe uh steered too much into the turn how do you interpret that massive it was a pretty massive miss in terms of home sales in the estimate well the costs of buying a home are going way up because home loans are now more expensive so that's going to factor into all sorts of consumer purchases anything that's financed can be more expensive you're also seeing companies starting to slow down spending uh really starting to slam on the brakes we see it in startup land startups are all slashing costs right now but that's eventually going to percolate up to big companies too you saw dara's memo basically when he got back from wall street remember he published that a couple weeks ago saying we need to sharpen our pencils cut everything uh what wall street is looking for now is free cash flow um so it seems to me like we're headed into a pretty serious downturn or recession here i mean i've been saying we're in recession for months um the the the you know the tricky thing for the fed is that they don't have a lot of good options because we have a lot of recession indicators blinking red right now at the same time inflation is still high so they're kind of caught between a rock and a hard place i think what the fed should have done is in 2020 hindsight is back last summer we first got that shock cpi print remember it was like 5.1 percent seemed to come out of the blue because for years and years we've been talking about deflation nobody thought inflation was a problem all of a sudden we got that 5.1 percent print they were in total denial about it they just dismissed it saying that inflation was transitory and you know yellen said the same thing and so basically everyone just ignored the data for six months and what they should have done was stop qe right then and there they could have taken a little bit of time to think out you know a rate increase strategy but they were still basically engaging in qe for nine months after that you know first inflation warning and if they had stopped qe there then we wouldn't have had this asset bubble in the second half of last year that's when it inflated the most and we could have had more of a soft landing unfortunately now they let the they kept inflating and really until the end of q1 and they've yanked away the punch bowl so violently that i think the real economy's gonna go into recession so that's where we are right now i mean i don't know what that what the right answer is now given that we're in this you know almost stagflationary position let's try and answer that brad what is if if we didn't act soon enough if you agree with uh sax's point pretty hard to disagree with um and we didn't take the medicine a little bit at a time um and now maybe we've overreacted or maybe it's going to get worse what is the right thing for us to be doing now because all these companies doing hiring freezes layoffs at the same time that the housing market tanks at the same time crypto tanks at the same time the stock market tanks this feels like a major shock to the system is it time to maybe reconsider some of these um no you know for the fed to reconsider or just slow and steady wins the race here what what's the best option first we should erect statues to senator manchin for saving the republic by vetoing stimmy too that would have been devastating that would have been devastating so we'll revisit that listen the fed said two really important things this week they said number one our communications have been helpful in shifting market expectations what that means the fed is the air traffic control they said to the markets at the beginning of the year you're 90 degrees off runway heading get your ass back on runway heading it was a slap in the face to markets and it was a radical adjustment now you hear the fed in these little statements this week they said hey we're well positioned this year to assess the effects of policy firming in the back half so they're saying we're going to hit it with 50 50 and then we're going to take a look so now think of it as air traffic control you're two degrees to the left you're two degrees to the right they're steering us on runway heading i don't think the fed wants to do anything at this moment to lose credibility in the inflation fight we're going to get 50 we're going to get an another 50. but they're doing what they want to do which is keeping markets sufficiently tight right they wanted to take the crypto market down they wanted to take all the excessive risk in the stock market down right you're absolutely right the inventory of 350 000 homes spiked from four months to nine months right used car prices are rolling over the last three months all the things they needed to do they're doing right they need to stay the course however the hyperventilation this week by bill ackman on twitter that the fed needs to be doing radically more that somehow we need to be raising rates to six seven eight percent in order to squash inflation to me seems highly misdirected and totally out of touch with the fact that on layoffs.fyi they've already announced 750 companies that are announcing layoffs right the market is getting the drill i i totally agree with this i think we're in a we're we're in a pretty reasonable place here the real the real question is now what do you need to take the market lower and this is more of a nuance but you know when you look at companies that are now quote-unquote cheap right let's take an example like you um you know well we hear a lot about google or facebook right people say my gosh this is cheap because if you run a screen on it it's like 10 11 12 times price to earnings well the price you know because you can look on the screen the real question is are the earnings right and the thing that can take the market lower is if you actually think earnings are modeled incorrectly right so we saw this week as well snap i mean completely just blew themselves 46 down intraday yesterday i think i just want to say something about one day they have the most incredible propensity to self-immolate on earnings calls than any other company i've ever seen there's probably been three times no less than three times over the last four years where i don't know whether it's just poorly scripted or not well rehearsed or the people that are helping evan get ready for these things but these are disastrous calls you know facebook's had a couple in this lifetime but snap consistently probably once every 18 months will do this anyways the thing just completely implodes the stock implodes by 48 or something and then it you know rolls over to companies like facebook and google who then are off eight or ten percent my point in telling you the story is that if you think facebook and google just as an example again are cheap at 10 times well you better hope that the earnings are right because the earnings are actually wrong that's actually 27 times in 19 times you know i'm making these numbers up to give you the example because the earnings are fundamentally wrong so that's the risk now that's left in the market in my opinion that could take it much much lower is if that you know all of this slowdown really contracts spend and the earnings are actually not accurate the forecasted earnings will need to be revised over the next two or three quarters and that's where we will probably see the low if however growth is muted and the fed can as brad said it's a really good analogy now just course correct by degrees you know a degree here degree there we've probably consolidated the lows so said another way we look at a company like snap or google a lot of their expected value has to do with people's ad spend we now see less homes being sold so maybe people in real estate stop spending less on ads they're a major advertising category maybe direct to consumer uh people are not buying because the supply chain issues this stuff is too expensive and we're not going to spend on ads and so all of this ad revenue that's some of the first to come out of people's budgets so you know even as great as snaps results actually look they were up 38 year-over-year uh they're generating over 100 million free cash flow the guide was terrible because what they said was our e right our earnings right are not modeled accurately right and so that's the risk that you now have to take to every company you cannot look at a screen at yahoo finance or bloomberg look at a price to earnings ratio and say wow seven times that's so cheap it may not be seven you have to do your own work it could actually be much higher than that because earnings may be at risk the earnings being at risk is this contagion that we talked about i don't know six maybe it's like we're going on almost a year now saks we talked about a contagion happening because we've all experienced it in the last two recessions to the dot com bust in the great recession so what are you seeing in terms of at companies this contagion risk are people canceling sas contracts on the margins obviously people are doing hiring freezes obviously people are laying people off are people gonna start renegotiating uh salaries you know what what's the next couple of shoes to draw pure sax and that would signal to you a true bottom here like have you seen i thought maybe one would be if somebody offered somebody an investment with a two or three times liquidation preference have you seen one of those yet have you seen people say we're going to renegotiate salaries because that's when it was really dark right the last two times yeah it's going to take time to get to that point i mean where you start seeing structure and deal is in deals is when a founder is trying to preserve a valuation they got last year and that can't really be justified but they don't want to just take the down round so you try to preserve the optics the last round by building all these preferential terms we don't like to do deals that way but you'll start to see them happen later this year when you know companies get more desperate that's not the first thing that happens though um i think that that to your point about the talent market it's definitely going to happen has it happened yet no what has to happen is first all these open wrecks get cancelled companies freeze their hiring plans then eventually they do layoffs that's coming and then the talent market cools so those students are here both are here so what's the next in talent wars well yeah i mean look but within the next six months the talent market's not going to be as hot and you know in the same way that startups aren't getting 10 term sheets now that maybe they get one or two if they're a good company same thing with talent right they're not going to have 10 job offers they might have one or two and that's going to create that's not going to create the same upward pressure continuing upward pressure for um for increases in comp um to your point about like will sas contracts be cut i mean i think software is pretty sticky i mean if it's a good product um will deal cycles get longer yes will there be more mortality risk in the startup or smb customer bases of companies yes i think one concept that starts may want to wrap their heads around is what i would call deferred mortality risk meaning that during the last few years during the boom times the graduation rate from c to series a to series b was very high perhaps artificially high so there's a lot of companies that got funded and advanced to the next round where in more normal times they wouldn't have made it so got it now if those companies haven't really fixed their issues they've just deferred the mortality so i think all of us probably in saselian need to be modeling out higher logo churn for uh for customer bases that are skewed towards startups or smbs and we don't know what those numbers are going to be yet but that is likely to happen i think that that's right i think the other thing is that um there are there's a lot of companies that are going to have to get religion on free cash flow conversion asap and i just think that most ceos to be very blunt are poorly educated and enumerate so their level of numeracy to even understand this is pretty poor and most uh board directors are equally can you unpack it right now what does it mean to to get the business uh to free cash flow what does it take why is it important and what what are the how do those businesses look differently to them to spend less than you make okay hold on i just want to make sure i got it correct you make money but the number of the money you make is higher than the number of the money you spend got it okay and then there's a delta there there's some difference between those two numbers and that number is important to some people is what you're saying i think increasingly getting that number to be greater than zero is going to be really important it it allows you again everybody starts to throw out this whole thing which is oh my god you can never slow growth and the company will die and yeah maybe in a vacuum that that's true but when every other company is fighting tooth and nail to survive the only thing that you need to do is actually survive by surviving you win and if you can basically make your cash last as long as possible even if you cut to the bone and stop growing if you come out the other end and you're the only company that's left you will win and run over the market you may have pushed to the right a few years your plans of world dominance but they're still available to you it's the company that foolishly thinks that they can continue to spend money at the same rate or in the same ways that are going to learn this hard lesson because i think that investors are not going to tolerate being able to you know provide incremental capital to organizations funds who are then you know misallocating that capital to basically support a poorly marked portfolio and i think that is going to be the real come to jesus that actually makes all of this thing come clean like pension funds family offices endowments all these organizations are smart enough to realize that they're giving good money after bad if what those folks are going to do is not demand portfolio rehabilitation and instead are just going to basically keep the marks of their old funds because they're just in a in a game of waiting it out where the whole taking action greater than you know blind hope and just going you know steady doing what you've been doing you got to make some changes i mean look i love brad's reaction i think that most growth-oriented funds are looking at their portfolios and they're trying to balance two strategies strategy one is get into massive rehabilitation mode the problem is most of these people have never built or run a company so they have no idea how to rehabilitate anything they're you know market momentum folks and in that they were excellent but in actually helping ceos build and rebuild a business i think that they're not as well suited doesn't mean they can't do it but they're not as well suited that's path a but i think that path is very painful and it requires you to take medicine the bitter medicine which is to basically mark your portfolio down 50 or 60 just like the public market terminal valuations have gone down the other alternative is to basically raise enough money to do for example unpriced converts into those same companies so that you don't have to remark so that the auditors will be allowed to carry these fake valuations you can maybe mark it down 10 or 15 percent but you don't have to mark it down 50 or 60 and hope the market returns to his previous state but as we've all talked about that previous state is probably unreliable because it was a moment where we had a global pandemic where we took rates to zero and we printed nine or ten trillion dollars of excess liquidity that inflated these things so i got to think that you know prices in 2019 were a little bit ticking up 2020 we're really ticking up 2021 was egregious in 2022 is to come is you know where it all comes home to roost uh brad explain to us uh we we hear free cash flow we hear income net income ebitda we hear all these terms now free cash flow is what everybody is focused on i i believe that seems to be the predominant um rallying cry in a lot of public market companies now can you explain to people what the difference between these things are because people kind of bundle them together why would somebody like dara at uber just say hey you know we've been talking about adjusted ebitda ebitda income net income all this stuff but free cash flow is what we want to focus on now or is that correct yeah you know and our friend bill gurley uh rails on this adjusted adjusted and you know look to your left look to your right adjust it one more time ebitda right like in markets like this what people want to know or what's the green stuff i can take out of the business and put under my mattress free cash flow distributable free cash flow and not only that how much per share i think the single biggest issue growth investors are focused on today is the easy way out for all these companies they'll tap down a little bit on their hiring they'll tap down on their spend but out of the back door they want to give a bunch of free stock to employees to help offset that pain this is really important to understand because stock is a real expense right when a company goes public the more shares you have the lower your price so it is a real expense to everybody the founders the employees the investors right and so what's what i think the single biggest conversation going on in boardrooms in silicon valley today is hey can we have a little bit more stock this year whether it's options or whether it's outright rsus to give to employees because if we don't give it to employees they tell us they're going to leave this is a real hard truth i had a ceo of an incredible company call me and say listen we pay our engineers a million bucks ahead but we give them stock that over the last five years has been worth another million dollars each year so they built their lives as though they had two million dollars a year in income they bought a house they bought cars they sent their kids to private based upon that two million dollars and now when we tell them that this upcoming year the mil we're not making whole on that million it can't be when when we win you win and when we when we lose you win so the tough conversation is we're not re-upping you because the stock's been cut in half and so now that engineer's saying yeah but this year that means i'm only getting paid 1.2 million and the answer the tough answer is yes right shared sacrifice you should have never assumed that that was going to be worth an incremental million dollars a year but that takes leadership that takes courage that takes a board that knows what they're doing to explain that over the full arc of that employment and the first thing the mercenary employee says is well i'll just go work somewhere else and the right answer for a good leader is okay if you've got your approach to this business then you need to go work somewhere else i mean you just did a great test right that's a great filter you you uh you're a mercenary and you know you were with us when we're up but you're not with us when we have to take some austerity measures is this the end of entitlement across the board sacks i mean we had an entitlement class everybody thought they could raise a vc fund everybody thought they would have 100 irr because they would just buy nfts and flip crypto projects that had no released product and the same with employees they just thought i can just keep you know raising my salary x amount and now it looks like apple said everybody comes back to work three days a week and we don't see a lot of people quitting apple because there may not be another option and maybe a lot of the firings that are occurring i'm thinking of cameo here had top three of their top like six or seven leaders leave i interpreted that as maybe they had really big comp packages and when they did the layoffs they said you know what the number twos in these positions can get the job done for a third of the price maybe that's better for the business so is this the end of austerity the end of entitlement i think so or a lot of it there was a great article here uh in well that was that came out recently about netflix where netflix they're finally getting real about their kind of entitled and their woken title employee problem and this is in the new york post but there's many other newspapers that covered it basically it says here netflix tells woke workers to quit if they're offended if you find it hard to support our content breath netflix may not be the best place for you said the memo so period full stop yeah they're just sick of it they're just not gonna put up with it anymore they're sick of being held hostage by their employees who think that they can kind of muscle the leaders of the company by starting a petition or boycott campaign every time they want to drive the company in a certain direction and so i think companies are finally figuring out this is the only way to react to basically being held hostage if you don't like it quit if you don't have seven eight job offers you know and recruiters calling you constantly because everybody's on a hiring freeze well then maybe people will appreciate the contract of i work for you you give me money and then everything else is superfluous on that note did anybody see the ricky's your vase netflix special yet netflix it's on netflix it's unbelievable i mean dave chappelle you know in terms of bravery ricky gervais was like i've already made my money i'm burning the whole building down i mean he went full equal opportunist and i mean i think the trans issue became like 10 or 20 percent of the of his latest special so it does seem like the comedians are saying you know what we're gonna make jokes we're gonna make jokes about everybody we're not gonna buy into this you can't cancel us we're just gonna keep making jokes and we're gonna keep making money and and that whole concept that you know people are going to be held hostage i think is over independent of what you think of making jokes of you know various marginalized or smaller groups of people can we chris go back to something brad said a while back about how mansion saved the democratic party because i think there's actually an interesting point there yeah yeah such notorious right-wingers as jeff bezos have said something very similar lately when uh do you see that where buy biden tried to blame billionaires for the inflation and bezos was having none of it he said no listen it's not because of us or our companies because you printed too much money and joe biden or he said mansion saved you from yourself because it would have been another 4 trillion of spending on top of all the other trillions of spending that we had last year so it's absolutely the case that that if the administration was left just to own devices remember they were touting back in december they were touting the idea that this 4 trillion of buildback better spending would somehow be the cure to inflation imagine if they had poured that gasoline onto the fire i mean we would go to 20 inflation we might have had a currency uh you know like a serious currency issue no yeah but let me just finish the points i don't want to just make a partisan point here i want to there's there's a serious economics point here with or learning i hope our policymakers learn from this which is what happened over the last couple of years we had 10 trillion dollars of money printing right why they do that they thought that they could stimulate our way out of this covid recession that they had induced with lockdowns in any event the point is they thought they could stimulate economic activity by printing money and maybe cynically politically they thought it'd be good for them in the midterms what actually happened that 10 trillion goes into the economy but there's no corresponding increase in the output of goods and services so two things happen first price levels rise and we get inflation and second we get an asset bubble in the stock market and then the way both those things sort of come crashing down to earth is the fed looks at this inflation and suddenly has to jack up interest rates that pops the asset bubble it vaporizes something like 14 of global wealth and then simultaneously workers feel a lot poorer because their wages haven't kept up with inflation so this whole idea that you can just print money as a way to create wealth and prosperity i hope what we take away from this i think recession that we're going into is that is not a viable strategy the only thing that creates wealth in a society is the output of goods and services that people want and you just can't try to sort of play games with that by creating phantom the sort of phantom money that doesn't represent a real increase in good services or productivity yeah it's hard for people not to take this all as partisan but if you just look at the objective facts the last two administrations have printed money like drunken sellers and it's a mess right now so you you can divorce yourself from any conception that this is partisan trump spent a [ __ ] ton of money and so did uh biden and who's more qualified than trump and biden elon bezos the people who appear on this podcast we have much more of a pulse on what's happening in the actual real economy and in entrepreneurship and capital allocating than these people and i love the fact that now you know bezos is a [ __ ] poster he just doesn't get he doesn't care uh and i think we're having like an honest discussion now right one of the one of the areas where i i don't think elon gets enough credit is when he explains macroeconomics i think he actually really understands the the what an economy is i mean an economy is basically a trading system for the production of goods and services if you were to go this point he's made if you were to go to a desert island and somebody just gives you a billion dollars when you're sitting there on that island you can't buy anything it doesn't make you wealthier what makes you wealthier is the production of goods and services that people want and that's ultimately what an economy is money is just the accounting system the dollar's just the accounting system if you start printing lots of money all you're doing is debasing the accounting system it doesn't make anyone richer and yet you know the way that conversations around economics really take place the only thing you ever hear about is stimulating demand you never really hear anything about production and i mean this is an old debate that goes back to the 1980s about you know supply side economics but regardless of what you call it wealth ultimately comes from our capacity to produce goods and services that people want it's a great point chamath all this adds up to companies and the government's balance sheet becoming tighter and more efficient so the talent diffusion across the industry perhaps everybody being entitled and getting overpaid uh people not wanting to go to work people who have jobs not wanting to go to the office all of this seems to have actually reversed in three months so this medicine we're taking we stopped eating the bad food we started working out we're getting better sleep this is going to turn around for the the companies that take the medicine the management teams the capital allocators who do the hard work and sharpen their pencils as we've talked about this will all result in a more efficient uh and vibrant economy yes i think for the most part i think there's still going to continue to be examples of folks who basically run themselves into a brick wall because they don't want to make the hard decisions that is going to be more exaggerated in silicon valley because we have a culture of tolerance and we have an economic business model that supports kind of irresponsible decision making and supports poor governance you know look i i've said this many times but a fund's job ultimately is to make a very important decision about whether they truly care about generating massive returns or whether the fee income becomes so meaningful so as to drown out every other incentive that they have and i think by and large in silicon valley if you track all of the increased frequency and fundraising you can also probably follow those dollars and they generally will be the most poorly run uh they'll be held the least accountable and i think those will have the largest negative outcomes and then instead if you follow the dollars of the the real practitioners who have discipline they look kind of sheepish and silly for years in the middle of a rally but they're the ones that are able to really reset and help some of these few companies really win and i think that you're going to go through that cycle over the next four or five years and so you know i think it's super well said smoth because i have felt at or i've been made to feel silly by some folks who said why are you asking to do diligence why do you want to have a board seat why do you want to talk to customers why are you asking for month-by-month revenue you made a sub-economic decision like the idea that over the last four or five years you optimized for anything except the market beta was kind of dumb you know and it's and and the worst thing that you could have done in that period was confuse alpha and beta meaning alpha is what you are able to do because of your discrete skill versus anybody else beta is when just the market goes up said differently you could take any nba player and put them on uh a high school basketball team and they would be the you know college player of the year any single one okay that's beta yeah if you then can be the mvp of the mba that's alpha yeah okay and i think that a lot of folks um were made to feel very silly or you know a downer or a wet blanket um in these last few years who will probably have the last laugh it's been unbelievable brad to watch the changing of attitudes and the entitlement in fundraising and private markets in the last 60 days and it's been even more pronounced in the last 30. i literally have people we talked to last month who had really crazy expectations they've come down by 50 they wanted 50 now they're at 25. they didn't want board seats now they're okay with board seats information rights they were fighting against information rights i don't know why that's a hill to die on now they're like information rights yeah sure here's our cfo's email we need to get money in the doors so um i guess what's the silver lining here it does seem to me as a great setup right now wait jason let me ask you a question hold on yeah michael ordered brad like and then you're forgetting one other key thing in in the in the race to raise all of this money what did these folks do they hired these mid-level kids as partners into their venture firms and gave them money to put into companies what do these people know no mentoring i'm not saying it disparagingly i'm just like what do they know how do they know how to actually invest investing is just not you see it you just say okay well i think it sounds cool there are some of those uh younger folks who are going to turn out to be all-stars and they're just like in the nba and they're going to be some that you know prove to be writing the beta but let me answer jason's question because you know maybe end on a on a note of optimism you know in some countries you know notably china right now they're doing a lot to prop up a bunch of companies that should be allowed to fail right one of the beautiful things about free market capitalism the creative destruction the cycle time on creative destruction in this country has never been faster right make no mistake about it if you took money at a valuation over a billion dollars okay last year you're not that's not a venture capital bet i call it quasi public right you stepped into the bigs and you said i will deliver this plan and if you don't deliver the plan there's not going to be a lot of tolerance there's not going to be tolerance for just giving away a bunch of more stock there's not going to be tolerance for no course correction right maybe in seed or series a right there's a lot of tolerance because you sign up to a lot of unpredictability but the level of tolerance that you'll see out of late stage growth investors is going to be akin to what they do with a public company that runs them off a cliff you know how that is you've been on those earning calls so i think this is going to shine a light on the bifurcation that we really have we call all of this venture capital but the truth of the matter is series c and before is venture once you're stepping into the bigs and taking money at a billion to billions the expectations are different your access to capital will be different um the expected course correction will be different right but i take it as a um i take it as a sign of strength that we're going to work through this we're going to have you know the the private markets are absolutely going to go through a reset but we'll get through it and the winners will win and those who fail to course correct and want to fly into the wall will do that and we'll get on with the next generation of incredible entrepreneurs solving big problems the secular curve of technology solving big problems has never been steeper right and the cycles that overlay that secular curve are not suspended we have not suspended wars we have not suspended economic cycles and so we're going to have to get through this one it's happening in record pace exactly actually that's an interesting point i want to let me ask brad a question about that which is what's the potential here for more of like a v-shaped recession where to your point the market's correct more rapidly and violently than ever snap misses of you know issues a new forecast down 40 percent um is there a possibility that this thing gets resolved in say six months that's not to say that uh valuation levels are ever back to where they were you know in the second half of 2021 but in six months could we have sort of done this big reset washed out a lot of the problems and um you know again valuations are not back but the market becomes the the capital markets become become unfrozen and we're back to a more normal operating environment as opposed to say yeah as opposed to say like more of a u where we're kind of bouncing around the bottoms here in this volatile state for about 18 months um you know and then it's more like the dot-com crash we come out of it in two years i see smart people on both sides of this i hear jason lemkin's been saying i think this is kind of short deep sweet six month reset fred wilson just wrote 18 months at least i think sequoia is saying two years i mean i think our instinct is 18 months to two years but what do you think the possibility is that we could be in a more normal environment in six months right so let's let's separate public markets and venture markets because venture markets as you know have a six to 12 month lag just in terms of the reset but i would say you know the future's a distribution of probable outcomes there's a downside case an upside case in a base case i think the base cases by this fall will have very good evidence right of where inflation's rolling over i think it is rolling over what the fed is likely to do the upward bound on on interest rates and i think we'll be at a point where we can start underwriting to the five-year average again make no mistake about it the s p and the nasdaq today are still 30 above where they were in january of 2020 30 above where they were in january 2020. how much better is the world today than where it was in january 2020. well i think what the market is saying is that we've grown the economy on a nominal basis about 15 during that time and earnings have about doubled right the earnings margins of those companies are about have about doubled so you would expect normal course and trajectory maybe that those companies would be 30 percent more valuable the problem is as we look ahead to chamas point the earnings are likely to come down profit margins are being squeezed so i think there's a decent argument there's more pain to come in the public markets that we haven't seen the bottom however i do think that the fed is taking a good course here i don't think that we have runaway inflation i think that um you know we're going to have an investable environment come this fall however i think for venture there's a six to a 12 month lag to that so i think you got to add it to those six months to really get to the market clearing prices for all these companies but i think it's incumbent upon all of us to give really good feedback today and i see a lot of it right to entrepreneurs about making that course correction if they're only turning the plane 10 degrees when they see lightning dead ahead they're making a huge mistake the default action by every founder today should be a 90 degree course correction unless they have very good idiosyncratic reason in that business in terms of their outperformance to stay the course plan for the worst hope for the best yeah and yeah you could even bifurcate the companies in private markets to ones that have strong product market fit and the ones that don't there's a lot of companies to david's point that we're getting series b's without product market fit you know it's it's one thing to get your series a when you have this like weak product market fit and a great story but when you start seeing series b's happening on momentum it's like that to me is is is going to be impossible to resolve that company has to go to zero or has to reset or give even give money back to founders those are the really the three things i would see as a true bottom like the really dark moment where people have two or three liquidation preferences people reset reset comp and tell people listen we're going to cut comp 30 across the board for management if you don't like it leave and then finally people saying you know what we're going to give the 60 cents on the dollar back to investors those are the three things i saw during the two downturns you're saying something that i think is also important that's not really talked about which is that there's going to be a lot of really good companies with really horrible capital structures really terrible cap tables really bad valuations really big overhangs of preference stock that are going to have to get worked out and in getting that worked out going back to what brad said the person that course corrects 90 degrees will win and the reason they'll win may not even because they're being that courageous they're just being less stupid than everybody else quite honestly because you have to remember in most of these markets over the last four or five years we funded four or five versions of every imaginable company right and there's going to be two winners 70 and 30 yeah and and there's really only going to be one winner and then there's going to be a marginal second kind of also rant that captures some value and everybody else is not that valuable and you know that's roughly been true but the reason we were able to support that was that every company looked kind of interesting anyone with traction could be you know competed against because the only differentiator at the time was very cheap money that was effectively free and it was flowing in you know faster than you could count so all of that has to get sorted out so i just think that that those dynamics shouldn't be ignored and so you know again hard work too i mean to the thing we've been saying here the it's hard work for a board and founders to do this but what choice do you have well the problem is the pro if you take much more sophisticated markets like the debt markets which i would say are much more sophisticated okay cutthroat liquid covenants when you see the people that make the money two things are true number one is their incredibly sharp elbow to number two is they make money in moments like this right if you look at apollo's great returns or blackstone's great returns or cerebrus you know these folks were the you know they they really were the barbarians at the gates and they made all the money in moments of true dislocation if you apply that construct here you know we've never had to go through a period where there are some real terms and conditions attached to the incremental dollar and i think that if that does come to pass in silicon valley you're just going to have a reckoning and i think that that what it will really do is just sort out the winners and the losers and it will sort out the folks that were able to get to default or close to default to live or at least default life support exactly default festival i like that one too i mean zach's made a great tweet he basically said it's not default alive or dead investible or not and that's an even finer filter default default alive is fantastic if you can get there basically just means cash flow positive i mean all default alive means is that your cash flow positive or you're going to be cash flow positive based on the money you have you don't need money exactly you don't need money well of course that's the best place to be is you don't need money but i think you know for early stage companies that's almost an impossible standard you know it takes time to get to the point of encounter positive so therefore i was trying to propose a standard that i thought was more actionable for founders because it was because it wasn't impossible and i call it default investible which is here are the metrics that you need at least i can tell you what they are in the sas world you know here's what great metrics look like here's what good metrics look like here's some danger zone metrics and you need you know out of the five key metrics you really need three or four great ones and one or two good ones to raise in this environment and no dangerous metrics and if you don't have those you need to give yourself the time to fix the problems in your business to get to those metrics um on that note you know sequoia had a really good chart called survival the quickest that illustrates this concept of giving yourself time and i threw it in the chat um but basically what it shows is there's a green line and an orange line that the green line is the company that realizes in may of 2022 that we've gone into a very different environment and they slash their burn in half and they basically double their runway and then there's the other company that just keeps going along the same path they were at until they realize oh wait a second you know and then that you know some point in the future they realize there's been a change they make a small cut they make another small cut and they're always behind the eight ball and i've seen this so many times before that the company doesn't make cuts until they're forced to and so they never really lengthen their runway and then when they finally do make the cuts they go into a death spiral and die and now they're over the atlantic and there's not enough fuel to get to a landing strip and you just plunge into the cold ocean and die founders really have to think about the the asymmetry of the risk that they face right which is let's say that you cut too much and the environment is better than you think it's going to be well you can always hire back i probably have a lower price in all likelihood i promise you'll be able to hire back okay but on the other hand if you don't cut enough and the situation is worse than you think then you just die so you this is why andy gross said only the paranoid survive you've got to think about the downside risk and be more skewed towards the bad scenario than sort of the the sort of wishful thinking scenario okay survive just just one final point here you know because we have all these decks flying around now by venture capitalists telling founders to go make these really tough decisions being a little self-reflective where were we all six months ago where were we in october when we were putting more money in and they were hiring like crazy where were we in november right i remember some of the conversations that we were having but i look i posted in in chat layoffs.fyi right the number one company on that list gets here sequoia company okay are they making a course correction you bet your ass they are they're laying of 4 500 people 15 of the workforce the second company on that list lace work an altimeter software company that's doing terrific growing hundreds of percent laying off 300 people 20 right a 90 degrees turn of the plane right that company will never need cash again but it's not just flying toward the lightning they're making the tough decisions because that's what leaders do in businesses that are even good businesses there are a lot of companies that are ship businesses that should be on this list but they're bumbling along and not making the tough decisions we need venture capitalists that instead of you know this being a popularity contest venture capitalists need to look inside as well and say what about our firm didn't didn't work right why weren't we issuing these course corrections and telling people to tap the brakes a little bit when we knew markets were overheated last year right and so i think there's there's a lot of responsibility that sits on both sides of the table um but i'm you know there's 714 startups on this list by the time we're done there are going to be at least 3 000 startups out of zero that's another reason i say the fed is getting what it wants right this labor market is you know was cooling down very quickly at least in silicon valley well i mean and the fact that people felt like they didn't need to take a job and they could live off credit and there would always be jobs for them i think people are going to have to rethink like can i be unployed forever and you know do i need to take my career seriously do i need to pay down my debt do i need to have a a balanced uh balance sheet do i need to my personal balance sheet needs to be in order as well i think that's what individual workers need to think about yeah i mean brad's right that there's certainly enough blame to go around in the ecosystem and you know vcs bought into these frothy evaluation levels last year to some degree we're all gaslit by by the fed and these low interest rate policies i wrote my post about burn multiple and how to measure capital efficiency two years ago um it's getting a lot more retweets now than it did back then but uh but look i do vcs have some self-reflecting to do definitely but you know i'm seeing a lot of tweets going around basically saying like people objecting to this advice on the grounds you'll hear something like if you vcs wanted us to operate more efficiently then you should have invested more efficiently or if you wanted us to be disciplined you should have been more disciplined in your investing and to me that's kind of missing the point it's kind of cutting off your nose despite your face the reason we're giving this advice is because we just want our companies to survive and we don't want a zero we don't want a zero we've been through multiple down cycles and the truth of matter is unless you've been in the business world for over 14 years you've never been through a down cycle i mean that means that you know no founder under the age of what like 36 has even seen a down cycle before they don't know what it can be like when you go into a two-year nuclear they probably they probably weren't the pilots at that time anyway so it's more like people who are 40 45 have the scar tissue because they were in the pilot seat totally totally so the reason you're hearing all these vcs all of a sudden say get more discipline this is mainly because we've seen this movie before and we don't want to run out of money and die i think you can safely short if you could the stock of all of these rando peanut gallery ceos tweeting their disdain on twitter if you're a writer it would be a great index fixing stuff just write that company to zero yeah just turn your [ __ ] twitter back and just sharpen your pencils um i i we we would be remiss if we didn't talk about uh at least for this last segment about the tragedy in uvalde uvalde texas uh 80 miles west of san antonio tuesday 19 elementary kids two adults were murdered um how are we gonna talk about this without losing our [ __ ] it's really hard i think maybe the roadmap tremendously i did give this a lot of thought i was like why why is this first segment on the market trundling along on [ __ ] life support for an hour and ten minutes and i think part of it is because none of us can really talk about this without losing our cool it's really hard and but i do think we did good work chamath i was thinking about the good work we did in the episode of roe v wade and we actually came to a point where we said you know here are the extreme positions and then you're like hey wait a second i found this data point i found this data point we actually figured out hey 80 percent of people want this definition of abortion in the united states so i i'll throw it to you tomorrow you know we're all outraged we're all frustrated but maybe we could start there is there a consensus of what could be accomplished here that you've come to i've started to think about it a whole bunch but you know we're all outraged we could all yell and scream here but a path forward is where my mind goes i'll just tell you what i what i um have been thinking about okay this is just a random stream of consciousness let's do it i think that the democrats will not make any progress because they try to make this unfortunately a moral virtue signaling issue the republicans will not make any progress because they become sort of very binary adamant absolutists about constitutional rights and the interpretation of that right in a very specific way the truth is in the middle you know if you go back before we talk about yuvaldi um peyton johndron who was the kid that shot up at tops supermarket in buffalo and killed umpteen you know black shoppers lived in a state where there was a red flag law for those that don't understand what red flag laws are david you know tweeted some stuff about it as well but essentially it allows a community member or a family member or a school uh teacher or a police officer to essentially put a restraining order around an individual that they think could cause harm and use that as a way to confiscate their weapons people have talked about red flag laws as being possible while he lived in a state the kid was you know put under a cycle you know a year ago and it it all just falls through the cracks now you know ted cruz or somebody else said let's spend 10 billion dollars and only have one door into a school and put an armed guard there well then you find out that yuvaldi you know doubled their security spend over the last two or three years they actually had a person that may or may not have just kind of like stepped to the side or something to let them in the police according to the uh ap showed up and stood around for 40 minutes before they were able to actually breach the school you know so much so that the quote in the ap article was that there was a parent that tried to get other parents to for 40 minutes they were standing there you know in california you have you know very restrictive measures um but we've had you know in san bernardino and other places we've had mass shootings here as well because the guns can just get transported across state lines and there's there's no real way to stop this the nra i find out just so if you guys are interested uh mitt romney took 13.6 million dollars from the nra this is the moral finger wagger of the republican side who you know last time i checked is a multi-sentient millionaire but somehow still needs to take 13 million from these folks rich burr took 7 million roy blunt 4.5 million tom tillis 4.4 million cory gardner 4 million marco rubio 3.3 million there's no effective counter lobby that says how about we have a more moderate and restrained pro-gun set of rights and field candidates on the left and the right that could jason find this middle ground and so you know we're in this two or three day period it seems like where folks will get extreme and then nothing will happen here's one thing that i think we can all agree as well if you look at the underlying family situation of all of these mass shooters there is a really disturbing theme that i think is worth putting out there these are all universally young men 18 19 odd years old they come from broken families this individual salvatore ramos father was absent again according to the times in the wall street journal article i read mother intermittent drug use issues lived with the grandmother bullied they're unemployed barely graduated if graduated at all in high school they harbored these deep resentments towards women or minority groups um they then project a lot of their frustration they were bullied potentially in high school growing up and all of the they were posting all kinds of very challenging content you know apparently this kid had a one tick talk of where he sat in a car with a dead cat in a paper bag you know he would post on instagram of assault rifles and nothing happens so i just think that we have to acknowledge that there's a complete failure of our politicians and at this point i think they should all be replaced writ large every single one nobody has added value to this solution is nobody has really tried to figure this out but then also like parents have to do something incrementally more from the perspective of the community because these kids are going to school with our kids and the red flags are there the red flags are there so just one last thing and i said i said brad i said to my kids when you interact with your friends i just want you to understand when you're on social media and you encounter this content i hope you're never like either scared or embarrassed or unsure enough to just show somebody when this stuff is happening so that you can let somebody with a little bit more maturity and judgment try to figure out what to do if anything at all but these communities are completely failing uh these kids as well brad you have some dead i would say that um every [ __ ] country on the planet has kids with mental health disorders but not every country on the planet has kids getting shot up in schools and supermarkets and churches that is a unique feature of the system that we accept this the system we created right i'm not against guns you guys know i took my kids to a shooting range last weekend but the idea that we let you know assault weapons be sold in this country with no background checks that we let assault wipe rifles be sold in this country with no limits on magazine sizes that you can just replace magazines it's total insanity right so i think this is a country that does a lot to self-help but we are not self-helping here after the assassination attempt of ronald reagan amazingly republicans found their voice and they said let's have an assault ban on assault weapons or let's have a ban on assault weapons that expired and we as a i asked my analysts i said plot the number of shootings since the expiration of that ban and it's terrifying yeah it's obvious and it should be something that we just like don't accept like the middle ground jason i saw what you tweeted there is an obvious middle ground right there's about whether it's background checks that steve kerr i mean he's gone viral yeah feeling the same way we all feel but they're also technical solutions why the hell do we let assault weapons why why not put a scrambling device on these weapons so that you can't fire them in schools and churches if somebody says that's a breach of their second amendment rights i'm sorry i'm also not going to allow you to drive into the school yard with nuclear material there are some rational limits we can agree to so i don't think this is a partisan thing at this point in time nobody's saying you know ban all guns right in fact i i think there's a plurality among gun owners they too want reasonable limitations on these things which are killing machines not hunting machines sex any thoughts on this yeah i mean i i so i think we're looking for solutions i think these red flag laws and building on them is is the way to go um you know the the problem with with background checks and and i'm not against them i mean you know i've i've gone through background checks to get you know my guns and i'm in favor of them but they wouldn't have done anything to stop the buffalo shooter they didn't i mean you know the buffalo shooter was in new york they've got the toughest gun control laws in the nation the background check didn't stop him from getting the gun because he bought it lawfully didn't have a criminal record so you know it doesn't that by itself isn't going to do it so i think where these red flag laws are useful is that we've seen with these all these school shooters they have a similar kind of profile right they are disturbed young men like in their who are still school age 18 19 early 20s exactly now this shooter in uh uvalde i mean there are reports coming out now that he had been cutting his face that he had aimed a bb gun at people so he was clearly idioting towards this idea of shooting people he had posted um violent fantasies basically of mass shootings on social media and he told his classmates he wanted to kill him i mean there's almost always a call for help here same with the buffalo shooting i mean the people who these like psychos go to school with are the least surprised they all know because these people have been warning they've been saying that they're gonna do it so i think we have this problem of we've got these young psychotic people and i think the reason why it happens young is when somehow they get into adulthood whatever this mental illness they've got basically takes hold and they snap they become psychotic and it doesn't take long for them to act on those fairness those violent fantasies so the simple solution here i think is to prevent those people from getting guns you know if you threaten mass violence uh you shouldn't be able to get a gun and i you know i personally don't think that's an abridgement of second amendment rights because look felons can't get guns either if you commit a felony you can't get a gun these people haven't committed a felony yet but i don't want to wait until they do if they're if they have these kinds of red flags against them then there should be a way to file to basically get a protective order perfectly if we don't we don't let 12 year olds drive cars we don't let them drink beer because we don't want 12 year olds drunk driving right and then at some point there's a licensing that occurs i think a lot of this is framing i think it's just once again very analogous to this abortion issue where most people are pro-choice and want restrictions on abortion where they don't occur after a certain number of weeks just like europe got to and i was just you know ideating on this and i think replacing the nra to your point your moth they have funded people they've become a key funding source for a lot of folks and they've they've been over funded themselves um what if we had americans for reasonable gun safety and we have this organization raised a ton of money and they just outbid the nra for republicans uh and for people who are against background checks and we just a good question but look mike bloomberg started every town for gun control after newtown and it did it hasn't really had i think the impact that that we wanted i mean well i think part of it is cheap what you said so let me just give you my my little four bullet points here and have you react it you you are right that people are absolutists no abortion you know no restrictions and no guns or no restrictions on guns background checks we all agree on make them more intense and make them proportional to the caliber of the weapon if you want one of these weapons why don't we have you go through a training course so for a pistol you've got a two-hour training quest for an ar-15 or something that's more powerful how about an eight-hour course a four-hour course then you could actually see the red flags emerge and with somebody who has this red flag issue go through that the red flag laws should be national and they should be very strong and then finally what if we introduced insurance for certain classes of weapons not all if you want to get a rifle you know to go hunting or a pistol for self-defense maybe you don't need to have insurance or maybe if you have one you don't need to have insurance but once you get to high caliber once you get to having clips that are a certain size what if we just had some basic insurance because that would force then somebody to underwrite the danger of that weapon jk i mean look the trick here is to figure out a system that has the least possible impact on law-abiding americans there's maybe a few thousand of these um mentally highly mentally disturbed uh young men but like i said their schools know who they are yeah right and what we need is a process where you know that doesn't turn into the no-fly list where all of a sudden everybody's on it or uh training or insurance or content moderation or something like that this is the problem look this is what the nra is afraid of is that you create a red flag process and all of a sudden thousands or millions of people could be on it right so you need a right but that's not true because you had you had this kid who could have been put on it in in new york he wasn't right no no no look i think we need to i think we need to figure out how do you create due process around this and i i think i think if a school they know i mean you get multiple affidavits from a teacher they should be put on the list yeah school is a no-brainer the problem isn't that these these kids aren't identifiable because as you say david they're hiding in plain sight in these schools the problem is that there's no mechanism or incentive for any of these kids parents educators teachers community members to do something about it because they don't know what that something is and this is where these kids are left to fester fester fester and then and it boils over and it's all of us that have to pay a collective price david can you it's even it's even worse than that chamoth because in the buffalo case the the buffalo shooter was referred to for psychiatric evaluation because they thought he did have mental illness and then they released him releasing after a weekend and then he got the gun he got the gun so he should have been put on a red flag list and that should have been the end of it and it should be a database like a federal database which they're the nra fights too yeah i also want to say something about these technology companies there is an explicit decision that technology companies can make to be able to review content from certain kinds of accounts and start to build a cluster and a distribution of risk it is possible i helped build one for one of these companies so don't tell me it's not and i i will not tolerate some non-technical person telling me it's not possible it is absolutely possible and these technology companies should have a mechanism to be able to say you know what here are these thousand accounts david in the united states of these thousand individuals that you know are sort of getting to a red line here yeah incline whatever but it's it's also it's it's not it's not just gonna be what they post on social media it's although in both cases buffalo and uvalde they both posted that they were going to do what they did but in addition to that breadcrumbs early warning system is a great idea with uvaldi the the cops were called out multiple times for violent disturbances you know and you combine that with what he's telling people in the schools and what he's posting on social media you it's there's an identifiable profile here it's not one red flag it's multiple red flags where this is where these corporate social media companies need to take off all of this for-profit focus that's extreme at this point be willing to degrade margins to hire the tens of thousands of people to manually review content okay there should be a mechanism that allows these folks to plug into some system that law enforcement can use there is an early warning system that can be built yeah earlier great idea human review before this stuff gets out of control david to control people's individual civil liberties okay but that is a big step forward from where we are today which is nothing there is zero leadership in america can i just ask david one question david you you correctly pointed out i think it's astute that um we can't penalize people who are legally getting guns or create too much friction for them i understand that would you consider training or insurance and just take each one individually for high capacity these deadly assault rifles would you consider what would you consider each of those in terms of realistic you know having some basic training a four hour training class i mean like like you do for uh like you do for driving a car should we have that for assault rifles and then should insurance be required what training does is prevent accidental shootings okay that's right i'm not against training i love training i do training but but look should be mandatory what training prevents is is accidental shootings buffalo and uvaldi and all these school shootings they're not accidental shootings they're going out there and killing as many people as possible and they know how to use these weapons i mean the problem is is what their objectives are so i don't think training solves it well let me ask you this if you were in training for four hours and you're an instructor and you were trained to look for red flags and it brought in some friction from this person going and buying it and doing the next day wouldn't that help and then going to have to buy insurance the buffalo shooter cased this this grocery store for like four months i mean they are patient they are methodical in how they go about so they would have gone i think so that but we don't even necessarily need that filter jake out because i'm just telling you that the profiles of these psychos it's so dramatic when you go back and look i mean again multiple red flags they're killing animals i just wanting bb guns they've been the cops have been called out on them they're posting on social media their classmates are all terrified of them their own families are terrified of them we just need to basically we need an incentive to jamaa's point for schools i think to create these profiles and file the right forms the affidavits in the database now do insurance for high capacity assault rifles would you be in favor of and do you think it's a viable what does that do i don't understand what that does well it means you would have to apply and say hey i'm jason calacanis i'm 18 years old i'm in the school i would like to apply to own an ar-15 and then some insurance companies say okay you're 18 years old you're a male you live in texas your bill is going to be 600 a year for this gun oh okay you're a 45 year old male in wyoming your bill is going to be 100 for this because we've done some actuary tables on the actual risk would you be in favor of insurance i think the key to solving this problem is to create the minimum disruption on law-abiding americans okay tens of millions of them who like insurance look i don't know what that would do exactly i want to stop the basically that i think what are a relatively small number of psychos young psychos maybe there's only a few hundred or a few thousand sort of candidates in the entire country i i don't want i don't want to wait for them to become felons to to basically prevent them from getting jobs and by the way there's a there's there's a bunch of study about this there's been a lot of social science studies about the individuals that own guns legally and those individuals that sort of break and commit these crimes and whether we want to admit it or not there is a definable archetype it starts with gender then there's socioeconomic conditions then there's you know home family conditions these are knowable things these can be built into a combination of software and human review and we need to create incentives so that these kids can get some kind of help or intervention and the worst case is we kind of you know do something with them in a way that helps us protect everybody else because sorry to interrupt we do this every day we turn this country on its head after september 11th we started profiling everybody and to sax's like minimum standard of disrupting other people's lives the department of homeland security disrupted everybody's lives take off your shoes go through the security before you get on a plane we changed everything in months because we said we're under attack but there we're under attack by a foreign presence a foreign terrorist presence here we're under attack by sick kids who need help okay but we need to disrupt our lives we need to change things right in order to save these innocent kids who are being shot up in schools where they're supposed to be safe and so i agree let's profile them let's get these companies doing their jobs helping us identify these kids get these kids help but we need to raise the volume and raise the urgency in dc the way we did after september 11 2001 that this is a national crisis as opposed to going back to the normal right distribution here by the way after 2011 um i was on a no-fly list and i think i've told you guys a story before but i would have the triple s on my boarding pass for years until about 2007 or 2008. um constantly profiled you know put in the back room the whole nine yards but in the end you know did did it make me feel kind of like less than a lot of other people yes but did i do it because uh i think it was the on the broad strokes the right thing to do yeah so you would take a little friction and so you know if i needed to basically turn over all my kids you know social media or there was a mechanism where you know as much as we try to teach our kids you know all of these other things that that allow us to make a socially progressive society if the guidance counselor also sat around and asked these kids anonymously hey is there anybody in your class you think needs your help why don't you do that too um there's there is friction because that that i think we're all willing to take because the counter factual is too horrible to bear and this is an example of one of those things would you be in favor of insurance and training chamath assault rifles i don't i think these are good ideas okay i don't think they will curb the issue i do think what david said is right there's a level of evil or mental illness in these people that caused them to be incredibly methodical and i think that we shouldn't underestimate so they would get to the insurance screen and get through the training screening well i think i think you know look there's a lot of people that drive cars without insurance right it's you can drive enough and you can be insured and you know so i think that those are good ideas jason where it will falter is we have a political system where the primaries for both sides are dictated by the looniest 10 percent of the left and the right yeah we got a vote in our primary it makes practical gun control just like abortion an impossible task unless we completely turn our political class upside down on both sides of the aisle okay so i think these are good ideas but in the meantime i think parents have to do something because nobody's coming to our aid and i think this the most important thing we can do is just say the truth out loud there is an identifiable archetype of these we should profile these kids we should profile them there's no doubt there the politicians who are making this about lawful gun ownership they're not helping they're they're actually hurting because you're activating millions of americans who lawfully own guns and believe in the second amendment to oppose reasonable measures like like i'm saying hyper-targeted measures like these red flag laws right and so if we make the whole issue about gun ownership in general you're not going to get any reasonable changes the opposite the sales go up the sales go up every time we have this happen my kids and i'm sure your kids as well have now uh gone through multiple active shooter drills in our school yep but at no point have my kids been sat down and taught some of the warning signs of their fellow classmates and a mechanism to raise their hand and say you know what this is actually really worrisome here they don't have that training they do have training on how to lock the door how to flip a desk how to go into a closet which is a horrible thing to have to teach a child but if we're already there i just say take the extra step and teach the kids because they're living on instagram and tick tock every day they see their friends and their you know classmates every day and we need to start figuring out an early warning system because what is happening continues to happen these politicians are ineffective they do nothing to help parents right it's true i i like i like the early warning system because you're right like they're so so first of all the the red flag laws are something that's done on a state-by-state basis something like 19 states have red flag laws including new york but it didn't work in new york the buffalo shooter because got one federal no one used the system no i don't think it has to be federal i just think that people are actually interested i think people just have to use this system so you had in the buffalo shooter the kid was referred for psychiatric treatment and they still didn't read flag him that's just bonkers so people have to the school systems have to learn how to use these laws and so to jamaa's point we need an early warning system we need that translating into red flags that go on someone's record and then they can't buy guns after that it's it's really simple at least till maybe they turn 30 or something um i mean it's it's um the the the problem is that about half the states don't have this mechanism and then the half that do aren't using it effectively enough i just shared with you guys a chart it the the the most pernicious part of this debate and i think this is a pretty solid debate we had here so thank you to the gentleman for all participating in it um is every time we have one of these gun sales spike if you look at the chart in the new york times i just shared a nick you can you can share it on the youtube channel uh two million guns in the january after obama's re-election the sandy hook shooting we hit peak guns obviously during coronavirus people got scared and bought a bunch of guns after september 11th they bought a lot of guns but these moments are sadly going to drive the ar 15 sec that is because all the conversation is about banning guns yeah and what we should be doing is preventing psychos from getting guns known psychos reasonable gun control increased by 50 in the last 10 years the last 10 years have been the safest 10 years in our lifetime yet for some reason people feel the need to arm themselves more and more and more now i as an immigrant into this country accept the rules of the country that i come to there's a constitution there's a second amendment i respect people's rights to own gun i've held a gun twice once in my life i had a panic attack and i had to put it down i had to so it's not for me okay but i respect your right to have them um i think that we need to teach people how to think about the precursors before they get the hold of these things really sadly uh what's killing our kids um it turns out i just put a i just put the tweet in the chat for you guys to take a look at new england journal of medicine massive uptick now guns deaths combined it's all gun deaths includes gangs includes suicide and includes mass shootings but firearm related deaths and injuries now exceeds motor vehicle crashes and so does opioids so we have a crisis after at new england journal of medicine just to be very honest it's no it's not necessarily only about kids because they included 18 and 19 year olds in that chart sure so those are adults okay young adults and kids um and so drug overdoses and firearm related are spiking massively this is my point about having this debate this is being armed by the by the left and then the right says well hold on it doesn't include 18 and then everybody gets caught in that hole absolutely the shooting these shootings are being done by people 1819 but putting all this aside i just want to make a bigger point about our children like in the last two years with this covet the spike occurred during covid of drug overdoses and firearms so there's a lot of suicide in here as well so we should think holistically about you know how kids are dying oh yeah one other thing to that which is we have plenty of gun laws on the books that aren't enforced right now in san francisco you can't get chase abu deen to enforce a gun charge he uh a young kid named kelvin chu got killed because his his killer a guy named zion young he was arrested weeks before on gun charges and jason boudin just let him go and in uh la with gascon he's dropped all gun enhancements to charges the whole the whole thing so you've got progressive prosecutors who aren't even prosecuting the gun laws we got on the books that's got to change and ted cruz thinks this is about the back door being unlocked i mean the the stupidity across the board left to right everybody in between the incompetence is stunning and it has to stop yeah but jake out look i mean if you make this about people's lawful gun ownership they're going to oppose what you want to do we got to make it well there has to be some incremental controls don't you agree there has to be control the controls are basically preventing known psychos from getting weapons okay so you want to focus on that but to be clear no additional gun control for you background checks or anything or not background checks right now i just want to be clear red flag laws and background checks are good i know we have to wrap i think the consensus was around red flag there's a known profile chamath articulated it well david i don't think we helped the cause to build the consensus by calling a sick 16 year old kid struggling with self-identity a psycho and because their their kids who live all around us this isn't about lecture this is about building consensus i think we can profile those folks they clearly have psychotic uh uh challenges right but there is intervention to help these kids i know a lot of kids who frankly had challenges during high school who turned out to be great great human beings so these are kids at a very vulnerable age we should profile them within the community social networks should help us identify these folks and we should get them help and i think you can build a reasonable consensus around that yeah i agree just to explain myself i'm by when i use the word psycho i'm referring to the the ones who actually became shooters you know i'm referring to those ones um you're right that if we're talking about people who haven't done anything yet who are mentally ill yes we should get them help so mental illness you know this is and this goes to healthcare as well we should have national mental health services available freely to every american we are in a mental health crisis between covid and just modern life and suicide is becoming the number one cause of death sadly for many um demographics now including our kids and so while we do a great job making cars safer and creating life-saving drugs and and emergency rooms and and medical attention has gotten unbelievable and we're making all these uh you know great advances mental health we're not making the advances we need i'm so so so sorry to all those families yeah this is just heartbreaking i guess you're emotional yeah but i'm just so sorry for all those people dealing with it it's heartbreaking yeah yeah heartbreaking let's take some action here enough with the thoughts and prayers let's actually come up with a [ __ ] plan and just i've been profiled for years i put up with it sorry for the indignity it's okay i said uh my honest perspective is there's a clustering and a technology component to this that can meaningfully help and we need to start knowing that there are these patterns we need to say the words out loud they are patterns for these school shooters for these mass shooters those patterns can be written down they have been written down and we need to do something about it they need to be codified in some form of algorithms and if we've already taught our kids how to duck and hide i think we can also teach our kids how to raise their hand well before they need to learn to duck and i identify who's being bullied into your point your mouth about being profiled if we profile somebody and they're not a mass shooter candidate but they're just depressed or they're being bullied well that's ver that they deserve help as well so there's no downside to profiling somebody who's struggling you're profiling them with the intent of getting them help so let's just profile the kids who are struggling profile them for good and you you'll catch some you know who's struggling a priority my point is that you actually well they're being bullied they're going to probably be struggling i mean you know the kids getting bored psychographic and demographic profiles of the 99 of the cases that we've seen over the last two decades and all i'm encouraging politicians and technology companies to do is come together create some standard you know what's the downside what's the downside none zero we have mechanisms like this by the way where um you know these technology companies already do these kinds of profiles on other kinds of situations you know typically you need a physical request and other kinds of like legal interventions in order to unlock this data but it's not as if this is uh you know antithetical to what they do in other situations they certainly do it for fraud in advertising it's not as if the technological prowess of these companies cannot be applied to a k-means clustering of this issue okay just to use a simple machine learning context like this is they put a lot of effort into finding click fraud right this is going to be a very similar problem we don't allow angry young men who've been emailing with the middle east who are citizens of this country who've been posting online that they want to run a plane into a building to go get their pilot's license right we profiled them after september 11th and we said no moss and all chamath is saying is use your [ __ ] common sense identify these folks that we know are struggling to need help and put them on a list and say they can't buy an assault weapon period yeah all right everybody it's time to go uh thank you uh to uh brad kirschner for sitting in uh thanks again to the dictator tremofita and uh thanks saks and thanks to everybody who uh spoke at the all in summit we've been um releasing all of the videos freyberg will be back next week as well the hammer lucky explosive episode so look for a great week of all in content next week we'll see you all next time rain man david sacks and it said we open source it to the fans and they've just gone crazy with it [Music] besties [Music] we need to get back [Music]










jacob you look a little grifty feel okay yeah me i'm great i'm great you look half a milli richer today what's it like to be half of millie richard jacob you look like a failed hostage taker laugh it up boy slap it up boys laugh it up boys when you see my other projects drop you're going to be crying again okay i can't wait why don't you take yes for an answer jacob i i've taken this for an answer welcome to the all in podcast where three miserable rich bastards who pull up the ladder behind him do you want to explain why it took us a month to produce a new episode jkl hold on a second attorney let me give you guys the tl dr jacal thought the all in pod was his and then he realized it wasn't no if you guys want to go there we go there i'm totally transparent i requested i requested to own six percent more of the all-in podcast no no back up to the summit back up to when you wanted to kick me off the show back up before that where we oh my god are we really doing this yeah we're gonna do it we're gonna okay if you wanna do it we do it we can't talk about this for 45 minutes because what happens it's so boring so plan the summer we planned the summit j cal doesn't like how i was concerned about the summit and i bitched at him and you know i was negative to him finish the summit and j cal wants to kick me off the show yes brad gerstner bill gurley would have higher rates it comes to the bottom i think it was me and jacob getting into it it wasn't it was actually it started with free burger and jacob getting into it wanted me off the show all right i'll do i get to explain the series of events right now you wanted me off the show true or false j cal i felt that admit it if friedberg if friedberg wasn't enjoying his time here and was going to constantly complain every week about every detail why the show's not good there was always the option for him to maybe do half the shows and have brad garcia or do half the shows or have bill gurley or rotate in and so if he was going to be miserable all the time and worried about the show i gave him the option to have somebody else take his spot did you or did you not say that this is your show you're the leader and you wanted me off the show i never said that i don't know nor would i say that i don't need to say that you could summarily replace any of us effectively you acted like we all work i don't think tremont's replaceable just for the record so that's true he does think that he does i do not think it's replaceable freeberg i do think i mean i could pull up the brad gerstner episodes i think they have slightly more views so but people love you so we keep cal told my mom and my wife that he thought i was replaceable on the show guys i would like to jump in by just summarizing this so that we can move on so basically what happened was we had an agreement that it was 25 percent each there was a moment where j cal believed that he deserved more we had to sort through a lot of the underlying issues that caused them to believe that we got to a good consensus we now have a signed agreement that governs how the show and other things around the show and offshoots of the show will work we are 25 equal partners and now we can move on so enough for the bitching let's go all good and i love you all i love you all too i love you all too to be clear my position i i do feel like this nice spot here was if we're gonna make it into a media company my request was listen i think i own i should have 10 more equity and i'll go to work every day and do the work and you guys can just show up you guys agreed to that and then you guys have said you don't want to do it and i said okay fine so here we are we're back at square one so let's just get to work we just want to do a pod and we just want to talk there's not gonna be any more summits there's not gonna be any business here it's just a pod i have other events i do i have other pods i do if i want to get paid i'll do them over there and here it's just a pod that you see every week so let's get into it everybody wants to talk about markets oh by the way if you guys want your intros that's one percent each intros go do okay good those are one percent each so when you guys are willing to pay me my one percent additional equity you get the intros and when you want the all in summit 2023 that's another one we're gonna get an invoice each week from jcal now you're gonna get it's gonna be prorated monthly it's gonna be a point eight percent equity per month vested i just think it's so fascinating that we went through all of this you know i don't know storm and drawing or whatever this this like you know a month of non-taping and you know and this like all this turmoil in our relationship so you could get an extra one percent from us two percent each thirty one two percent i believe i should just so you know i do this for a living and if i do extra work i believe i should uh and if you want me to be the the de facto ceo of this then i should get a little extra we don't want that and you don't want that so that's fine that's fine this is just going to be a project we do it every week and then all your grips whatever you know you're spinning out from the production board or whatever copycat app you're making you can [ __ ] do as a side here we go do the intros let's get going come on let's go i'm not no there's no zero intros no interest intros are out wait what about hey everybody hey everybody i'll i'll do it hey everybody hey everybody on the house hey everybody hey everybody welcome to another [Music] [Music] hey everybody welcome to another episode of the all-in podcast we're back for episode 84 with me of cour course uh the sultan of science the prince of panic attacks the queen of quinoa himself david friedberg how you doing buddy great to be here great to be here all right can you feel the tension there's still a lot of tension there's still tension there's a little tension there jkl and i will be hanging out tomorrow night we'll we'll make it have you guys resolved it i'm cool with it i'm cool for a break on dinner i think we're good he did buy me a wonderful dinner oh my lord after the warriors game shout out to the words uh all right and of course with us is the rain man himself david sacks how you doing buddy good you ready to go don't try and deflect this thing on to me i was only tangentially involved says the guy who spent 72 hours a contract i wrote a very fair contract so that we can move forward yeah and then you proceeded to break it in the first 15 minutes by slandering me and disparaging me but okay oh come on that was good for ratings good for ratings yes i thought your meme was pretty great he did the meme the two buttons and the superhero triangles and i was like jason that was good making jokes uh breaking the breaking the non-disparaging clause and then of course the dictator himself uh from some undisclosed location in a european city i don't know if i'm allowed to say that jeremiah pattia welcome back boys episode what's up boys all right uh well since we last convened let's get it on yes the the all in summit is finished all the episodes have been released uh including palmer lucky yesterday and here we go the markets are in complete turmoil uh spy down 21 percent year-to-date dow's down 17 year-to-date as sax has pointed out that is not representative of what happened to growth socks at the same time and uh the may cpi uh went up and it was at 8.6 we also got the 75 basis point rate hike who wants to start here chamath i mean it's market so maybe i'll just dump it to you first and then we'll go around the horn to sacks and then free bird wow there's a lot to say so uh bear with me for a second but um the thing that you have to do before you talk about what is happening now i think it's probably useful to go back and you have to really start at the end of the great financial crisis and the reason is there was a bunch of people coming out of the gfc who confused what the us government and some european governments were doing at the time there was the risk of a huge financial contagion and so the u.s stepped in and the federal reserve started to use their balance sheet to buy toxic assets right and the ecb did that and i think japan did that as well anyways a bunch of banks did it i mean a bunch of governments did it and then there was this body of pseudoscientist certificate economists who coined this thing called modern monetary theory which basically said hey you can keep printing money and introducing it into the economy to smooth things out and to actually drive long-term growth and it turns out that a bunch of government officials fell for it and if you fast forward to 2022 so 14 years later you know governments around the world had printed something to the tune of about 30 35 odd trillion dollars of money into the economy that should have never been there so the thing to remember is like we have not necessarily just been obfuscating true supply demand in the last six or eight months when we've been talking about a recession or inflation we've been actually doing it since 2008 it's just that it's been building up in the system so one of the things that we have to realize is that all of that money somehow needs to get destroyed in some way shape or form if the true economic equilibrium is meant to be found what is true supply what is true demand in the absence of government sloshing money around trying to prop up things that should not be propped up or buying votes or all the griffs that these folks have engaged in in the last you know decade and a half have to get undone so that's the backdrop so if you think about taking 30 trillion dollars out of the global economy you know you're talking about almost you know i think it's 85 trillion is the world gdp so like you know it's it's it's almost half of an entire year's worth of global gdp it's going to take three years probably of the slow meticulous you know running off of money you know not reintroducing new money so it seems like we're at the beginning of the beginning of something that's going to be long and drawn out now that's separate from and that's separate from whether we're in a recession or not that's just the bear market that we're in right and so you have to look at asset prices today as a microcosm of a much larger trend that has to be about fake money pushing asset prices up and now taking all that fake money out and finding out what the real price of something is and i just don't think that takes six months so for all the people that were you know fingers crossed hoping that this would be the end of it fed raises 75 we're done with this they're going to raise 75 more i just think that's not how it's probably going to be it's going to take you know 24 36 months that may mean the bottom doesn't happen for another 18 months so i think it's a we're we're in for a lot of choppy um market action saks three asset bubbles clearly all um you know being impacted we had stocks looks like that story was pretty violent uh then we had crypto this last two or three weeks have been absolutely insane in terms of that asset bubble and now uh record high inventories for homes record um sales are now dipping below the average of the last 20 years and um we're seeing uh mortgage origination just absolutely get crushed six percent mortgages just a couple of months ago it was two point x uh for some folks so when you look at those three asset bubbles do you buy chamats hey we're going to see even more deprecation in these for another 18 months possibly or do you think we've taken such crazy action this has come down so violently that we're now bouncing along the bottom bouncing along the bottom or 18 months of more pain well the the stock market especially growth stocks may have taken the majority of the carnage but you're right there are other asset classes and i think we're going to see the carnage start to rotate into those so you're right if you look at residential real estate now the prices are at the highest they've been relative to median income since something like 2006 2007 before that sort of great real estate crash that precipitated the great recession of 2008. so i think there are going to be more more shoes to drop i just want to build on chamas point about root causes here milton friedman once said that there's nothing quite so permanent as a temporary government program the temporary government program was quantitative easing we had this great recession of 2008 that could have turned into a depression they broke the glass in case of emergency they started this qe which is basically the government intervening to buy bonds in the market they had never done that before and they loaded up their balance sheet the crazy thing is that program was still continuing until last year why i mean it was like on cruise control and so last year it was it was continuing until last month and countries like europe are still doing it nine percent inflation in europe and they're still buying bonds right so you go back to last year the fed bought 54 of the government's debt despite the fact that the economy was growing at like 5 gdp that it was bouncing back really strongly from covet that you had the stock market at all-time highs and yet they were still intervening with this massive qe and then when we got the surprise 5.1 inflation print last summer they didn't stop qe till the end of q1 so you're right they kept basically printing money and it's still going on and that's created massive distortions in the economy now so the fed i would say is the number one culprit here and jpal is the number one culprit but the number two culprit is the binding administration and i think biden did three things very early on in the first few months of his presidency to effectively tank his presidency number one he canceled our energy independence on his first day in office canceling the keystone pipeline and making it much harder to drill and of course energy inflation's number one factor in this sort of overall inflation number two he pushed through that last two trillion of stimulus on straight party lines the arp the american rescue plan after larry summers said economists in his own party said this is going to create inflation don't do it and then the third thing is and no one really talks about this is that biden could have used diplomacy in 2021 to basically find an off-ramp to this ukraine crisis before it turned into a full-fledged war and if you listen to the economist the international development economist like jeffrey sachs he basically says that biden pulled his cabinet and said listen should we negotiate and compromise with the russians they all said no and biden handed down the order we will not compromise with the russians so now we have this massive war in ukraine that's fueling food and energy inflation it's going to take his presidency and i don't even think there was any difficulty about this we may not be negotiating against russia but we're enabling them to print enormous uh surpluses meaning i don't know if you guys saw but there was an article today janet yellen is traveling around basically convincing folks to uh not include russian oil from a bunch of import bans so that these russian oil tankers can be insured why so that they can sell this oil to places like china and india et cetera is on a five-time five-year high the ruble's at a five-year high we push for all these sanctions europe gets on board and says we're going to do it and we're going to take the lumps and then we go around europe and basically say well we kind of want to fight this proxy war but at the same time we want to try to fix inflation and we didn't mean to cause this and it's completely disorganized what's happening so if you had six minutes in the pool for when saks would blame biden for the economy uh you win who do you blame we talked about quantitative easing starting in 2008 so that that goes over a couple of presents and i guess the question i would have for you sax is how much of the spending the free willing spending you know um you know was from the previous administration because it does spending is a bipartisan problem there's no question about it but i just want to make sure that we point that out yeah for sure and republicans only seem to find their principles on spending whether there's a democrat in the white house i totally get it and i would like to see more fiscal responsibility regardless of which party is in power and i'd like to see the republicans less be less hypocritical in their principles on this but look perfect here's the thing the economy was bouncing back strongly last year and binds still pushed for this last 2 trillion of spending and then 1.2 trillion more on infrastructure and then remember the 4 trillion to build back better where mansion saved them for themselves exactly i mean what would if what would that have looked like uh freeberg you haven't spoken yet uh thoughts on you know this these asset bubbles i guess and then the buying of the bonds seemed completely unnecessary for some period of time if we are acting as the 50 plus buyer of bonds what kind of distortion does that create in the market because if the government's competing against other people in the marketplace to buy those bonds how could they possibly be priced correctly let's just be very careful about our framing there's the us treasury which issues bonds and raises capital on behalf of the us government for spending programs then there's the central bank the federal reserve and our central bank's job is to number one maintain liquidity in the capital markets so that businesses can invest in growing their their products and growing their businesses and the economy grows while not providing too much liquidity that you end up with inflationary effects and inflationary effects means that there's too much money in the market and you see that money find its way into escalating prices on different you know assets and the fed's long-term goal to remember is to provide a stated goal of jerome powell in particular right now this changes over time but generally the intention of the federal reserve is to make liquidity to make cash available to banks who ultimately make it available to businesses in such a way that there's enough cash in the system that the businesses grow and that people have capital to invest in growth while keeping inflation at two percent so their long-term target is two percent inflation and it's also correct me if i'm wrong making sure that there's enough cash to support economic growth so remember last year you'll remember stan druckenmiller was very public about how insane it was that the federal reserve was still buying bonds and so so there's one way to introduce cash into the system is to make cash available as a loan to banks and then those you know banks use that money to loan to businesses and it makes its way through the economy another way is for the federal reserve to step in and actually buy bonds freeing up the money that other people would be otherwise using to buy bonds to go and invest in other things so they're effectively forcing liquidity into the market by taking bonds out of the market and last summer or q2 of last year druckenmiller was pounding the table saying guys the economic indicators on how quickly the markets are how quickly the economy is growing relative to how much inflation there is indicates that we should stop buying bonds and we should stop injecting liquidity into the markets this makes no sense it is nonsensical and there was no strong point of view from the fed at the time other than there was uncertainty about the the bounce back of the from the recession from covid there was uncertainty about what else was happening in the economy and yada yada but the the numbers the economic indicators were showing very clearly the economy is growing in a robust pace low unemployment and inflation is starting to pick up holy crap it's time to cool it off and the fed made a judgment call and their judgment call really kind of was to keep going and then we end up in this massive runaway inflationary problem where if you keep too much liquidity in the system for too long you have inflation even if you have economic growth and now by pulling the money out of the system super super fast we reduce the inflationary effects potentially but we tank the economy because now all this money coming out of the market means people are spending less and buying less and businesses have less to borrow right the borrowing costs are high and then that that's that's the big vacuum okay hold on let me go to chamath and then sex the rate the rate at which we pull the money out which has had to be really really fast over the last few weeks can cause a recession and that's the the biggest concern right now is will that actually trigger a massive recession or not that everyone's watching so chamath i guess one of the things we need to clarify here is the actual mandate of the fed i was under the understanding that the fed really was there to make sure of maximum employment and that you know low interest loans were available and price stability these are the were the stated goals for a long time not low interest rates capital capital is available availability to grow moderate rates without exceeding inflation of two percent that's okay so maximum employment price stability was also in there that's not really gp growth because remember we can't ever pay our debt if our gdp is not growing okay while minimizing uh while keeping inflation below two percent chabot whatever point you want to make feel free to make but also i was just wanted to know from you where did the fed go wrong with their mandate if at all here because we do have maximum employment now we have out of control price stability look here's the thing you you i think we have to also be sensitive to the fact that the fed operates on a certain class of data and that data in the 21st century is pretty pathetic nick you can probably find this but there was an article i think it was in the new york times that really walk through how cpi is calculated and it's a bunch of people that work for the government that walk around with ipads building relationships with local businesses and all these random places all around the country and asking them to you know chit chat for 15 minutes and do these surveys now you would have thought that in 2023 or 2022 what the government would have said to you know visa mastercard american express all the payment rails the banks and stripe is send me a feed in the following structured way so that i can actually have an absolute precise sense of inflation because inflation really only occurs when a good or a service trades hands for money right and you calculate what did that thing trade at the day before and what is the trade for today so you could get an absolute precise sense of it instead we do this random sampling thing and some extensive humans etc so if you read this article your takeaway will be oh my god this is very rickety and it drives an enormous hammer that we use to try to manage the economy that's the first thing i think you need to buckle your seat belt because the next three four five months of cpi will probably be very very bad seven eight nine percent why there are a handful of components that have gotten completely run away number one the biggest one is rent and so rent works on a three-month lag we're going to reintroduce what the true owner's equivalent rent renters into cpi so we can already forecast that cpi going up oil is at 105 bucks a barrel russia is basically trying to break the bank of europe by now messing with their nat gas supplies the german energy minister yesterday said that if that happens it could be a contagion equivalent to lehman brothers with respect to energy when you play all of these things out what you have is unfortunately rampant runaway costs that really have no mechanism to get back in check in the absence of some real governmental changes our policy on this ukraine russia war you know how we intend to sort of uh work or cooperate or fight with china all of these things have to get solved so in the absence of that prices are going to continue to go up and so what does the fed do how does it throw away what little credibility it has left when there's eight and nine percent inflation prints and saying we think we're done for right now you can't do that so they will over correct because there is just going to be so much pressure for them to act all roads i think lead to lower equity prices and i think what david said astutely is we've seen the first wave but now it has to touch all these other areas for example we have gotten totally drunk on debt as a country one of the most obvious places where we've been serving alcohol far too late into the night is in the financing of all these private equity leverage buyouts right these are dangerous these are sketchy companies that are sort of like you know teetering on insolvency at times where private equity comes in levers up the balance sheet with debt they price it right to the edge of what's legally allowed or what's financiable and then they go do it but that's all assuming the economy continues to grow and so if all of a sudden you have some recessionary forces or prices go up and earnings don't you'll have you know a contagion in the debt markets you could have a contagion in the commodity market so we're dealing with some really um tough boundary conditions i mean real estate most of most americans have most of their net worth tied up in real estate and if we see a 30 30 correction in real estate it could be a real problem particularly with rising interest rates inability to refinance sacks the dual mandate is hey keep inflation two percent and then keep the unemployment rate reasonable the unemployment rate's amazing with still so many jobs out there even with these layoffs in fact one might argue we made too many jobs available to the point at which people maybe aren't working as much or just you know under working um uh and not taking advantage of these amazing jobs out there where do you see this going sax now um that we can't seem to get inflation under control and people are looking at their 401ks they feel a lot poorer but is the demand side gone yet have have consumers decided i'm not going to buy the next house i'm not going on this vacation six dollar gas makes no sense seven dollar gas makes no sense i'm not going to go on this weekend excursion i'm staying home yeah i mean look consumer confidence just had the biggest drop i think in 40 or 50 years um we if you look at like right track wrong track polling for the country only something like 24 percent believes that the country's on the right track right now if you poll people are we in a recession and they don't look at like you know the quarter of a quarter growth they just look at what they're feeling 56 percent of the country says we're already in recession it's about 70 percent republicans about 50 percent democrats so the country is already hurting people already feeling it and this is psychological sacks or are they actually making decisions now to spend less well i think it's both i mean you start with the real inflation and people feel it and they also hear about it in the media and then they start to adjust their their decisions and this is the problem with fixing yeah this is a problem with fixing an inflation problem is that it's based on expectations so once people start to expect inflation then businesses have to start operating as if there's going to be an inflation rate next year so they have to start raising prices and it's actually very hard to put the horse back in the barn and this is why i think the fed is probably more likely to overshoot on raising rates is because if they really want to stop inflation now they really have to slam on the brakes and then that's going to lead to a recession and if they don't then we end up with like a chronic sort of stagflationary situation where you get lower growth and inflation persists so it's a bunch of bad options right now and i think to the point freeburg was making earlier you know this ray dalio piece that he's published as a blog on linkedin he said look what you want is a fed that is alert at the wheel and gently applies the accelerator or the brakes based on what's happening and instead what we had is the fed was asleep at the wheel they should have started reacting gently to inflation last summer instead they waited nine months and now they're slamming on the brakes and this is a bunch of bad options i think we you know we are going to have a recession the way this is can i just make one suggestion i want to put this out there because i sent it on our text and i anyone that's listening in dc please think about how we can change the way the federal reserve operates but it doesn't make sense to have humans with subjectivity applying their subjectivity to a set of as chamath pointed out infrequent data that comes in chunks and comes in spurts and only having a mechanism of changing rates by 25 each month or sorry 25 basis points once a month we should have continuous real-time monitoring of economic data and software or ai or some sort of informed set of models should then predict what inflation and economic growth rates will be as that data comes in react in real time and on a daily basis we should be adjusting the overnight rate in a one basis point increment so we can have the ability to more quickly more efficiently and in a higher resolution yeah smooth it out a smoother way in a higher resolution way make these adjustments it's silly that we're still operating the way we did in a pre-digital age as it is with a lot of industries and a lot of bureaucracy but in this case it's particularly prudent and it's becoming particularly important and relevant as we're seeing right now with the stagflation risk that we're facing where we could have massive inflation and recession at the same time because if we had made smaller adjustments every day for a period of time as these economic data indicated that we should be making them more quickly we would not be in this problem and i don't think that having humans and their judgment should necessarily be the way that we drive yeah but listen we don't need them making daily adjustments i don't think the fed can fine-tune an outcome like that i just think that they can't be asleep at the wheel for nine months i mean we should have ai running this freaking thing i mean listen i i don't i actually don't think when you said that you know congress needs to somehow change the way the fed does business i actually think that the fed has the correct mandate which is the dual mandate of considering inflation and unemployment we shouldn't be basically junking that up by adding a bunch of mandates and actually the administration has been trying to add mandates they basically gave the fed a mandate around climate change they gave them a mandate yeah no i agree don't you don't change the mandate don't change them it can't be the tools the tools should change yeah right we really want a focused fed and i think the administration has been politicizing the fed by giving them a bunch of mandates look if you want to pursue those policies do it at hacks do it in the interior department don't basically confuse the fed and make them pursue climate change or equity or what have you i mean that is just bad that is not their remit right their remit is controlling inflation i really think this just comes down to the fact that for nine months they sat on their hands and ignored the inflation evidence remember this word transitory you know we heard so much last year about inflation being transitory how'd they know that you know why didn't they start rethinking this quantitative easing the headline from the wall street journal says it all how the inflation rate is measured 477 government workers at grocery stores yeah software should be taking data from different feeds and software can learn i don't i don't agree with you and what are the predictors of inflation and what are the predictors of growth and make a recommendation i don't agree with you that it needs to be real time in fact i think it would do more harm than good but i do think that we can know these things without sampling in such a porous way and you know you can work with private companies to give you the feed of data to to allow you to do it and now you know we're going to look we've had a system of over correcting and under correcting for years the problem is the stakes get higher and higher as the economy grows and becomes more complicated and energy and we have more leverage and we have more leverage and we have more industries that are leveraged and more asset classes that are leveraged like housing because this is such by even a few points you could tank everything i also want to tell you guys a quick story one of the most interesting canaries in the coal mine of all of this was two days ago and what uh happened to facebook and this sort of ties a lot of this stuff together in terms of like economics inflation asset prices equities tech we should we then we can try to talk about non sort of you know big tech but the everybody was saying oh gosh the market's going to rip on the open you know we were closed for juneteenth and then on tuesday the market you know the s p was up like 250 basis points 2.5 and the nasdaq was also up you know call it maybe 300 basis points roughly but facebook was down like 400 points right so it's a big spread and why is that and i was like this makes no sense to me what is going on with this price action everything was up apple was up google was up and so i called around and you know i was like why is this happening and this is the best explanation i got when you look at who the incremental buyer is in the stock market it tends to give you a sense of whether prices can go up or will continue to go down and the poorest informed buyer tends to be retail and the most informed buyer tends to be these very large institutional hedge funds right so there's a spectrum and uh facebook is an example of one of the of big tech that is poorly owned by retail so it's mostly owned by smart money and the case that smart money makes for owning facebook is that it's got an extremely cheap price to earnings ratio so you must own it and what they said was that they you know looking at the tea leaves of consumer demand what they actually re-underwrote was that actually it's not that the price to earnings was cheap it's that the e in p e was just wrong and if they pass through all of these increases in inflation and you know their earnings expectations into facebook it's actually more like fair value at a lower price that's why they sold it so much on a day where the market was up now why is that important well eventually you're going to touch all these other stocks as well that are going to go through earnings revisions in this recession this is where i think wall street has done a very poor job on behalf of retail if you look at the average estimates of earnings you will be shocked to hear that wall street actually has this year being record earnings next year earnings continuing to go up how is that possible well how was that how was i if you were sitting here happening do you see how do you see earnings continuing to go up into these prints like this when you cannot pass through you know 80 90 increases in energy and cogs and whatnot how does that mean i think the what people would say is maybe they're going to lower their costs and so with layoffs and con and lowering salaries and lowering spend on advertising you know the earning the e could go up if people because start belt tightening and then we start having companies that are being run you know just more um you'll have to you have to sell fewer things because there'll be fewer people with jobs to buy things but we have 10 million job openings so this is the weird thing about this recession is because we haven't let a lot of people immigrate into the country but exactly so many jobs is that what you think the consensus view on wall street is that basically a bunch of people get fired and so that's why earnings continue to go up well they stopped hiring for two years in advance right facebook said they were hiring for like 2024 their hiring plans were looking out two years so now if they go on a hiring freeze maybe there's you know i'm going to number one i'm just putting out a theory i'll give you the counter factual i think wall street's wrong okay and i think that earnings are going to go down this year and will definitely go down in 23 and so i think what probably happens is the entire world of equities needs to get repriced at a lower price and in that it's going to put enormous pressure on these cash-burning non-profitable tech companies well that's for sure but in the ones that are profitable chamath they're aware of this facebook just canceled like two of their prototypes they were working on to save money so that whole 10 billion dollars into you know vr i think they're trying to make that number looks more smaller uh sax what do you think well i think you're bringing up a really interesting point with this the 10 million you know job openings and what now that that number is coming down really fast as companies close open wrecks and they basically freeze hiring so that number is going to come down very very fast but one of the major contributors to inflation is that the labor force participation has been very low uh millions of people left the labor force during covet as a result of the stimulus checks and the freezing of rent and evictions i mean look rent's the number people's number one expense if they don't have to pay rent for a couple of years a lot of them may not work or may not work as much so we've had this problem where we really need about two million people to re-enter the labor force and if you describe inflation as too much money chasing too few goods we need to increase production and productive capacity and when you have millions of people dropping out of the labor force you've got less goods and services being produced that people want so just reducing the money supply is not going to get us out of this mess we also need to improve productive capacity just to put a number on that we peaked in the 1999 era at 67 percent of participation labor force uh and then it's been down in this low 60s 61 62 and it continues to be low but that is the solution here we get that seven percent that gap um just fix the demand side because if all you do is fix the demand side what you're doing is you're killing the economy to reduce demand in order to bring it down prices that's very painful it's all pain but what you also have to do is fix the supply side you have to increase the availability of all the critical inputs into the economy so labor obviously is one of them but also critical resources like energy you know oil natural gas and so on and that goes back to fixing the supply chain hopefully getting a resolution of the situation in ukraine the war so if we could fix those things it's a way to improve the economy without creating more pain freeberg if the prices of just daily living of which transportation and housing and health care are now the top three i believe um groceries and health care i think have flip-flopped a couple times in the last decade in terms of cost if those things go up would that make people want to go back to work to pay for those things or does it create capitulation where people say i'm moving in with my cousin i'm going to lower my balance sheet what is your prediction there are more people going to go to work or do we still have this you know call it 10 million people in the country who just don't want to go to work i've mentioned this in the past but i think there's more there's another kind of interesting outcome of this we we've had several months in a row of pretty significant increase in consumer credit and i think the reason is things are getting more expensive people generally do not like to reduce their spend on stuff or they're living their lifestyle once you get used to a lifestyle like going out to dinner once a week or going to the movies every week and you create a budget you create a life experience around that a model around that it's very hard to say okay i gotta cut budget now and i gotta reduce my life i would rather say i'm gonna keep doing that or at least there's some inertia or some momentum to keep spending on the things that you've been spending on and the way you do that in a model where you don't have as much income or you have less income and things are getting more expensive is you take on more debt and so there is a little bit of a nervousness that i have had that people's response generally the consumer response to inflation and uh to a uh kind of a a shifting um income environment like this is not necessarily to cut as quickly but take on more debt and keep keep buying and so i am a little nervous about that but i do think obviously at some point everyone has to figure out ways to generate income there have been a lot of these kind of ancillary markets that are typically the first to go these extra services markets where people you know have found other ways to make money side hustles and whatnot um that may or may not be as robust as they have been historically and so people may need to go back for more secure stable income and and these jobs get filled i look i mean as we all know there's an opportunity and this is the whole concept i think behind build back better it's not super thoughtful in terms of the approach um i think based on my understanding of where that money's supposed to go because it doesn't create long-term jobs but there is an opportunity to build um new manufacturing and new infrastructure jobs in the u.s right now that could enable a healthy transition here but that legislation needs to be done smart it can't be done with this like hey let's build a bunch of bridges and then a bunch of contractors make a bunch of money and no one has any long-term jobs out of it we've got to find ways to spend money on creating long-term sustainable um you know new industry here yeah and job openings 11.4 it's come down about six or seven percent so you know it's gonna be trailing but it's for sure we're seeing it in our industry with the hiring freezes that you know we're gonna work through those open jobs what are the chances that inflation gets under control in the next year and should the fed go for like the one percent slam on the brakes there was some talk about that obviously they went forward remember a lot of the elements that we were um kind of saying oh my gosh i can't believe the climate prices so you know wheat is down i think 30 percent lumber is down 50 uh gas prices are coming down so you know there are some of these um you know commodity spikes that we've experienced over the past couple of quarters uh particularly recently that are really that have had a significant part of the fueling effect on the inflationary uh trickle down into ultimately end products and whatnot uh and those are coming down um you know there's a real question of how quickly that flows through the economy and flows through to the price of goods uh that consumers ultimately end up paying for the gas prices right now are the biggest concern right like unless you can get gas prices under control that always always has a massive impact on spending uh on consumer spending which drives a recessionary cycle um and so the if i'm the biden administration i'm first and foremost i don't care about the general inflationary indicators as much as i care about getting the price of gas down that is a super super critical number to fix is is this are these gas prices gonna change how americans look at what car they buy because they're going to get worse last time we had that they're going to have people started looking at not buying suvs we could have seven dollar gas oh i said there was a picture actually uh i tweeted in california there was a seven dollar eleven cents broadly broadly we could have seven dollar gas all throughout the country but jkl the um you know remember the average automotive automobile in the us lasts for 12 years that's how often people change out their cars so that's eight percent of the fleet being changed per year yep and the interest rates for auto loans have spiked like crazy now with this change in the fed rates and as a result the uh delinquency on auto loan portfolios has spiked like crazy yeah and so you know yes sure theoretically people will think about buying an electric car but most people aren't thinking about that on average for five or six years from now because that's the average of a 12 year cycle right five five years from now wait till all these peloton bikes need to get repossessed well all these uh actually the the the weight for cars and the overpricing of cars has ended in the last two months and there are multiple cars now on the market 25 30k for a 50 plus mile per gallon gallon car i think this actually one of the silver linings coming out of this is people might actually stop buying as many suvs or you know i think our average is in the low 20s right now and europe's is in the high 40s the problem is like you know every other for miles per gallon part of the government acknowledges that you have to really ring fence and protect consumers right like if you look at the securities laws uh they're meant to protect them at all costs um and jason you've you know you've been frustrated by some of the rules that haven't changed and when they change they change so slowly but the reason is because sometimes that you want people to make good decisions and if you uh you know give them a bunch of firepower they're just gonna spend it and you know what we really did was we gave folks just a ton of money and what did they do they acted rationally they spent it now we have to take it all back um and that's that's i don't think that's going to be as easy or as simple as people think what what percentage of the money supply do you think is in excess right now in the united states well look i told you this because i wrote this in my annual letter but it's it's stunning that you know the reason the stock market went up dollar for dollar was actually tied to the growth in the m2 money supply the correlation was 0.92 so for every dollar that the fed printed the stock market went up by 92 cents so you know it stands to reason that if the fed is going to take three to five trillion dollars of value out then we have to re-rate the equity markets by three to five trillion dollars at a minimum and then you have to re-rate and re-baseline for earnings and so that's probably another 20 or 30 percent it's good yeah let's talk about the end game here um the rates go up people stop buying homes people go back to work and uh energy prices come back down because people are not buying as much of it spending goes down and people rebalance and that takes a year the job openings could also disappear by the way i mean like they're going down 400 thousand a month is what are you doing yeah yeah you're the people you're assuming that all of a sudden like demand is stable but it's not necessarily stable and it demand and in a demand contraction yes people get fired but then also new job openings change right yeah there's fewer of them they're they're more specific in the way that people salaries go down right that's the salaries go down that's the piece i'm waiting for that to me that would be i don't know if you guys have early warning signs but the two early warning signs i have in my you know uh uh job of investing in early stage companies is when people well what's the average salary for an engineer if that hasn't gone down by now then that's a lagging indicator right that would be to me capitulation salaries go down or people instead of laying people off sacks they do uh salary cuts at a company that is really hard to do right that's yeah i don't know i don't think they do solution preferences and deals right i think the way the salaries come down is that startups freeze their hiring plans where they lay people off and all of a sudden the war for talent subsides it's easier to hire people and so there's no need to keep raising up seeing that yeah i think we're seeing the beginning of it but i gotta tell you i mean i think that startups have not fully embraced or realized what's happening i just got back from the co2 summit over the past couple of days this was an event that was hosted by kotu you know whose founders are felipe and thomas lafont very smart guys very smart investors who've been public market sort of hedge fund investors for a long time but also have a large venture fund to do growth stage investing some of the takeaways from that conference some of the more vivid lines that stuck with me is that one of the speakers said that he said that when it comes to runway for startups three to four years is the new two years because if you just have two years of runway you're going to need to raise in a year and in a year from now we're going to be in the middle of a recession they're predicting they're forecasting that capital availability is going to decline about 75 percent the amount of money that's venture money that's available to the ecosystem downs by three quarters so if you try to raise in that environment either you're not going to be able to or investors are going to you know have all the leverage you're not going to get terms that you like so they were recommending three to four years of runway so that is not what i think a lot of companies are just not even possible the other thing that the other really vivid takeaway is that they did some polling of the startup founders who are in attendance okay and what the numbers basically showed is a is a contradiction on the one hand the founders sort of understood that intellectually that we're headed into a downturn we're headed to a recession and so the polling reflected that on the other hand if you ask the founders how they're going to react to it what are you going to do about are you going to cut a head count or are you going to accelerate your business to beat competitors everybody said oh we're going to out accelerate our competitors so everybody thought that they're the exception in other words everyone understood we're headed for this massive recession it's going to be really bad but we're going to be the one company that doesn't need to cut we're actually going to grow we're going to accelerate during the downturn so there was a real contradiction in how founders are interpreting this advice and i have to tell you when i talk to founders in our own portfolio what i see is you know we've now done multiple meetings where we lay out what's happening in the economy and they get it they understand it and when we do a board meeting they're like okay we're going to go look at our plan and we're going to reevaluate and we're going to make major cuts we're going to bring our burn multiple down to you know the where it should be but then you know when you check in with them a couple of months later and you're like where are you on the planet i haven't taken the medicine it's it or or the medicine is like a 10 cut and i'm like guys like 10 a performance review yeah like temperatures you should be doing every year anyway yeah you get rid of the the bottom like the c performers you promote the a's and b's and get rid of the c so no one really wants to take the medicine yet and um you know it's a problem i mean sequoia has this great chart called survival of the quickest that we should put up on the screen and it shows two lines one company is the one that takes the medicine right away brings their burn down to where it should be and then they're able to grow from there and they really will out accelerate the competitors but then there's the company that basically delays and waits and what happens is by the time they finally get religion to make the cuts it's too late because even after they make the cuts they don't have enough runway on the other side they burn the capital yeah they burn the capital and then they're in a death spiral so i think you know what what companies need to think about is this is a 75 reduction imagine if you did a hundred million dollar round last year right if you go try to raise next year in the middle of this recession that 100 million dollar round might look like a 25 million dollar round so imagine if you're burning an extra 25 to 50 million more than you should be according to your burn multiple you're basically burning the next round forget about the fact that the last round gave you all this cushion think about how much of the next round you're burning and if you reward your thinking around that it could lead to a change in behavior anecdotally i'm seeing people come back from rounds where they were expecting 40 or 50 million dollars in some cases like with 250k in revenue 500k in revenue they were living in a 200 300 times revenue kind of world it was just insane and um you know they're now coming back with 10 million dollar caps 15 million caps on their notes i was offered 100 million dollars at a 50 discount and i said call me when you get to 65. and that's the best company that's literally the best company that's the best and the best founders to bet on right of probably most private companies is that you don't like that valuation what is that valuation 40 at 50 off i i it's less of a judgment on but it's just more an observation that we're at the beginning of the beginning and again we're at the beginning of the beginning okay for all of us that lived through 2000 this was four years of sheer hell and a grind now we have 30 trillion dollars that we have to work through the economy a recession we have to overcome a war we need to end and people all of a sudden assume that two or three rate hikes and five or six months of headlines are enough and on the margin maybe they're right but from my perspective you know it's less a judgment on but it's just an observation that we're at the beginning of something that just fundamentally has to take some amount of time to work its way through the system and so i don't understand why anybody would give up their liquidity in this moment right now why would you why would i why would i give up 100 million dollars of cash in my bank account i would not do that right now because the cash the caps the cash gives you so much optionality that's basically so much optionality so you're going to be looking for distress and this is the thing so you have a huge amount of capital leaving the ecosystem like we know tiger is basically out i mean they were the basically the default provider of growth stage capital over the last couple of years so you have a lot of liquidity leaving the system and then the liquidity that's in the system is waiting for distress so you're right and there's a quarter i mean like we talked about there's a quarter trillion dollars of quote-unquote dry powder i mean i know chamoth thinks that people are going to give that money back but there's never been this much there's not there's not that much they're not going to give it back deployed yeah look at that tiger fund tiger raised a new 12 billion dollar fund that was announced in march and tech crunch we covered it on the show a month ago yeah techcrunch an article saying was already deployed in six months so i wasn't on that show oh that was the one where you would jake i'll try to replace you with brad gerstner and we should we should do the show weekly going forward instead of monthly it might be better to keep up with these trends okay so jacob jacob you made a good point there chris go back this for a second you said that founders were they're still anchored on this world of two to three hundred times ar valuations let me just tell you where the new valuation levels are and this is obviously in flux but i'm pretty sure the valuation levels are at 20 to 30 times arr that's for a company that's growing 3x year over year yeah three x year every year that's the best of the best the reason how you get that's 10x next year's ars basically yes exactly and the way that you get there is that if you look at like the um the multiples for like the best public sas companies that are like say a 40 grower like a snowflake they're at 8x yeah so you know so basically giving more credit for the higher growth rate yeah right but they really have to have that 3x growth so you know if you're a founder think about the fact that when you try to go raise next year assuming you're the best the best you'll get 20 to 30 times arr now think about your spending not last round's money you're spending the next round's money if you could just reorient your thinking that way you'd burn a lot less money yeah the the i literally had a deal you know in the 30 and 40 range and angel investors who never early stage angel investors seed funds that did not look at multiples are now asking me because when i send a deal memo to 10 000 people for my syndicate people hit reply people are hitting reply now and saying i did the math on this this is the multiple this is this this is the burn multiple they're actually doing the math so we all of a sudden have discipline that i have not seen in this investor class in the 10 years i've been doing it so that is to me one of the great silver linings here i think people are going to do a better job with their personal balance sheets they're going to invest less in speculative stuff and they're going to invest more in the actual builders who have discipline so we're going to see this massive swing to discipline and we're going to flush out all the people who don't product marketing think about all those folks like what's happened in the last six months it's like they've been long unprofitable tech it's got smoked by 75 to 85 they've been long crypto that's gotten spoken by 65 more yeah i mean if they weren't using a calculator then they sure as hell should be using a calculator now to figure it out i mean people well you think about it there's a whole group of investors who have only known the up market there's a whole group of founders who are only in the growth market if you're under 40 years old you don't understand what you're about to experience and here we are let's that's a perfect time to segue into crypto bitcoin's price is down 71 uh from the all-time high uh 69k in november of 2021 bottomed out at 17 000 or so on june 18th ethereum's price down 78 and if you look at the craziness since the last all-in episode you know this three ac three arrow capital they're a crypto hedge fund that was letting people uh basically loan out their crypto uh they are basically closing a ten billion dollar um crypto hedge fund at its peak they're insolvent according to the reports tara luna collapsed the founders and employees of that company are not being allowed to leave south korea it doesn't mean they're guilty but it's certainly not looking uh good and um there is a whole situation with solana and a company built on top of it so lend which is not solana it's an application built on top of it i talked to vinnie lingam a friend earlier this week about it they had a whale who had um tried to loan out a hundred million and they had to freeze their account because they thought the downward pressure since there's not many buyers in crypto right now could collapse solana so thoughts on krypta writ large what is this going to look like saks over there i mean crash all over again i mean basically you had an extremely promising technology i mean it is a promising technology and it is a future you know technology platform but the price action got totally decoupled from the level of progress in the space and people were not valuing these things based on real customers real usage and real use cases but it was became you know very speculative and again all this was fueled by the excess liquidity that was pumped into the system so you've said it before that crypto is like a liquidity sponge it sucks up when there's a lot of excess liquidity it sucks up that liquidity but now that sponge is getting wrung out and um you know and part of the problem is with interest rates going up you know it's one thing when you have negative real interest rates and and and you can't earn a return on your money then you start to get you basically people start to push the envelope and invest in more and more speculative things but as you can get a real return in like let's say there's like a real risk-free rate now there's alternatives for all that cash and then you got the problem of leverage as well which i think over the last few weeks the crypto space was heavily over levered and a lot of people got margin called and wiped out that's the contagion that's occurred and people were levered up five ten times their bitcoin on these roads wait till these token sale things get litigated i mean the amount the amount of grift by so many of these venture firms in running these sketchy deals where they would put in some amount of money this is my understanding of the scam because it was explained to me you put in a little bit of equity at some crazy price and then you get these tokens and apparently there's no like you can just sell these tokens day one and so what happens is like you you price the equity but it's meaningless because really what you're getting is the right to get some amount of these tokens the price is crazy you sell it and then you just kind of walk away and apparently you know you do these deals where you just rinse and repeat this thing um well wait wait till that gets exposed i mean that seems like the term the firm that did this the most is andreessen horowitz uh chris dixon i think was considered like the best investor last year or the year before because of all these token returns i i gotta wonder when they go now that this people are losing money that's when people start suing i mean what is it gonna look like if they were what do you think their marks looked like last year versus right now i mean and all these coins like looking back in the rearview mirror and saying hey you bought all these coins you flipped some number of coins i mean to your point your mouth like what is the litigation path and the the shadow economy that was created there was an article there's an article i think it was in bloomberg um about folks trying to figure out how to get um [Music] a lawsuit filed against binance and the problem was that they didn't even know what entity to sue um it's not clear who owns what and you know what owns the other and who the ultimate look through ownership structure is and and it doesn't mean that binance is guilty of anything but the article was just you know showing how there was a u.s investor who lost 1.2 million dollars who wanted to file a lawsuit and they have every right to do that um couldn't even find the corporate entity to to actually file this lawsuit against so if that's what's happening in a trillion dollar market there's um i mean it's gonna be a lot of people it's free it's it's a lot of oversight that's that's that's free what is this gonna do to regulation and crypto at this point because crypto regulators now or regulators are going to just be looking at this going wow look at all the pain and suffering and when a local d.a gets you know five or six of their people complaining they lost money in terre luna whatever it is this is like the perfect opportunity for them to collect a pelt and get some crypto kid and you know hold them responsible and get some great headlines i mean what do you what do you think happens from this point forward in the crypto land what you just said okay there you have it folks yeah but what about regulation i guess that's the next piece because all of these entities have taken a very the sec last july or august published this kind of initial opinion letter but remember there's also the cftc there's a bunch of regulatory authorities in the united states that have a longer process than governments xus that have had a much more kind of stringent point of view that there's a lot of casino-like gambling going on with these things and that's it there's no functional utility there's not a it's not is it a security if there's no underlying business if it's not a security then it's just a bet on something if it's a bet on something it's gambling it's you know obvious that if it's a security it has to be governed by the sec if it's a future or commodity it's the cftc and the problem is we need congress to pass some legislative framework that puts the puck in one side of the of the arena a rink or the other yeah and otherwise all this gray is going to exist for a long time and people you know if if governments really hate it when retail investors lose money well watch out because they just had two trillion dollars in the us we have a lot of other regulators that can prosecute cases like the dfs in new york uh this is the department of financial services they are a pretty litigious prosecutorial group i mean they go after scams and uh people preying on consumers and retail investors in a very aggressive way often outside of the purview of the sec they often coordinate with the doj or the scc in evaluating enforcement um decisions but they will prosecute and and i think that there's a you know as you said a lot of opportunity when people have been grifted out of their money uh for politically motivated and you know people that generally have kind of the right point of view that are in a position to prosecute to go after uh the offenders so you're right there will be there will be a lot of action on this over the next couple of years and then chemoth is right the way it gets resolved is a congressional act but by the way i'll just point out in the year 2000 congress passed what was called the commodity futures modernization act and that cfma was really meant to kind of quote bring commodities and futures into the digital age and they started working on it in 1996 it took four years to get it done within four years it was already out of date and a lot of what was going on with respect to how exchanges operate and the types of contracts are being created it was already missed so you know the problem we have here is that by legislating the state of the market today without creating enough flexibility in how enforcement action can be pursued and how things can be interpreted in the future you could end up in a similar situation where people just find and run around and the whole thing repeats itself in the next few years because guess what people will always want to gamble and gristers will always want to grift and so there will always be a way to try and scan people out of their money yeah and that's just sky dayton's poker game hello hello by the way are you jacob's always going to want to jake so what you're saying oh you get out of here hey everybody download call before we pivot um if you want a perfect example of this and this is just a lesson to founders out there if you feel like you're in a gray area you probably are um people are like oh nfts you know they're just trading cards yadda yadda and it's not a big deal that somebody at openc decided to front run the market oh they just bought a trading card ahead of everybody else who cares we know who cares it turns out the southern district of new york cares and they are a pretty serious group of people former employee of nft marketplace uh openc was charged in the first ever digital asset insider trading scheme so just because insider trading didn't exist as a concept for nfts before congratulations doesn't exist in crypto i mean if they want to really find uh the honeypots here i mean it's the worst kept secret in crypto how much insider trading is going on amongst the organizations that run the exchanges and their side pockets that they use to to manage liquidity i mean this is the it's the biggest thing that's been happening in crypto if you're wondering why people were spending hundreds of thousands of dollars on a board ape or whatever like there might have been some shenanigans going on here yeah well i mean no but jason it's not it's not a legal this is my understanding though it's not illegal to front run crypto trade so most of these organizations that that run an exchange right compete for order flow and they're able to just look at that order flow and then they front run the trade and they're on the other side of that so they're always making money and so they were making tens of billions of dollars all these exchanges were yeah and then i guess the question becomes sacks you know in terms of since you're an attorney like how you interpret this stuff there may not be a law in the books about front-running nfts but there are laws on the books about fraud and nft and conspiracy to you know um grift people out of their money so this is all going to come crashing down and the discovery is going next if the southern district of new york actually subpoenaed any of these exchanges all hell would break loose oh no they are you can be sure that's in process if they go after one nft flipper no forget nfts i'm saying coins crypto like that's the huge market and they will they're turning over these cards because you know how they like to work they like to flip their way up to the top person um but we're not talking about january sixth year we're talking about gas in the ukraine next hey yo hey ho uh that's a little reference for y'all um listen now that we're now that we're an hour in tenon and we've we've kind of like broken the ice and we're friends i feel good i feel like you want to reach as a team again you you want to redo our intros so you're not being such a [ __ ] i don't care i don't care can we just move forward i think we all understand i think i'd like to be recognized you said you said that you were workshopping in intros so do you want to do your intros at the end of this or not i'm not doing the interest no i'm not strike on interest no i didn't they were here's the thing i wanted to the interview he's an extra point he needs extra no no it's not about the point that was a joke i i wanted to do intros i didn't know coming into this how sensitive people would be and then sax is like i need to have in the contract of non-disparaging nda and i'm scared about the things i said so spike content needs to be she took that out you were the spike content guy you're the most concerned no we have an agreement around a good rule non-disparagement he didn't want to have in there i understand i took it out because i thought you would be more sensitive about accusing others of disparaging you i might this whole show is you disparaging me have an intro or not for that i don't have interest prepared no i'll do interest next episode i promise everybody i wanted to take the temperature of my besties i don't know if people are sensitive right now you want me to make a joke about brad gerstner we got real [ __ ] to talk about can we talk about ukraine and world war iii it's not all about our narcissistic nonsense as foreign teenage boys running amok go ahead so something happened in the last week that i think is pretty disconcerting i mean just intellectually speaking we all know that wars that go on and on have a tendency to escalate and there was an example of how this could happen over the past week lithuania is now essentially stopping the flow of goods from the russian mainland to another part of russia called kaliningrad which is called an oblast it's a little area but it's outside the russian mainland it's basically between poland and lithuania and so goods go by rail from the russian mainland to clinton grad and they've been stopping these goods because they say they're under eu sanction the problem is listen when you think about a sanction a sanction is me not buying goods from you because i don't like what you're doing that's fair game everyone has a choice over who they want to buy from but this is not that this is uh lithuania deciding to stop goods going from russia to russia and so the russians say this is a blockade i think with some justification and blockades are understood to be an act of war so you've got lithuania basically engaging in this act of escalation against russia we always thought it would be poland but it's right exactly and remember lithuania is a member of nato's they have an article 5 guarantee now think about the upside versus downside of this action in terms of from the western point of view the upside is this has absolutely no impact on the outcome of the war this is not going to help anyone in ukraine to blockade kaliningrad and prevent coal and building materials and steel from reaching clinton ground that's not gonna have any impact on the war so there's zero upside to this from a military standpoint but the downside is that you now have lithuania and russia getting into it and if they get into a war then we are instantly pulled in under article 5 and world war 3. so this is the kind of dangerous escalatory act that has no upside only downside for us and my view on it is that we have to tell we have to instruct frankly our treaty allies not to engage in these types of dangerous acts because there's a huge externality we could be pulled in this is very dangerous and i just wonder if the administration is on top of this did they give the green light to the lithuanians to do this or were they caught by surprise and what is the reaction to acts like this you know what i worry is that we're conducting foreign policy by virtue signaling where we just say who are the good guys and who are the bad guys and you know if the russians are the bad guys the lithuanians are the good guys so therefore this is okay it's like playing cops and robbers on a global stage i think we need to be asking the question is this smart or is it dumb is this prudential or is it reckless is this in our interest or is it not in our interests and um you know i really gotta wonder about who's mining the store on this day 120 um and it feels like this is just doesn't have an ended site is there an ended site here what's the end i mean the the indians what are the two parties yeah what do the two parties want at this point i mean the people in russia are suffering during this the people in the ukraine are being murdered uh in ukraine are being murdered i mean how does it end the problem is that biden um engaged the united states in a proxy war without our real explicit discussion number one and then number two is then we pulled and we pressured europe to really draw a hard line but then now are kind of working around it so that the countries that suffer the most are europe now i think you're starting to see the tea leaves though last week there was a group of european leaders i think it was macron draghi and i can't remember if it was the german chancellor or not and one other person who went um to ukraine and if i had to bet i think the message was kind of like all right listen like we need to find an organized de taunt here because there is you know according to europe a lehman-like situation in terms of economic contagion that could manifest over the next months so i think that the end game is probably some organized negotiated detent and ceasefire um i don't think anybody will be happy with it but i think by and large russia is and has won you know meaning they've won economically they're selling oil like it's not you know like it's going out of style it's just not selling it to europe and to america um you know they're selling it to china they're selling it to africa they're selling it india is fine with it they'll they'll take some well also they're winning on the battlefield there was an article in the washington post there was an article in the washington post in the last week or so and the washington post is basically the house organ of the washington establishment and the blob basically saying that hopes are dimming for ukraine on the battlefield the russians have now won 20 to 25 of the country they've won that eastern that don bass region they've done it with the help of russian separatists in ukraine and the the amazing thing in this article was that they were saying that the ukrainians were days away from running out of ammunition despite the 40 billion that we just appropriated to them where did that money go and conversely they're saying russia is having just unbelievable casualties and they're running out of weapons and they are obviously out of kiev now uh and they're in the don bass mostly so i don't think that's anything like that yeah anything the russians the the right so listen i i said on this podcast they said they're out of tanks right and then the troops they've adjusted their strategy and they've they're they're they're learning they're adapting to this new kind of warfare this asymmetric warfare where you can take out a tank with a drone you know but but look you know remember on this pod three weeks into the war everybody who was in favor of this proxy war was saying how great it was and they were saying it was going to lead to a new birth of freedom in the west that it was strengthening our alliances you had francis fukuyama predicting that we were going to win the war and it would lead to this rebirth of freedom in the west we should have known at that moment everything that fukuyama basically predicts the opposite is always true it's like negative one correlation yeah and remember i said three weeks in that we were potentially i think putin made the mistake in the first three weeks of thinking this would be a cake walk but that we were making the mistake of thinking the next phase would be a cakewalk and sure enough here we are russia has now won the eastern part just to build on what you said you know we engaged in economic sanctions and i was the first one to say hey this could really work and this could be a road map for how to do it and it turned out this is the roadmap for how not to do it you can't on the front door say here are these sanctions and then walk around the back door and basically open the door for them these these sanctions were so porous as to be like swiss cheese we focused on virtue signaling acts like confiscating a plane or a boat or a house but we didn't focus on the structural things we needed to actually um you know make the mandate that we believe to be just to come to life and so russia's completely worked around it their economy effectively you know is thriving so what have we gained how is it thriving i mean i don't know that thriving is how they would describe their economy right now yeah i mentioned it isn't their printing record they're selling gas they're selling phosphate they're actually making a market and the prices have doubled and tripled in those commodities because the flow has been restricted so because there's a responsibility the opposite of what we tried to do and by the way i'll point i'll point out something that i pointed out in february which was the biggest concern for me at the time when we stopped allowing trading in the securities of russian companies we yanked away 400 billion dollars of market cap that was held primarily by pension funds and retirement funds in the u.s and europe and gave that value to russia for free we basically said here you go here are all these securities we're no longer allowed to trade in them so guess what you guys can trade in them you can have they got all of their gas and energy and mcnickel and mining for free i think it's such a good point we ripped the stock out of retirement funds and we gave it to the russians and said here you go putin take all of these securities for free enjoy oh and by the way because of our idiotic sanctions and the way we're employing them the commodity prices are going to double and triple and all these companies are going to have record profits this year happy [ __ ] birthday the ruble's up 5x it's not a 5x but yeah okay it's a great point because if putin had retaliated against the west by nationalizing 400 billion of western assets in russia everyone would have been up in arms but he didn't even have to do that because we just gave him we gave him 400 billion totally i mean how did this policy make sense it's this policy of conducting russian securities i'm freaking blackrock i own a billion dollars of russian securities the u.s government just took it out of my portfolio that my clients own stakes in and gave it to the russians for free they're gone poof crazy i think listen i think we've got like a two-level problem on this ukraine war one is that our policy hasn't made sense we should have been using diplomacy last year to avoid it this we had all these false hopes around strengthening the west and the western alliance by allowing this war to happen we then instead of trying to shut it down through a negotiated settlement we try to use it as a proxy war to weaken putin instead it's done the opposite so there's a whole series of policy failures here but there's another deeper level to the failure which is the personnel who are implementing these policies the washington establishment the blob who've been of both parties the this sort of uni party who've been implementing these policies there has been no dissent within the washington establishment the only guy who really spoke up in a decisive way was john mearsheimer the professor of international relations from the university of chicago and he was treated as a pariah by the blob in the washington establishment everything he predicted has come true he proceeded years ago years ago predicted the us was leading ukraine down the primrose path and the result was that ukraine was going to get wrecked and so it has can i just read the first paragraph of this bloomberg article that i just posted russia's current account surplus more than tripled in the first four months of the year the central bank said as prices research oil and gas imports and imports plunged under the weight of sanctions well you know if you're putin and you're looking at this you're like wow maybe i should be under sanctions more often totally you know what country should i invade next because this is sanctions all that sanctions were was a restriction on the free market and when you restricted the free market you basically created a spike in price but the market his market could still operate with a narrower set of trading partners he is selling energy to certain trading partners he's selling phosphates he's making money they are exporting product and they're making more because certain people can't buy and they've got to go drive the price up elsewhere so not not only did our sanctions package not work and not only is the treasury treasurer trust treasury sorry flailing around now trying to find even more back doors we actually opened a very dangerous precedent which is now we allowed oil to settle in currencies that are not just the united states dollar and now russia and china are trading and settling in cny that's not good for us this is not how you preserve the identity of the reserve currency of america i don't understand the eu of cutting all of their energy and then becoming dependent on russia then creating a ban and sanctions but then they made a carve out that oil delivered by pipeline janet yellen has been negotiating this carve out we have been enabling russia to sell we know the eu passed this legislation jason look look at the wall street journal today the articles they're reading the cnbc right now about it like the eu passed this landmark sanctions package in may but they also allowed the stuff that's coming by pipeline for some reason to be a carve out if the eu wants to contain putin from invading countries on their doorstep they gotta actually become energy independent that's the the beginning and end of not popular and this is the problem with populism that's not popular it's not popular to continue to have to to to have energy independent nuclear was not popular and so the politicians the legislators responded in a short-sighted way to the popular opinion of the day and this is the challenge absolutely yes huge mistake on german's part they closed three nuclear reactors popular sentiment in europe got highly affected by these environmental groups exactly that's my point but in the u.s i think the people of the country want us to be energy independent and and it's elite opinion that bought into these foolish ideas that basically we should cancel energy independence we should cancel the keystone pipeline should cancel new drilling america should be a net energy exporter 100 job number one is to be energy independent and job number two is to move towards but now there's another piece to this you got to do this in sequence so when he came in he said that he was going to make the saudis a pariah on the world stage remember this now he's going hat in hand to them to try and get them to produce more or lower the price so what was the point of this foreign policy it it was contradictory he cancels energy independence he basically insults the salt the saudis on which we're even more dependent for oil and then he basically refuses to engage in diplomacy on ukraine these policies are contradictory even if your goal was to basically isolate the russians you would then want to improve our relationship 100 saudi and you'd want to produce more of our own oil 100 yeah you he overplayed his hand for sure i mean you ha you can't not have uh heat in the winter in germany and the germans that's coming by the way that's coming you think things are bad right now wait until winter and then that's only going to increase putin's leverage and that's when you're going to see a real fracture in the western alliance this idea that ukraine strengthened the western alliance i think you will start to see the fractures nationally i mean germany's got to put those the slow march of nationalism will continue and this will be another catalyzing event turn your nukes back on and and i also think that you know thinking about the western alliance i think that you know countries like germany and france are really going to question u.s leadership when they have basically a huge economic recession and they're wondering how they're going to heat their homes in the winter but i think in the u.s it's time to reevaluate some of the alliances that we've gotten ourselves in again with this lithuanian situation do you really think that lithuania would be basically poking that big russian bear if they didn't have the u.s standing behind them as a bodyguard no way they would be much more circumspect and prudential and the r and the fact of the matter is that these eastern european countries the baltic countries and poland they have enmities they have friction with russia going back hundreds of years and these guys basically they have very provocative attitudes towards russia and our alliance with them can draw us in so we have to really keep a close lid on that we do not want them making moves on their own because we could get drawn into a world war here yeah and by the way to your point sacks also you know there continues to be escalating issues with debt and concerns about debt repayment across the eu and while germany is you know looking to the u.s for support and worried about energy prices they're going to end up having to foot the bill to support a bunch of these eu member nations that are facing debt crises and will continue to face significant debt crises over the years ahead i mean greece made a payment recently but greece's debt to gdp still over 200 italy's at 155 percent portugal is at 134 the numbers are uh pretty much you know today uh you know it was yeah the the the spread on it italian debt has spiked over the last couple of weeks right bridgewater basically is biggest germany's got another freaking crisis to fight now and i think you're right the the western alliance is more than just a military at this point there's this you know do i really want to be the economic savior over and over again of my smaller member states and guess who's going to benefit in all of this china like they're going to look at this fracturing and they're going to be like great by the way just speaking of speaking of china for a second you know we talk and we bloviate about our desire for energy independence and you know we exclude tesla from you know any sort of major meaningful legislation we trumpet you know these companies that are just completely woefully behind uh in building energy independence um we think about like a gas tax holiday but as like kind of like a you know something that still needs an act of congress to pass even though congress has said they have absolutely no intention of passing it meanwhile we keep losing our footing to china just today catl which is one of the largest battery manufacturers announced a pretty meaningful improvement in their you know 3.0 battery design these guys are now building batteries that can go a thousand kilometers in both of the major you know um compositions that really matter nmc and lfp and i just look at these things and i'm like wow we cannot actually get capacity funded to build domestic battery capability because we're too busy kind of basically virtue signaling on things that don't matter and in return nothing happens china continues to lap us we uh it's really it's really bad state of affairs we are uh we are in a very odd period in terms of government effectiveness if you think about china's foreign policy how have they lost out by not being part of all these conflicts have they lost they're buying prices of oil that were nine months ago to 18 months ago and so there not only has russia's output price been capped but that's okay china's input cost has been capped and so they don't suffer the same rate of inflation that the rest of us do so to your point david you know our quote-unquote you know exclusionary sanctions were ineffective they were porous and we allowed our largest competitive frenemy if you will to basically be able to you know drive their entire economy at 30 to 40 percent of the uh a discount to what we have to pay to do the same right when when china goes abroad they go abroad in search of economic resources and economic development that's the point of belton road they don't insert themselves in these middle of these conflicts that they don't understand they were never involved in the middle east they were never involved in like policing you know all these different countries that has cost us a fortune and now the bill is finally coming due in the form of this inflation we are going to have some form or another of austerity in this country and it's partly because of this highly militarized foreign policy in which we have set ourselves abroad to be the world's policeman we can no longer afford to do that can i make a generalization in saks you react and tell me if this is true or not if you have a country that has existed in some way shape or form you know the the borders could be blurry but roughly for hundreds and hundreds of years and in some cases thousands of years where internally the population of that country views themselves you know in a great way they don't feel like their country is a meaningless nothing country any attempt to economically humiliate such a country tends to have failed in the past and will continue to fail and there tends to be other countries who view it as one of these things where well if them then why not us and then they sort of you know in a backhanded way support everybody so we end up in this odd situation where we are picking fights we cannot win totally and and the consequences for us are economically really damaging right and the consequences for everybody else to stay on the sidelines is like economic prosperity that doesn't make any sense right you're afraid that russia is going to roll over more countries and that you have this existential risk that this dictator is going to attack more countries so okay if you're living in eastern europe you might have a different view of it yeah so you might very much accept and want some help from you know nato and other folks who but you're not getting that help that's the problem with that that's the sad part about it i mean if it's poorly executed it's not working at this point in time yeah i mean there's a lot of takeout if you look at the eu okay as an entity they have almost the same gdp and output as the us and if you compare them to russia their economy their their gdp is 10 times greater than russia they are rich they can afford to allocate a few percent of their gdp of their government budget to defense they should be able to defend themselves they really should and so this idea that we have to go over to europe and bankrupt ourselves to defend rich europeans they should be picking up a hundred percent of the cost of that a hundred percent i don't know why we're paying for rich europeans when our country is massively in debt why aren't we passing the bill to them for that yeah we're absolutely um yeah do we have to spend that much money to to do that no and then obviously the wars in the middle east were let me pick up on this policeman what kind of policing works the best community policing when the policemen are from the neighborhood and they know all the players they understand the subtlety of the area exactly the us has made itself the world's policeman we parachute into areas that we don't understand we did in the middle east it was very ineffective what we should do is let the regions deal with the problems themselves first and we should be the policemen of last resort not first resort let the europeans take the lead they should be paying for their own defense you know we could still have nato but they should be paying for it they should be the first responders and if they can't handle it then we can back them up but this idea that we need to be on the bleeding edge of all these conflicts bankrupt bankrupting ourselves it's a foolish idea energy independence is a solution to all of this we wouldn't have to deal with these death spots if we didn't if we had energy independence so we're getting we're getting circles running around us by china jason on the innovations front circles running around us by china on the innovation front example i just told you the catl battery that they just announced today yeah it's incredible yeah i mean battery technologies we have a lot going on there as well i mean it seems like the battery technology issue has been solved for evs for some time now i mean if an ev can go 200 miles and we can build them at scale which seems like we're on the precipice of um we're going to be good you don't need more than 200 miles on average it's just a luxury every mile after that given how fast superchargers are working so just practically speaking 95 of americans will do just fine with a electric car that does 200 mile range and the other five percent can do a hybrid or can still burn oil we just need to get more we have to be more serious about the miles per gallon right now we are just absolutely abhorrent in our use of fuel in this country it's just crazy that we have low 20 miles per gallon uh as our average when other countries are 30 40 50 you know or 30 and 40. because we like our you know seven-seat suburbans which is ridiculous because 99 out of 100 missions in that suburban are done with one or two people in it the fact that our ubers you know in our lifts or whatever are coming with giant suburbans with one person in it is just i have a i have a fiat e500 here like a little mini oh it's incredible yeah it's incredible i mean yeah i mean this is why i mean this is the path if we can just if you just think about it if we were to double our miles per gallon there are cars right now that are doing 50 55 miles per gallon we really have to be more punitive uh in terms of taxes give me the forecast jkl what's going to happen with biden oh okay so give me your give me your scorecard give me your grade how's he doing for biden oh it's disastrous i mean it i think the only thing more disastrous than biden would be having trump do a second third and fourth term 100 so but so play it out play it up well i don't think he's going to run again i think they're going to happen you don't think it's going to run again i think they're i think between then and now if the economy keeps going the way it's going he would be a lame duck and impossible and i think he might say you know what i'm going to retire to spend time with my kids and my golden years and they might convince him that him running again is a really bad idea and kamala harris is a disaster as well she hasn't proven anything in the second two years yeah who would the dems put up jkl jkl as a democrat who would you want to have put up i think it's going to be desantis versus newsome in 24. i yeah i um but sorry explain that okay so well which part of it new summer desantis how does museum get the nod okay here so newsome has a very weak challenger in in california it's a plus 30 devastation hold on so he's gonna handily win re-election in california he's already not he's not even campaigning for re-election in california he's already campaigning to be president the thing that he did that was politically smart and i say this not as a fan of newsome but this is someone who's analyzing the politics of it is that he went on true social and to basically counter your republican lies and so he's positioning himself as a fighter for progressive values and the reason why that's going to be flattering to the democratic base is that when the democrats lose big in november they're gonna have there's gonna be a reckoning and they're gonna have to understand why they lost and the fact of the matter is that ideologues never blame themselves or their agenda they're gonna say that it was not communicated well and that we needed a basically a better communicator who was a fighter and so they will basically pin the blame even more on biden and so newsom is positioning himself as that sort of democratic progressive fighter if you go back remember when michael avenatti like they were you know progressive were talking about him as a presidential candidate for a brief minute they swooned over him why did you go to jail yes he's in jail right now he's a total grifter scumbag total grifter scumbag but you gotta remember cnn had him on there every day because he counts he was a fighter jacob says his name in the funniest way possible i've remembered a poker game when like hellmuth said he had no numbers on the jacob what's this guy's name say his name michael avenatti i don't know how he says uh is a disaster uh it's an interesting concept yeah sex can you do you think the dems will give newsome the nod can he actually win in some of these um these uh middle states well you gotta remember this is true for both parties that the general electorate does not pick the candidates the parties pick the candidates and the base of the party picks the candidates they want someone that can win pennsylvania they want someone that can win florida but yes and no so if you remember when when bill clinton pulled the democratic party back to the center in 1992 and you had the whole democratic leadership council and they really remade the democratic party at that time as a more centrist party they had just come off three disastrous presidential elections so reagan and 80 and 84 and then herbert walker bush in uh in 88 so you know it took three big losses for them to rethink i don't think progressives are going to rethink their agenda you know based on one midterm loss even though i think it's going to be gargantuan later this year so i think they need more losses to really reevaluate their agenda i mean look the activists in the party are deeply invested in their agenda they're just not going to give it up they're going to blame it on a communication problem they're going to say let's find a new messenger and newsome will seem like a younger fresh face so i think that's how it could happen and if you look at the democratic bench he can also say can he also who else they got is the issue that's going to be a bootage and aoc if they want to go full like crazy left would be and then if they want to go more moderate that's not that doesn't win an election you've got to find someone that can win the election they're going to say that was the governor of a big state which is as of now 100 million 100 billion surplus looks good for him so yeah i mean gavin it's a scenario it's a scenario but look i think the big question is will the republicans field trump after january 6th and i i think the answer is no and um it's too shameful right to do that i i think that look i think trump's problem is he won't stop talking about the last election and i think elections are always about the future and the republicans ultimately going to nominate a candidate who represents the future no republicans want him as going out there trying to steal an election again if you look at straw polls okay if you look at straw polling um desantis now is beating trump in straw polls in the republican party jonathan chait who is a pretty smart liberal definitely not a republican but he sometimes has very smart observations remember the whole zero covet thing anyway he has an article just today talking about how desantis has now eclipsed trump within the republican base and if you look at the numbers at within if you if you pull fox news viewers and likely republican primary voters desantis is up a couple of points in the straw polls but among fox news viewers he's up like 10 to 14 points so in other words the republican base the activists who are the influencers they already have moved from trump to desantis you know they love him yeah yeah so i think i feel the fifth the scientist runs he's gonna run he's gonna win uh a landslide this is why i say it's desantis versus uh newsome i think but look it could be desantis versus biden it could even be trump versus newsome i think the configurations that win for the republicans i think if biden's on the ticket i think any republican wins i think if it's desantis versus newsome i think desantis wins i think however and this is sort of the nightmare scenario i think if it's something like a newsome versus trump i think republicans could lose that just because you know the people people people think about the future they they they want they don't be reminded of the past and um so i think there's risks there no more also insane and deranged you can't you can't have trying to steal your olds running for president no that would be great yes yeah yeah i think all right nothing against oxygen 75 years old would be good for me all right this has been a this has been a very long episode well yeah well considering how much uh sax is gonna spike uh we'll get it back down to 45 minutes all right everybody it's amazing i love you guys it's really nice to be on anywhere everybody relax we're back i'm not going anywhere you're going to need a wrecking ball to take me out of here jacob we don't want to get rid of you but now all we need is three out of four votes so all right good luck vote me off we never wanted to get rid of you j-cal but we knew we had to do certain things to get you to act right oh my gosh jake alberta brought a knife to a gun fight he came to negotiate you guys in trailers you're too cheap to give me two points that's [ __ ] jacob came to negotiate the treaty of westphalia and he left with half a snickers bar that's fine it's fine you guys don't get no more interest for you all in summit no more interest hold back our payment by the way i'm about to get on a call with our lawyers we're gonna get the accounts set up get all the money transferred from your summit good luck with that money that's long gone i put that on the warriors i tripled it we're good all right everybody we'll see you next time on the all lovely boys bye bye besties bye-bye let your winners ride rain [Music] and they've just gone crazy with it [Music] we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension that they just need to release [Music] your feet [Music]