SPEAKER_01: What the f- what are you wearing, Jason?
SPEAKER_03: What? Oh, Uber had a big week, so this is the Uber Montclair crossover hat. Oh, look at that.
SPEAKER_03: And I also bought a Montclair shirt.
SPEAKER_01: You bought that or I sent it to you? Oh, what? You got the watch and the mug? Oh, you don't know about the Apple Montclair watch?
SPEAKER_03: Or the commemorative mug? Or the new tack? You don't know about the new neck tats that are coming from Montclair? It's actually the new neck tack?
SPEAKER_00: Oh my god. Oh, so good. Like you say, somebody got their beak wet.
SPEAKER_03: I'm not saying that I got a hundred thousand dollar sponsorship, but we don't have a rule in the agreement about logo placement, do we? Listen, J. Cal, if anyone was willing to sponsor you,
SPEAKER_01: every square inch of your clothing would be covered in ads like a race car driver. It is. Look. It'd be like wearing a jumpsuit every day. These, you know, Montclair sponsorships are great.
SPEAKER_03: This is five, five dollars plus seventeen dollars of shipping from France on its Etsy. I'm ready to go.
SPEAKER_03: Let your winners ride. Rain Man David Sacks.
SPEAKER_02: We open source it to the fans and they've just gone crazy with it. W.S. is queen of quinoa.
SPEAKER_04: How was everyone's week? What'd you guys do this week? Just busy working, trying to be helpful where I can.
SPEAKER_03: And that'll be the extent of my comments today.
SPEAKER_02: How is Market Street this time of year?
SPEAKER_01: Look, there's all sorts of wild reports. I've gotten all sorts of inbound from people asking me if I'm like leaving Kraft Ventures to do something at Twitter. No, it's not true. We're just, Jason and I are just pitching in and helping out while Elon establishes his permanent team at that company. Elon's the CEO. He's running it. He's the decider. He's making the decisions. And some of us are just kind of helping out in any way we can. And that's really the extent of it. It's a, you know, very much part time thing. We're just helping a friend. But it's been like blown up by the media to something much more than it actually is. It is a hundred percent accurate. I am still doing my day job podcasting, investing in a hundred companies a year, just helping out on the margins.
SPEAKER_03: That's it. The end. I do want to try talking about one issue that's already public because it's already been tweeted.
SPEAKER_01: So Elon had a tweet this morning about how there's now like an advertiser boycott going on. And this falls on the heels of a bunch of reports that came out over the last couple of days that supposedly there's been a big influx of like racist tweets. And Jason and I actually saw what was really going on, which was it's all not true. I mean, what happened is that within hours of Elon taking over the company on Friday, there was a 4chan attack. Where basically people from this message board created bots to post hundreds of thousands of spam messages that contained racist words and epithets. And within hours this has been detected and Yoel, who runs the trust and safety implementation, he met with me and Jason and Elon directed him to shut it down. And Yoel actually posted a tweet about it. That's the only reason I feel comfortable talking about it is because you already posted the tweet. And maybe people don't haven't seen it or they haven't connected all the dots here. But what's really, I think, unfair about this is that as you have you seen, it's not like your feed was all of a sudden filled with racist things. These were spam accounts or bot accounts that were posting to zero followers. They generally have zero followers or if they do have followers, it's other bot accounts. So they're posting racist tweets into the ether, so to speak. It's not degrading anyone's experience. It was shut down promptly. But then what happens is these activist groups, they're monitoring the fire hose. Right. And so they publish a report saying that racist tweets have gone up 500 percent since Elon took over Twitter. The truth is, Elon hasn't even had a chance to change anything about the content moderation policies. He's posted that like, guys, I haven't even I haven't changed anything about content moderation. Whatever the rules are, they're the same rules that existed prior to him taking over. And this is just an organized operation by people who want to create that report. So then these activist groups basically published this report. They feed it to news outlets. And then somebody then takes those reports and then feeds them to advertisers and you get a boycott. But I think the point here is that Elon didn't do this. This is being manufactured by people who are not operating in good faith. They are trying to manufacture an incident that they can then use to hurt the company. Yeah. And it was thwarted immediately and fixed. Have you guys seen episode three thirty three of the Lex Freeman podcast?
SPEAKER_02: He he interviews Andre Carpathi, who is really I mean, one of the great minds of our of our time, particularly around A.I. and M.L. And the question that Lex asked, which Andre expounded on, which I think is really interesting, is. What is the next generation of bots look like and. I think where the problem gets very hard for all platforms. So this is not a Twitter specific discussion. Is that you can now generate such real life like human images that are unique. And you can also generate high quality text to things like GPT three. That's also you know, that can essentially push the boundaries of, you know, a low level Turing test. I think the real problem over time for bots, for spam, for coordinated attacks on any platform is that when you use these tools, you're going to have to become very sophisticated in how you try to detect them and then to block them. It's a really interesting discussion between, you know, two pretty meaningfully smart people. Krapathy was the head of autopilot at Tesla. Right. Autopilot vision. Yeah. So he's really smart.
SPEAKER_03: Yeah. I have no doubt that Elon is going to do a much better job stopping bots on Twitter once he has a chance to do it,
SPEAKER_01: because he's got this amazing team of A.I. engineers and and he's just gonna be more focused on it. You know what I like the most about about what I heard this week is the idea that you can do either micro payments or subscription to third party content providers.
SPEAKER_04: Because I think so much of my news feed is delivered to me through the Twitter app. And then I click on an article and then it's like a paywall or it's some sort of difficulty in kind of accessing the content. Having some integration there or some ability to kind of make a micro purchase to read an article is going to be, I think, a super feature. The other thing that I would love Twitter to experiment with is if you have a micro payments model to publishers,
SPEAKER_02: it would be great if you could publish content without a byline, a la The Economist, and see what that does to information quality. Right. You know, if you if you if you do not get any credit to your individual name for writing stuff, but instead it goes to the masthead publication, whatever it is, The Times, The Post. I think you could have a really important behavior change in how journalists cover the news. It's worth experimenting with, at least. And if you're paying them enough money, I think that you could probably demand that. Facebook could probably demand that today, you know, strip the byline away and just it just says New York Times, just like today. It just says The Economist. Yeah, it is a The Economist is a very polarizing gig in journalism for that reason.
SPEAKER_03: There are going to be actually a lot of journalists who would prefer to have their byline taken off. One of the problems with journalism today is even if you're doing reporting in good faith, Jomath, and you put your byline on there, harassment, you know, threats, etc, can become very acute if you're just covering certain topics. And so I actually think a lot of, you know, writers and journalists would opt into this, they might prefer it. I think they should because I think the two ends of the spectrum are better than this, you know, gross middle that we have.
SPEAKER_02: The end of the spec, one end of the spectrum is you have The New York Times, The Washington Post, and The Economist with no byline and no attribution to reporters. The other end is if you want to build a brand that's based on your name, go start a sub stack. Yeah, and I think that there's a very good balance there. And The New York Times could syndicate that as well. But if you separate the two, all of a sudden, the news becomes more likely to be truthful news versus, you know, well disguised opinion.
SPEAKER_03: The other issue is, you know, for readers, if you do choose to do a no byline publication, you're really going to need time to build trust and for people to understand what you're doing, because they will think you're taking the byline off in order to pursue a certain agenda. Right. So that is the that that is the suspicion that can build up. The Economist has been able to do this over decades with trusted reporting. Yeah. And sub stack proves that you can have no reputation whatsoever. And if you're publishing great content, you can build a great business from scratch.
SPEAKER_02: So, you know, you don't need to you don't need to pay your dues, quote unquote, by getting a byline at The New York Times to be a clever writer.
SPEAKER_02: You can start that business today and get paid. So I think The New York Times should just focus on being The New York Times. And sub stack should focus on individual people. And I think if you could clean up the middle, that would be much better for all of us. Anyways, I'm excited for you guys to help out and pitch in. I hope you guys do some good with it. I'd love to come back and use Twitter more often. Can we talk about the reporting that happened with the two guys that trolled the journalists and pretended to be fired employees?
SPEAKER_04: Because I actually thought that was such an interesting moment this week that all the journalists immediately parroted it because it fed their narrative. But there was no fact checking done. There was no reporting done. And then several of them, including I think Deirdre Bosa from CNBC, came out and publicly apologized for that report. And if folks listening aren't familiar with what happened, these two guys came out. They pretended to be fired Twitter employees on Monday, walked out with a box. Oh, what's funny here? And they were like, hey, we just got fired. It's terrible. Life is awful. No, it's even worse. You know, the guy's name was one guy's name is Rahul Ligma.
SPEAKER_02: And the other guy's name was like Mike Johnson. So the whole thing was Ligma Johnson. So I now here's what's so funny about due diligence. Hold on. I read this story without giving away that punch line to my kids. All of my kids immediately started howling. They're like, Dad, if you say these two names are Ligma Johnson. And I was like, oh, my God. And so, you know, when like, you know, preteens can figure this out. But the journalism industry could not. It's kind of a very telling sign. Freeburg made the key observation, which is they didn't figure it out because they didn't want to because it fit their narrative. So they don't they don't fact check things that fit their narrative.
SPEAKER_04: This was my point about journalism. I just it was so poignant to me this week when this happened, particularly as it relates to Twitter, and the importance of call it open journalism or citizen journalism and the integrity of kind of, you know, of the voices that we all kind of trust as our kind of journalistic authorities that these guys came out and they were pawned right outside Twitter. Right outside Twitter's offices into telling a story that fit their sensational narrative. And it was really a kind of poignant moment for me. Would you remember that story? I think it was originally in Rolling Stone and then Rachel Maddow amplified it where it was in Oklahoma City, where supposedly all these MAGA Republicans were eating horse paste because Trump told them to.
SPEAKER_01: And they were and this is basically they thought it was like a covid therapy. And then they were going to the emergency rooms of all the hospitals and then they were turning away heart attack victims because there are so many of these these people going to the emergency room. Anyway, it all turned out to be like a made up story like a hoax, but the media reported it because the story was too good, right? It just it fit too many of their preconceptions to me. There's also one there's another vector sex, which is live coverage is, you know, you really have to be careful because when doing live people will call in and say, Oh, they're at the scene of an accident.
SPEAKER_03: And then they will do a Baba buoy or whatever, you know, kind of charades. And so without fact checking, and without saying, Hey, we haven't confirmed this yet. But these two employees are claiming this. People want to get real time coverage. It's fine to do real time coverage. I think everybody in the audience has to understand so much credit. What about editor there was a picture and it said Ligma Johnson.
SPEAKER_02: The editor was worse. Why are you covering for these people? I'm not covering I'm just trying to explain it. No, you're missing the whole point. Let me unpack the whole point. There's also you interrupted me. Well, here's the thing. There is a different standard for live news coverage. And then there we've ripped out fact checking from a lot of these publications, and basic fact checking and a little bit of time. I'm explaining why they make this mistake. I'm not protecting them. You want to know why they make it? That's part of it. But they've also ripped out fact checking and then they
SPEAKER_03: are in such a race to get clicks on social media. No, no, here's what's going on. If the story fits their priors, they run with it immediately. And they don't do any fact checking because they don't want to know that it's not true. That's what's going on. There is an element of that
SPEAKER_01: fact check a story if it's a narrative they don't like because they're gonna make they're gonna try and make sure it's not true. Yeah, that's true both sides and they'll use this thing. There's only one mainstream media. This is the mainstream media. Fox is the number one network, the alternative to the number one is by the way, the number one. Do you think
SPEAKER_00: some journalists do this? Tell me the writer. Tell me the writer on substack. Well, there's a lot of different ones there. So I fooled what substack writer got fooled by Ligma Johnson. I'm not defending I'm explaining what's happened fooled by Ligma Johnson. I don't
SPEAKER_01: think so. Don't make me defend Ligma defending. We are both sidesing it. I'm not both sidesing it. I'm telling you what is happening in journalism today. They have ripped out fact checking. And they are in a race to beat each other because the first person to get the story up gets a click. That's a dysfunctional
SPEAKER_03: thing. They tried to create a story when there was no story there. They really thought out they would have camped out outside of an office mid Market Street. And they said, Hey, there's this sensational thing happening. And there was no sensational thing happening. Correct. And so the little drop that fell into their laps, the little thing that fell into their laps became the story. Yes, that's the story they wanted to see created. There was no story beforehand, that then that there were all these people being fired, walking out with boxes. And then they said, let's go send live TV producers down there. They sent the live TV producers down there.
SPEAKER_04: They they did the same thing. They did the same thing in New York at Bear Stearns to cover when they had other major layoffs at Bear Stearns and stuff like that during the financial crisis. Of course, they say people to do live coverage. They're not defending it. I'm just explaining to you what's going on in the background as well with live TV and and the gutting of newsrooms and having no fact checking a lot of these stories go out. But what about the
SPEAKER_03: copy editor? 20 years ago, they used to have fact checking. My 11 year olds and 10 year old kids are better copy editors than these adults at these incredible publications. My kids started howling. They were like, Dad, do you understand what you just said? It'll lick my jaw. I mean, also, I mean, come on, this is like prepubescent humor that these people fell for. It's, it's ridiculous. It's embarrassing. It's certainly embarrassing. 100%. It is embarrassing. And this connects with the 4chan board. It's the same problem. This is
SPEAKER_01: a grievance industrial complex, right? They're manufacturing grievances. It's funny in the case of Ligma Johnson. It's not funny in the case of the 4chan board. But these are people who are inventing stories. Because there's a certain area to manipulate media because they know it's so easy to manipulate the media. Right. Anyways, big shout out to Rahul Ligma. That was a great start.
SPEAKER_02: Well played, sir. He's a huge fan of the all in podcast apparently. He's welcome on as a bestie guest anytime he wants. Oh, no, well, definitely not. Well played. All right, we should talk about layoffs intact lift 13% riff 700 employees like oh, yesterday. stripe 14% riff 1000 employees, open door chime, dapper labs, all hundreds of employees open door the most significant there 550 18% dapper 22% and 20%
SPEAKER_03: Twitter. We'll see what the riff winds up being but that's occurring as we're taping here. So and then Jason Apple did a pause. Amazon did a pause. Right and Google and Facebook have. Yeah, maybe trying maybe signaling a pause but haven't they've been hiring like in absolutely an crazy, crazy pace. And we'll pull up the chart here actually. It's instructive to look at Facebook and Google because they have not slowed down by any stretch of the imagination.
SPEAKER_03: Just by the raw numbers. This all started to peak in June, and now is starting up again. So there's a website, layoffs.fyi that's been tracking all these layoffs, you can see the number of layoffs, these are kind of major layoffs and the number of employees impacted. Pretty consistent. In the third quarter, it started to die down in September. From the peak in May and June, and now. Right? Yeah, it feels like this is the double dip we were talking about. I think this is the beginning. This is not even unpacking. Well, I think that we had if you take a very balanced view of what happened this week. You have to start I think with the Federal Reserve. And really what they said is rates will probably be higher than all of you think. And they'll be higher for longer than all of you want. And again, without debating whether, you know, that's going to come to pass or not, the thing that you can do is you can build a little sensitivity.
SPEAKER_02: Model to understand the mathematical implication of it. And basically what it means is that the dollar that's right in front of you is now meaningfully more important than the dollar that's far, far away from you. So let's just assume that, you know, the Fed funds rate goes to five and a half percent or so, even five. Let's go to the optimists and say it's only going to go to five. Tech companies have to achieve 500 basis points above that minimum. So we all have to generate 10 to 11 percent returns for us to be on a risk adjusted basis, better than a government bond. The problem with that is all of a sudden, you know, if you're trying to generate cash, even three or four years from now, it's not worth that much. You need to generate dollars today. And so, you know, they are really reprioritizing the value of short term profits. And that's going to affect how companies get money, the cost of capital. So how much dilution you have to take. So I think this is what companies are now bearing down for. They're realizing, oh man, I need to get my cost structure way in line. It is way better now, just to think about this contrast. It's way better to grow at 20 percent and be profitable than it is to grow at 100 percent and burn money because it's not clear where that second company is going to get the incremental dollars they need for growth. And that's just a mathematical realization when rates are five percent, risk-free rates are five percent. So I think this is that moment where you see that pivot from growth to profit. We've been talking about it for six months, but this is how it is manifest in Silicon Valley companies is of scale is through layoffs and cost reductions and cost savings. So the investments in future growth are reduced and the timeline to drive greater profits is improved.
SPEAKER_04: I think if what Elon is going to do at Twitter or what is reported, so this is nothing to do with anything anyone told me, just what I've read in the reporting is accurate that he's going to cut so deep. He's going to cut 30, 40, 50 percent potentially of the employee base. It really sets a new standard for how profitable a tech company can get. And again, I'll give credit to a Twitter poster post market who I didn't give credit to a few weeks ago when I read this tweet, which I think was a good one, which was that Elon is really going to show everyone just how profitable these tech companies can be, just how lean they can be run. And when you're doing a 10 percent riff or a 13 percent riff, you may or may not even be getting to profitability with that riff. When you cut 30, 40, 50 percent deep and you can actually turn a real profit on a business, an enterprise scale business like a Twitter or like many other enterprise software companies that are out there right now. It really kind of sets a new standard that a lot of folks might then end up saying, you know what, maybe we should go deeper. And there could be the case that private equity firms take a look at this. And there's a lot of these distressed mid-cap and small-cap software companies out there that private equity firms now realize, wow, you don't actually need 50 percent of the workforce in order to keep the product running and to drive to profitability. And you could see a bit of a flurry of buyout activity as more folks come in and maybe try and mimic the Elon playbook. So, you know, that's one kind of prediction I think may arise if Elon is successful in making Twitter a much more profitable enterprise. It could set a new model that catalyzes a lot of other M&A activity, a lot of other buyout activity of these distressed small and mid-cap companies by other actors. Can I build on what you're saying? Nick, can you please just throw up that tweet that I sent just for all of these guys to look at? Because I think it's incredible. So to your point, this is an incredible slide.
SPEAKER_02: This is an incredible slide. And essentially what it shows for those folks that are not watching this on YouTube is it essentially shows the private software universe and then the public software universe at different levels of valuation. So as an example, right now, there are 15 companies, private companies that are valued greater than $10 billion. And there are 40 public ones that are valued greater than $10 billion. There are 50 companies between, you know, more than $5 billion, but only 60 that are public that are valued more than $5. And here's what's crazy. There are 400 companies who have an average valuation of $3 billion. And then there are already 70 companies in the public markets where they have a billion dollars of next 12 months of revenue. And it just goes to show you to your point, Freeberg, if these folks have to generate an 11% hurdle rate, their cost of capital is 11%. The companies on the left will have to go through a lot of very difficult cost cutting, potentially headcount reductions, you know, re-pricing of the product, all kinds of things.
SPEAKER_02: And many of them have. Yeah. No, not none of them have. Oh, of these? Many of these are on the left.
SPEAKER_03: On the left. Yeah, on the left, right. There's almost 500 companies here that have to do an enormous amount of work so that they have a chance to be on the right hand side of this chart.
SPEAKER_02: The point is that you didn't have to do this when rates were zero. There was just an abundance of free money and risk seeking and duration that is now out of the market. Jamath, I think there's also a story that of the 200 companies that are public software companies that you see on the right, some number of them will need to go private in order to do the restructuring that the market is demanding that they do in order to get rightly valued.
SPEAKER_04: And to your point, it will happen at meaningfully lower valuations than where they probably went public or their last round.
SPEAKER_02: Which will put enormous pressure. Yeah, as you guys look at these 200 companies on the right, how many of them do you think go private over the next 18 months to get restructured a la what Elon is showing everyone is possible at Twitter?
SPEAKER_04: 18 is, 18 months is hard to predict. But to your point, Freeberg, I think if you look at the number of them that are unprofitable, at least half of them will have difficulty.
SPEAKER_02: So I think about two thirds of these companies really have no line of sight to profitability in the next two to three years. And again, if you layer in this cost of capital argument, all of those companies, David, will have to raise money at very egregious terms in order to keep themselves going as a public business. In which case their alternative is to go private in a PE transaction. So it's probably at least half these businesses. I mean, it's a lot. There's 100 PE deals to be done? Yeah. 100 by 100. Wow. What do you think? Because you know, these businesses and the models, I mean, some of them, it's hard to get profitable if you're scaling SaaS business, right? Like, you have to get to a certain scale before it's possible.
SPEAKER_01: Well, I don't, I don't, that's like a very specific question of like, how many of them are gonna get acquired by PE firms versus going public or going private after being public? That's, that's like a very specific question. I think the larger point is just that it feels to me like the economy's headed off a cliff right now. I mean, I can tell you within our larger portfolio of companies, like I can see the trajectory. So after Q1 board meetings, I would say about two thirds of portfolio companies were hitting their numbers and one third were missing. And it still appeared to be like problems related to those specific companies, not a macro trend. I would say after Q2 board meetings, two thirds were missing and one third were hitting their numbers. And you could start to feel, okay, maybe there's like a macro trend here. And I would say after Q3 board meetings, like now, the entire portfolio is re forecasting. Maybe there's like a handful of companies here or there that aren't, if you're one of those congratulations, but like even the best companies in our portfolio now are seeing major headwinds. And this is just, I think, an economy wide slowdown.
SPEAKER_04: Do you think there's restructuring possible? I mean, can these companies? Yeah, because let me just ask in the public markets, do you think those public companies can get restructured as public companies in order to make the profit? Yes, of course. It just takes the will.
SPEAKER_01: It's extremely expensive. It's expensive. I don't even think it's will. I think it's just expensive.
SPEAKER_02: Look at Coinbase as an example. Like, look, take Coinbase versus Carvana, right? These are both businesses that issued convertible debt sort of right before things got very, very hard.
SPEAKER_02: And if you look at where their convertible debt trades, it's trading basically at an implied yield of about 12 or 13 percent. Both companies now, one is probably, you know, a legitimate bankruptcy risk, which is Carvana. That's what the market would think. Whereas the other one, you know, I think it has a very fortified balance sheet and could weather the storm. Coinbase. But unfortunately, in a moment where, you know, rates are again, the risk free rate goes to five, five and a half. Our cost of capital to do business goes to 10 or 11. These guys have to pay 12 or 13 percent. My gosh, it's really, really dilutive to be in business right now. So it just goes to show you that you can stay public. But if you want to get incremental money to cover your burn, the only way you can do it without really, you know, blowing up your cap table and doing a massive recap. Will be through convertible debt, but it has a huge overhang and you risk turning the keys over to the debt holders of the company. So the alternative for that business is to go into the hands of private equity. And get out of the spotlight of these public markets. But public private equity is very smart. And the thing that's happened to them is they can't raise debt. Right. So what do you think they do? They just have to pay 50 percent less than what they would be willing to pay before because they have to write, you know, 100 percent equity check. So there is no free lunch anymore, I think is the big is the big point to point out anywhere in the market right now. I think one of the things I'm most concerned about or would be is I was talking with a friend who works at a private, you know, unicorn software company.
SPEAKER_04: And we talked about the numbers of the business and I was like, oh, that company is probably worth X. And I gave him a number. And then I asked him how much money they've raised and they've raised more than X. So I was like, dude, your options are worthless. Like, you know, this is a real problem. I think that's probably going to become very systemic. For scaled unicorn software companies, what happens to these businesses sat in the market? You know, as they kind of need another round, but the value of the company is now less than the total cash that they've raised, that all is sitting as preferred stock.
SPEAKER_01: Listen, it's survival of the quickest. Those who are most willing to adapt the most quickly are going to survive in the ones that are stubborn and refuse to accept the new regime. The market regime are going to die. We showed that chart. Remember that chart from Sequoia months ago on this podcast? Remember that where it basically showed what happens if you're a company that doesn't cut burn until the very end, then you're still going to run out of money and die. But if you make the cut right away quickly, you have enough runway to weather the storm. And I think that what we've seen is, you know, at my firm, Kraft. Yeah, this is exactly it. Yeah, we showed this months ago. We've been begging our founders to embrace this. We did a report for a review with our entire set of founders of our portfolio companies. We did one in February when we felt the markets were changing, and we did another one in May and we showed the slide. And this is the most important thing for founders to internalize, is you have to make the changes quickly. You know, one way for them to think about it is, let's say you're a unicorn company, OK? And you raised at the peak, let's say second half of 2021, you raised $100 million at a billion dollar valuation. And let's say you've got $50 million left in the bank, right? So you've burned $50 million. A lot of these founders are thinking that $50 million they've got left is only 5% dilution. But that's what it was historically. If you were to raise a new round today, you might only be valued at $250. So that $50 million you have left is actually 20% dilution. And that's if you could even raise, which might be very, very hard. The most important thing founders can do is forget about the historical terms on which you raised that money. Forget about how much money you were burning in the past. Just think about how much money you have in the bank today. Impute evaluation to it so you really internalize how much dilution that money represents. And then create a new plan moving forward to preserve that cash as long as possible. Can I say something else quickly on top of this? I think that's really good advice.
SPEAKER_02: The thing that, again, people should do is you should just build a little spreadsheet for yourself to understand what the alternative financing options are for people who are in the business of investing. So, David, to your point, the current three-month T-bill rate is 4%. You can buy munis now between 4% and 5% that are triple tax advantaged. You can buy high-quality corporate bonds that are 6%, 7%, 8%. You can buy stocks that have a dividend yield of 5% of growth, growing, market-leading companies.
SPEAKER_04: And so all of a sudden- Or 5% dividend yield. Exactly. And so all of a sudden, turning around and giving it to a company where there is no end in sight in terms of it doesn't get you to profitability is a really, really hard thing to do.
SPEAKER_02: I was talking to an entrepreneur, David Soloff, just yesterday, and he said it really well. He's like, listen, I'm not a macroeconomist. I'm not trying to forecast. But he's like, what I understood yesterday- This is David talking about the Fed- as an entrepreneur. The angle of attack has changed. The Fed has said this is not going to be some triangle sawtooth. It's not going to go up sharply and then come back down sharply, which is what we would all want if we wanted things to get back to normal sooner. The angle of attack is now a little bit slower, which means it's going to take longer to get where we need to be. And then we're going to stay there for a lot longer than we want. And when you roll those two things together, a lot of companies may run out of money. And so if you can't get to default alive, you have to look at your cost structure and figure out how to right size this thing because the cost of capital is just going to be really, really expensive. And this was the Fed's goal, right? They wanted to take away this free capital. They want to slow the economy down.
SPEAKER_03: And it seems like they're making progress. They did the 75 basis point hike this week. But we're adding jobs to the economy. We have more job openings and we had 2.6% GDP growth. So I guess my question to the everybody here is. What is the Fed going to have to do or can they stop this consumer and this growth? It's very strange, right? Powell said he'd rather overcorrect and break things because he has a toolbox to fix the broken bones.
SPEAKER_02: But he doesn't have a toolbox to fix if they under correct and they have rampant inflation. I mean, not more explicit, you can't get Jason. So he's going to take rates until demand is destroyed and enough demand is destroyed such that inflation is tamed. But that has huge implications to all of us because we all have to do our job trying to build a company, trying to raise money, trying to invest money. It's just getting much, much, much harder than I even thought. So like, you know, for me, I'm like, wow, I thought that we could get through the worst of this by mid 23. But now you have to plan for the worst, which means, OK, now I'm thinking that men rates could be higher for much longer, which means, you know, we could be in this market till early 25. And you may say, hey, that's way too conservative. Yeah, but you have to plan for conservatism in this point. So how do I invest money right now? Honestly, I'm like, hmm, I should just put more into T-bills. Isn't that crazy? If a company's like HMAS can have another 10, 15, 20 million bucks, I'm like, wow. I mean, I don't think that that gets you anywhere. And oh, by the way, that 10 or 20 million dollars, I can generate 4 percent. What a what a tough tradeoff, right? Well, for somebody who has access to private markets, which should be high growth companies to take the guaranteed for over the 50 x 25 x 10 x whatever we're trying to bet on here.
SPEAKER_03: Yeah, it's not just the guaranteed for but if you want to take tech risk, then you could go buy the corporate bonds of some high quality companies for the 10 or 11 percent.
SPEAKER_01: So you take moderate risk. So you're also competing with that not to zero risk. Can you explain that for the listeners what that corporate debt is and why it pays more?
SPEAKER_03: There are there are, you know, high quality public companies, tech companies that have bonds and that's corporate debt.
SPEAKER_01: And they obviously have to pay a higher rate than what the Treasury pays because the Treasury is risk free and corporations could default. So there is some risk to it. It's not zero risk. But, you know, it's like if you're willing to take tech risk, then why wouldn't you buy a bond at 10 percent? Meaning the equity always has to beat that threshold return. But but hey, can we just go back to the jobs report for a second? I mean, the U.S. government could default, but it's considered the least likely to default of all issuers of debt in the world.
SPEAKER_04: And that's why I said it. Yeah, that's why people call it the risk free rate because it is the least risky. The U.S. can always repay its debt because the debt is denominated in dollars and the Treasury can always at the end of the day print more money.
SPEAKER_01: That would just be monetizing the debt. Other countries that owe money in dollars and obviously don't control the U.S. mint. They can't do that. So they could actually default. But since we're the world's reserve currency, we're never going to default. However, the dollars that you get paid back by the U.S. government might be worth a lot less in the future because of inflation. And that's the real risk you have to think about. But there's no default risk. Right. Whereas with corporate debt, there is. But let's go back to this. The jobs picture for a second. Jason, you asked about this. So there is news this morning that we added two hundred sixty one thousand jobs in October. And obviously, given that there's an election in a few days, then the administration is eager to point to this. But if you dig a little deeper in the report, I just posted the link there. You see in the raw numbers that there's actually three hundred twenty eight thousand fewer employed Americans. And the number of unemployed Americans actually increased three hundred six thousand. So and the labor force participation rate declined for the third consecutive month to sixty two point two percent. So like, I don't really understand, like how all these numbers add up. But the point is, like the data is very mixed. And this very definitely negativity in there. And this feels to me like the last gasp of the bull market where there's like this residual job creation. But you look at like just what's happened the last week where it's stripe cutting. I mean, stripes, probably the single highest quality. I think it's probably the most valuable private companies. No SpaceX. No space. Yes. Oh, well, space.
SPEAKER_02: That's OK. But but like software, pure software company that a 14 percent cut, you're starting to see now the risks really start to pile up.
SPEAKER_01: So I think we're at the beginning now of a long cycle of the unemployment rate going up. I mean, it just feels like the economy is slowing so fast. The markets are you know, they've been puking now for six months. It just feels like this is the beginning of a like really serious recession. Yet we had GDP growth. Yet we had job openings.
SPEAKER_03: We had two quarters. We had two quarters of net negative growth. This is when we had the debate about what a recession is.
SPEAKER_01: It was true that if you looked at growth in nominal terms, it appeared to be strong and then it was net negative once you subtracted the inflation rate. You know, we said several months ago, my prediction was a double dip recession where you had this shallow technical recession. Then it bounced back in Q3. But now I think we're headed into the second part of it, which is the real recession, a recession characterized by joblessness. And you're starting to see economists say we're going to go from three point something percent unemployment rate to, say, five or six percent unemployment next year. So I think we're just beginning to see the job cuts start to add up.
SPEAKER_02: This is I think this is what Powell meant, which is, you know, he'll take it as far as it takes and then he can fix it on the back end by reintroducing, you know, quantitative easing and reintroducing lower interest rates to stimulate demand. But there's one of the odds he gets this right. It seems to me that the Fed has a habit of reacting too slowly. They were too slow to react to inflation.
SPEAKER_01: My guess is that they'll be too slow to react to the recession. So we'll end up with a period of rates being higher than they should too long. And then they will correct. They'll drop rates. But that could be two years from now. And meanwhile, we could be in a pretty deep recession.
SPEAKER_03: You're probably right. Two charts for you to look at the GDP by quarter and then after that, the labor participation rate. So there's your GDP Q1, Q2 being negative, Q3 bouncing back. We'll see what happens in Q4. Here's your Fed force participation rate for labor, as we discussed. The thing with the labor participation rate that we're still not sort of like truly factoring in is like, you know, we had a million Americans die because of COVID.
SPEAKER_02: And, you know, starting in that Trump presidency, we lost like seven or eight million immigrants. So those eight million people have a huge effect on this number. Yeah. Right. And it's not properly really factored in because if if if you see that at the start of the Trump presidency, it's just it just fell off a cliff, basically. And you also have people who retired early. That was a big trend. And this all peaked in 2000.
SPEAKER_03: Labor participation hitting that like 67, 68 percent, I think is the peak. And just slowly going down as boomers retire early because they made so much on their 401ks and homes. And then you're right, Tramath, we've had negative we've really cut immigration the last whatever, five, six years. I think there's an element in here that's missing on how much people individually are finding other ways to earn income that doesn't qualify and show up in the labor force numbers.
SPEAKER_04: People have set up Etsy stores. Shopify stores have tripled since COVID. People are making more money on YouTube, on Instagram, on TikTok than ever before. There is a whole new class of work that revolves around the individual creating their own business, creating their own income stream that's simply taken off and has taken off. It was it was kind of a trend pre-COVID, but it really took off during COVID. And there's an element of this that's really more about the transition of how people work and how they earn that isn't reflected in these numbers. I don't think that the idea that everyone should go be an employee at a company is necessarily the right way to think about labor going forward. The amount of money that individuals are earning is probably the better way to frame this up going forward and is really thinking about the earning power and the economic health of this country. This is something important you're bringing up here. Gig workers are about 9% of the workforce and Uber and Dara had they grew over 70% this year.
SPEAKER_03: But I think the big number that I watch for was drivers are making $36 an hour in the United States working for Uber. So you're exactly right. People are finding other options, whether it's DoorDash, Uber, Etsy.
SPEAKER_04: And that doesn't qualify in labor force, right? Because they're independent contractors. Independent contractors are counted. Yeah, they are counted.
SPEAKER_03: That's based on my preliminary research. If somebody wants to fact check us, that'd be great. But my understanding is independent contractors, which is what gig workers are classified under are counted in labor participation. I don't know how they're counted. So we'll we'll look that up and figure that out.
SPEAKER_01: There was a story in BBC that the Bank of England has now warned that the UK is facing its longest recession since records began. Some of this is getting to be fear porn. Yeah. But look, here's what I think is scary about going into a recession is, number one, you don't really know how long it's going to take to get out.
SPEAKER_01: We know the average recession lasts about 18 months. But the truth is, once it starts, you just don't know. And the second thing is you don't really know who's been stress tested. People claim that they can weather the storm. But the truth is that there's no there's no way to simulate truly simulate a stress test. They claim they can. But the only way is to really subject, you know, an institution to that pressure and that stress. And then you see if they come out the other side. So that's the issue is you just going into this. There's there's a lot of unknown unknowns. And and this is why I would just urge founders to be cautious is because if the recession ends up being shallow and shorter than people expect. Great. You'll be surprised to the upside. But if the recession ends up being deeper and longer than expected, you don't want to go out of business. You want to be protected against that. So, again, we've been saying this since February and May. But again, I just reiterate, I think it really makes sense for founders to be conservative. Prioritize your survival above all else. You know, this recession probably will last about two years. You want to make sure you survive it. And to Chama's point, if you survive it with lower growth, that's fine. You can keep growing on the other end of this thing. But if you go out of business because you grew too fast, then you're not going to get the chance to fix that problem when the recession is over. I just don't see anybody rewarding hyper growth that is burning a ton of cash where you have to be back in market every year because it's it's just very hard to feel comfortable that the conditions on the field aren't going to be drastically different a year from now.
SPEAKER_02: Right. It's not like we know that it's going to be better or worse. And I think that that uncertainty is actually really bad for companies. So to your point, it's just like. A lot of folks have tried to shy away, David, from actually revisiting their valuations. They've done these complicated converts and they've tried to basically, you know. It's I think it's sort of like managing their ego or the board's ego, and I think like the next shoe to drop has to be these founders and these boards just saying, OK, let's just take the hard medicine. What's the real market clearing price and valuation? Let's get a third party to price it and let's get new fresh equity and then move forward. Because if you don't do that and you wait until everybody's trying to do it, then it's going to be a really tough scenario. So better to your point, you know, this is why I like Stripe. It's so smart. Better to cut now. Again, it's always hard to let people go, but it's better to do that now than 18 months from now, because you just have no idea how much more expensive or hard it's going to be then. And who's going to even be in the business of lending money or investing money in 18 months? And, you know, that sounds pretty crazy, but it's like I think that that's that's the moment that we're in. To your point, Friedberg, I did a little research here. And according to the Fed of St. Louis, if you counted casual workers, informal workers, over doing over 20 hours a week of informal work, aka gig work, you would increase labor participation between a half point and a point if you counted all of them, maybe even slightly more than two percentage points higher.
SPEAKER_03: So probably about a point seems like a realistic way to look at labor participation. And of the eight points, or maybe now the six or seven points to 10%, it would then account for 10 to 20% of the 10% drop in labor participation. It's just alarming statistics, because if most people have most of their personal net worth tied up in their home asset, and their home values are declining or going to decline. And we're seeing this dramatic spike in consumer credit in the US. It paints a really ugly picture for the next two years.
SPEAKER_04: Well, guys, I'm just looking at I'm just looking at the markets today. Git Labs down 15%. Snowflakes down 13%. Mondays down 14%. Outlastings down 30%. In one day, Yelp is down 17%. Open Door is down 16%. So it's just a horrible Oh my gosh, the cloud computing index. WCLD has hit a new low for the year. It's down to 23 bucks.
SPEAKER_01: I think the previous low was 25 is down almost 8% today. And this is on a day in which the NASDAQ is down less than 1%. So the point is, rotating out of growth stocks. Yeah, it's just brutal. And so listen, if you're a startup founder, you got to realize these are like some of the highest quality public
SPEAKER_01: 20 years down 40% today. Twilio is down 37% in a day today. Whoa. But guys, this is this is just math. You know, it's not a judgment on any of these companies. It's just pure math. This is why I think you have to be utterly unemotional in this moment. And if you're if you're a CEO, running a company, particularly a SAS business, you have to really figure out how to how to right size your cost basis and make this money.
SPEAKER_02: Last profitable industrial companies are Bill Gurley had a tweet tweet about this a few months ago about how the biggest mistake people make in rifts is they just do like a tepid riff like a 10% ish riff, and they have to come back and they do it again. And again, this is what I think the the Elon action this week really sets a standard he shows the entirety of Silicon Valley, that you can cut deep and you can turn a profit and you can do it fast. And it could set a new standard for how folks are managing this. Jack Welch used to in his management program, he's been doing this for a long time.
SPEAKER_04: He used to in his management principles recommend dropping the bottom 10% of people every year. And so you know, the 1013% cuts don't really pass muster as a public market investor kind of looks at the the management across these different companies to turn a profit. They're going to say the folks that are making the deepest cuts the fastest are the ones that are going to get valued. It's unfortunate and it's a difficult circumstance for everyone in Silicon Valley to deal with from the employees to the investors to the public and private shareholders. It's really brutal. One quick question for you guys. It's really just this kind of market motivation that's underway right now. Here's the chart. And then my question for you is when do Google and Facebook stop this? I mean, if you look at the number of employees being added, it is truly extraordinary. Here's the chart and this includes the latest quarter. So they are not turning off hiring yet. What do you think? Hold on, didn't they announce a hiring freeze? They announced that they were at Google, they announced that they were going to hold people to the
SPEAKER_03:
SPEAKER_03: best performance, they were going to keep people accountable to better performance, and they were going to go do more with less and then they added more people. Facebook said they would do a hiring freeze today. Yeah, Facebook said it would do a hiring freeze. Well, what they had a job less quarter. Yeah. Well, you're right. They just announced a hiring freeze. You look at Apple, Apple just announced in non R&D functions a hiring freeze. This is Apple like the most valuable, most profitable company in the world. So if Apple basically is putting the brakes on non engineering hiring freeze, they're going to do a hiring freeze.
SPEAKER_01: And if you look at Apple, Apple is saying, Hey, you know, if you're hiring, that tells you something about how fast the economy is slowing down. I think that was a huge signal. Yeah, the point freebird makes is so correct, which is, if you're doing a riff, obviously, there's a reason why. But I think we were seeing too many riffs, where the details of the riff and the magnitude of the riff don't match up with what the objective of the riff is. The objective of the riff for a lot of these companies should be to get them cash flow positive, or at least to put them on a runway or trajectory. Where they can get cash flow positive with their existing cash on the balance sheet, right, they won't need to raise money again. And we're seeing a lot of companies where they don't achieve that. And they have to come back again and again, and hit it again. And that creates more more turmoil for the company. And it's more unfair for the employees.
SPEAKER_04: And the shareholders say you do actually have a path that makes sense here. I'm going to stay in the stock cash today versus cash in the future.
SPEAKER_03: If you were to cap one like a Twilio or an Uber or an Airbnb, if they were cut costs, and then start buying back their shares, which some companies have been doing, what would that do in terms of the markets appreciation of those stocks or management teams? I think it's hard to tell. I think that the if you have not lost investor trust, I think it would be really well rewarded. If you have become unreliable, and undisciplined.
SPEAKER_02: I think that this, I think would be met with some amount of excitement, but probably not a broad base support. So, you know, it then it just goes to narrative meaning, if Google did it, I think that people really trust Sundar and Ruth. And I think the stock would go bonkers. They would probably move very quickly into the echelon of Apple. And Apple is sort of a first among equals, like they're just in a different class unto themselves. Facebook, I think is a little bit harder because I think folks have gotten burned. And, you know, they would have to make some really, really deep cuts. But then, you know, where do you do it, you can't capitulate on this meta strategy. But then the other part is where you make all the money. And so you have this huge morale issue that you have to manage. So it's just a really hard game to play. Just one more thought on on on the riff stuff. I think one thought experiment for founders is to think about what was your plan at the end of 2019?
SPEAKER_01: Why do I say that? Because 2020 and 2021 were two of the most distorted years ever in the history of financial markets and the economy because we had COVID. And then we had the reaction to COVID. Right. And so you saw there was this, you know, Zooms market cap hit 100 billion, all the ecommerce companies were doing extremely well. You know, you had all this money printing, you know, you had zero interest rates, and so on. You had SaaS companies hitting all time highs at the end of 2021. So we lived through this incredibly distressing and distorted time. So as a thought experiment, go look at what your plan for 2020 was supposed to be when you created it at the end of 2019. Because that was the last time that you were thinking without any distortions, you know, that were then created. And I think if you were to go back and look at your 2020 plan, again, created at the end of 2019, you'd probably see that you could get by with half the headcount you have now, because probably you doubled your headcount during the last two years during these heady heady times. And yet I think founders start thinking, oh, I can't go back to operating, you know, I can't operate at half the level of headcount. But you were you were operating with half the level of headcount by definition, at some earlier point.
SPEAKER_02: And that's what you need to do. It's a really it's a really hard to do. I mean, look at Airbnb as an example. I mean, they did this ginormous riff during COVID because they had no choice. I mean, their their revenue went essentially to zero. And now the business is incredibly strong. It's throwing off massive amounts of free cash flow and stock market seems to really love what Airbnb has done. And a similar story over at Uber in terms of having done significant riffs and probably could do significant.
SPEAKER_01: So the number one thing that's happened is that Airbnb is still down almost 75% off its high. Right. So when you say the stock market love it, so they're up today 3%. So meaning they're not down 30% in one day, but they've have gone down with the rest of the market. They have gone down with the rest of the market. But it feels like the business I'm talking about the business fundamentals when you're throwing off almost a billion. Yeah, now you're gonna start people are going to perceive that business maybe as of this cohort, the flight to safety, right? Or same thing with Uber throwing off free cash flow. Now I think a lot of these names are gonna
SPEAKER_03: be pretty attractive. I don't own Airbnb right now, but I do own Uber. I think the people throwing off the free cash flow are going to look pretty attractive and be able to buy their stock back maybe. All right, everybody, let's talk about the midterms. A lot of big Senate races and obviously governors, Pennsylvania, Georgia, Arizona, Wisconsin, Ohio, all really important races. Sax, what do you think? Well, it looks to me like there's gonna be a Republican wave. There was an interesting article actually on
SPEAKER_01: where they it's called five scary numbers for Democrats. And what they point to is that Biden right now has a 42% approval rating. 61% of the American people say he hasn't focused on the key problems. So this is called the out of touch index. 51% say the economy's number one issue compared to only 15% for abortion. And then 78% say we're on the wrong track. I don't think I've seen a right track wrong track index that was so negative. So, you know, when you look at polling numbers like that, it must translate, I think, into a Republican wave. And you have now Real Clear Politics currently has the GOP gaining four Senate seats. So winning in Arizona, Nevada, Georgia, and New Hampshire, that's a big change from just a couple weeks ago, and winning 31 House seats. So this is this is kind of what it's looking like right now. But look, the margin is still within the within the margin of error on the polling. So Nate Silver has pointed out that within one standard deviation, you could either have a Republican wave or you could have basically the Republicans fizzle out. So it's going to be very close. But ultimately, I think this breaks Republican. Yeah, the to me, the way that I've, I'm looking at it right now is that it seems like most scenarios, the Republicans will have the majority in the house. And the real question is what happens in the Senate, it's really, really kind of a coin flip.
SPEAKER_02: And that's going to be really interesting to see. So, you know, things where I thought would break Republican in the Senate, like Pennsylvania are now back to almost the, you know, a statistical dead heat. So it's a really interesting moment, actually. It's, but most scenarios, David, I think you'd agree, is that the Republicans win the house. And then there's a non, there's a plurality of scenarios where they also win the Senate. The House will almost certainly go Republican. But I think the Senate now the official percentages are 55%.
SPEAKER_01: Likely to tip Republican. But I, I just think that in a wave year like this, where the wrong track sentiment is so high, I think all these races that are a dead heat, they're more likely to break in one direction as opposed to like a random distribution, which is why I think you could just as easily end up with an, you know, instead of it being a 5149 Senate, it could be 5545 because all these things could break the same way. So right now, so I would slightly disagree in Pennsylvania. I think Oz has improved as a candidate. Fetterman did that debate. And since he suffered that stroke, he kind of came across as somebody. How do we feel about that? I had very, very hard to watch that happen. And yeah, I mean, the guy the guy has suffered a stroke and is sad, but he you know, he doesn't present as someone who can be a senator right now. I think what does the science say about that? Like a re as a society? Is this a good idea to have somebody post stroke be in office? I'm not picking any political side here. I'm just talking about the medical area. I
SPEAKER_03: think that's a good thing. So I think it's a very important issue. Oz is actually doing the right thing right now, which is he's not actually focusing on that issue because it's so obvious. He doesn't want to be seen as beating up on Fetterman and instead of course, he's focusing on the issues. And actually, a Fetterman's issues are very unpopular in a state like Pennsylvania. So I actually think for both reasons, I was gonna win that I think Fetterman is manifestly unqualified, but also I think his positions are fairly unpopular. So I think Pennsylvania will will will almost certainly
SPEAKER_03: Ohio is going Republican. And then Arizona, I think is really
SPEAKER_01: the interesting one where Blake Masters is now tied after being behind Mark Kelly throughout this campaign. He is now tied in New He's tied now? Oh God, he's so unpopular. Your guy is really
SPEAKER_03: unpopular. And now he's tied? It's the Peter Thiel. He was never that unpopular, J. Cal. That was your interpretation.
SPEAKER_01: It's the Peter Thiel wave. Well, no, he was he was doing really poorly, I think, because
SPEAKER_03: he was anti-choice. I think, listen, I think that I think that Arizona is probably
SPEAKER_01: gonna be the closest race in the country. I think it's gonna be a nail biter, but I think Blake's gonna pull that out.
SPEAKER_04: Sax, what do you think are the biggest policy shifts that take place in this country? host this predicted red wave? Is there anything that changes? So just, you know, talk to folks about what's on the docket from a legislative point of view, going into the next Congress with all these new candidates.
SPEAKER_01: The reality is we have a separation of powers in this country, and you're going to have divided government, the Republicans will will control Congress, the Democrats will control the presidency. And so as a result, you're going to be largely in a gridlock situation. But gridlock may be a lot better than what we've had over the last couple of years. So you know, you've had basically this orgy of spending and money printing, and I think that's going to stop, obviously. The other thing that's going to happen is Republicans may not be able to pass much legislation, but they're gonna be able to do investigations. And there's a lot of questions that need to be answered, I think, about still about COVID. You know, these lockdown policies that we had started at the top at NIH, why did they happen? We need to start having accountability for some of these horrible decisions that were made during COVID. And there's been no willingness in Washington to hold anyone accountable. At a minimum, they need to have some congressional investigations and find out why we pursued such bad policies over the last couple of years. By the way, did you see did you see what happened this week
SPEAKER_02: where the CDC, you know, after this entire opioid epidemic, and all of these lawsuits, the CDC came out and actually said, Hey, listen, we need to really make sure that we're getting access putting opioids in the hands of Americans who are really suffering with pain management and whatnot. And I didn't read the article to really understand the details. But I just thought it was an incredible headline where it's like, it's just it's so counter to the narrative of what we've been told is happening, which is like, you know, overprescription and misprescription.
SPEAKER_03: If we learned anything during COVID is to question every organization, everybody and to really collect your own information. While you know, looking at these organizations we trusted over time, I know I look at the world differently now that you couldn't say COVID was possibly a lab leak without having your podcast taken down or being banned on YouTube. And now ProPublica has done an investigation and they're saying along with Vanity Fair, and they're gonna win a Pulitzer for this, I bet that this conspiracy theory from two years ago, is probably actually the leading theory and that the Wuhan lab lab was showing if you didn't see it, reporting an incident in late November of last year before COVID broke 2019. It's really it's really incredible.
SPEAKER_01: There was an article in the Atlantic that came out over the past week called let's declare a pandemic amnesty. No. Yeah, let's do investigation. Right. So basically, everything. Yes, all the experts who told us Jason that we weren't allowed to have an opinion because we weren't expert enough, that if we raise any questions about the origin of the virus that it might have come from a lab, that that basically needs to be censored. The people who said we have to do lockdowns and implement all these authoritarian tactics. Now they're saying that they need an amnesty that what that really means no, no one's looking no one's looking to criminally prosecute them. What we're looking to do is have some accountability around the public policy. What they want is they want to pull the expert card to say that they're the only one who gets to have an opinion and make a decision. But then when it all goes horribly awry, they basically want to be completely insulated unaccountable. No way, no way. We're not gonna give you full investigation. We're in alignment on this. Can I just
SPEAKER_00:
SPEAKER_03: tell you why? I just want to say sex we're in alignment on this for a rare moment of peace on this podcast. The same thing after 911. Shouldn't all Americans understand what happened after 911 and what the failures were in our intelligence just so we can get better. I'm not picking a political horse here. But it's kind of crazy that you could people said to our podcast and other people who were questioning it, forget about what political party you're in just want to understand how the world works. What are the chances that this breaks out in the one or two places where they're studying the coronavirus that you have a lab leak? It was
SPEAKER_02: so obvious to everybody. The other reason why you need to have accountability for this is that there is still a long tail, especially around the damage that we did to our kids educationally. Yeah, and now and now the overprescription of stimulants. And so if you don't have answers, you can't go after these problems. Like there is a there is like, stimulant prescription is now the single biggest epidemic in children. It is now twice as prescribed as contraceptives and asthma drugs.
SPEAKER_03: And why chamath? Why are we doing this to score higher on a test to be more attentive in school?
SPEAKER_02: Well, it's it's actually this negative feedback loop where these children were mis-educated during COVID. It had huge psychological and academic damage to them. Our test scores have fallen off of a cliff relative to how we used to do relative to other countries. I think the teachers unions have found a way to try to explain it to basically shield themselves from any sort of critique. And so the loop and then part of that loop is then to look at a bunch of kids that are underperforming in school. And instead of saying, well, maybe these lockdowns and masking and all of these things that we implemented actually had a huge impact. They say, you know, you're misbehaving. So let's put you on a stimulant. Yeah, it's crazy. We're in that loop right now. Just so you guys know, the data is outrageous. Twice as many prescriptions for stimulants as the sum of contraceptives and asthma drugs for all American kids. Yeah, it's not that suddenly everybody's got ADHD. It's and
SPEAKER_03: we failed them. We failed our children. And we're gonna use stimulants to have them catch up. We should be doing summer schools, after school programs, weekends, whatever. We failed them because of our response to COVID. That is why
SPEAKER_02: we need answers to all that stuff. Because you need to link these things together to have some real accountability. Absolutely. Here is the just so we have the people see the
SPEAKER_03: numbers. Here's the 538 poll of how Joe Biden's popularity has switched. This is 654 days into his presidency started out really strong 54%. And now a little rebound since the summer. Obviously, that dip started with the economy. It's the economy stupid. And if we go down a little bit on the same page, and you zoom in on the left there, you can see compared to Donald Trump. He started out much more popular than Donald Trump day by day. And now he's just as unpopular as Donald Trump was at this point in his presidency. Well, look, I mean, look, the setup is really interesting for
SPEAKER_02: 2024. Because it's probably going to be the case that we're in the middle of a recession going into that election cycle. Maybe we'll be sort of like getting ourselves out of it, but there'll be a lot of economic damage, high unemployment. And
SPEAKER_02: you know, typically, folks in power will have to sort of be held accountable for that. It's a really interesting setup that both Gavin Newsom and Ron DeSantis have to figure out now and navigate if they're going to get the nomination on each side. And breaking news today. Sax would love to get your thoughts
SPEAKER_03: on this. Axio says, and we'll go to Science Corner next that Trump's going to announce on November 14, that he is running for president. Look, I kind of have the Joe Rogan philosophy on this, which
SPEAKER_01: is why give it oxygen. Let's just wait and see. There's certainly no need to talk about it before it happens. You know, we're not even past this election yet. But but hey, I want to go back to the Biden popularity, because I think part of the issue here is what are the arguments that Biden is making to the country about why people should vote Democratic? And he gave another speech on Wednesday night, where he basically claimed that if you vote for a different party, that that is a threat to democracy. In other words, the perpetuation of single party rule is what you must do if you care about democracy. That is a sales pitch that's not going to appeal to anybody outside of the viewers of MSNBC. It's just not. He's not talking about the issues that really matter to the country. You know, what the country wants to know is that he's focused on the economy, he's focused on inflation, he's focused on crime, he's focused on the schools and fixing this learning loss that Jamal was just talking about. He's not doing those things. Instead, he's basically saying that the Democrats should be kept in power forever, because there was a riot at the Capitol on January 6. And look, that was a stain on the country. Okay, it was terrible that that happened. That is not a reason. Hold on a second. That is not a reason to keep Democrats in power forever. And actually, there's a liberal guy, a liberal Democrat named Josh Barrow, who wrote a pretty good blog about this. And what he said is, the message is that there's only one party contesting this election that is committed to democracy, the Democrats, and therefore only one real choice available. If voters reject Democrats agenda, or their record on issues, including inflation, crime and immigration, they have no recourse to the ballot box, they simply must vote for Democrats anyway. And that argument is just not flying. And actually, he's a a democrat who is pointing this out. But I don't think that Democrats are getting the message on this. But I think they will after this election, they're gonna have to find a new sales pitch to the country. Well, you know, and he does have a good sales pitch, doesn't he
SPEAKER_03: chamath with these major bipartisan wins, he had the infrastructure deal got done the technology bill and the chips, you got gas prices going down, probably at GDP growth, you got job growth. The problem is that those things happened, frankly, too early
SPEAKER_02: in his presidency, and things are getting materially worse. So I just sent you a link, can you just throw this up here? For a second, you know, Jason, you mentioned this cheaper gas thing. Yeah. But the reality is, if you look at this, we have now depleted our strategic oil reserve by almost 50%. Yeah. So we are running out of oil that we can introduce into the market at effectively zero cost to bring the price down. And because we've lost our relationships with folks like Saudi Arabia, there's no way to influence them in order to produce more. In fact, they're going to cut supply so that they can control the prices that they have, which that they can sell into the market. And so now what are we left with? Well, the only three places where you can have incremental supply of energy, which the country still needs, is from Russia, Iran and Venezuela. And so you know, all of these things, Jason, I think come back and really put Biden in a tough place. Because as as SAC says, he does have to answer to all of these things, because these are his decisions. Look, I still believe in the Democrats, you know, I am hoping I gave a million bucks to the Senate PAC trying to sort of tip the Senate, I really think it's important that we have a split government because I've kind of I gave up on the house, I think it's clear that the Republicans are going to win, but the Senate is still is still up for grabs. And the reason is because I think that we need to sort of have stasis, so that nothing bad happens between now and 2024. Because I think the economic conditions on the ground are going to be bad in and of themselves. Free Berkeley. And then just the one last thing I'll say is, the instructive thing that I think we should look at is what happened in Germany. Because what happened in Germany is
SPEAKER_02: really interesting. When the economy turns, and inflation is out of control, and energy is out of control. What they basically did was they sidelined the European Central Bank, they stepped in with their own balance sheet and said, you know what, we're going to nationalize assets. And I know that this sounds crazy to say, but if it can happen in a place like Germany, I know most people would say it'll never happen in America. But I'm not so sure. And I think that you want to make sure that there's a split government so that these things are never possible. And so hopefully there's some, you know, common ground in a Democratic Senate and a Republican House and we just kind of get through 24 and see where the chips land and I still think it's going to be DeSantis versus Newsom. Friedberg, any final thoughts here on politics and relation?
SPEAKER_03: My first observation is that I think it's funny that Chamath
SPEAKER_04: and Sachs are funding opposite sides of the electoral cycle.
SPEAKER_03: Yeah, why don't you just guys just give the money to me and Friedberg to get a plane? Give each other's money. I can think of other ways for you guys
SPEAKER_04: to use that money. David and I may have canceled each other out. You're right. I
SPEAKER_02: mean, so far Peter Thiel made the better trade. He's it looks like the Thiel wave in the Senate. So look, I would say my very broad statement is democracies
SPEAKER_04: evolve in a cyclical nature over time, right? You often see swings from one political party to the other. And it's just the nature that once someone's been in office, they form the new establishment. And then folks on the next election cycle want to vote against that establishment because there are things that they want that they aren't being given today. And therefore the democracy forces a change from what is the current establishment back to the other side. And generally political parties seem to kind of adopt whatever the other side is. And that's how the cyclical evolution of democracy seems to play out. The recent trend that has been more alarming, which I think we can kind of take pause to notice is the rise of populism, where populism is this really kind of vehement diehard opposition to elitism and the establishments that everyone feels kept down by and everyone feels taken advantage of by. And the rise of Trump, the rise of Bolsonaro, the rise of Boris Johnson, and I would argue even the rise of AOC, Bernie Sanders and Elizabeth Warren, all similarly speak to the crying voice of the democratic populations that they want to see these establishments taken apart. They don't feel like they're fair. They don't feel like they're just they don't feel like the institutions that oversee us and are meant to service us are servicing us. And so there was this big rise. The problem is like a normal pendulum would swing back and forth between one side and the other. With the rise of populism, you get such a strong push of that pendulum, it can knock through a wall. And I think we saw that on January 6. And I think it gave a lot of people pause, we saw the motion of Brexit, knocking through a wall. And we saw these kind of very radical outcomes, and then the cost of those outcomes blow up in our face. And as a result, I think we're seeing a bit of a receding of the tides right now away from populism during this current electoral cycle, where folks are saying, you know what, maybe we just need to have some sort of an establishment so I can feel safe and secure, less than the volatile volatility that I've experienced of late. Look, I think you look at the economic mess we're in, okay,
SPEAKER_01: populist did not cause that okay, populist did not cause 10 trillion dollars of money printing, it was modern monetary theory, and the experts, the Fed who did that it wasn't populist, who created the great financial crisis of 2008 that caused the zerp and we're still living with all the downstream effects of that. It was the experts on Wall Street, who said that they could manage all these derivatives and the collateralized mortgage obligations and all that stuff that they lost control over. I would argue that on COVID it wasn't populist. The CDC are the experts. Yeah, the CDC. And it wasn't. And on COVID, it was not populist who caused the horrible handling of that pandemic, even though they were blamed for it. Remember, we were told it was a pandemic of the unvaccinated, that it turns out the vaccine doesn't stop it. It was not populist who caused the reaction to the pandemic. It was the experts, the CDC, and Fauci and people like that who shut down our economy, who caused the learning loss, it was those experts. So freeburg Listen, you may not like this populist wave that we have in the country. And I get that but it's in reaction to something real, which is the failure of this expert class. And if you want to stop having this populist wave rise up, we need to start having experts in position of power who actually know what they're doing. Well, I'm sorry, Jake, I'll hang on. I don't have any opposition to
SPEAKER_04: the populist wave. I'm making the observation that the the effects of some of the populist movements have started to become too volatile for people to feel like they should continue forward with that electoral path. That was my observation. Okay, I'm not kind of criticizing the populist movement. I'm just saying that events like January 6, and the conditions in the UK, for example, are making people say, Wait a second, maybe I need to take pause on the extreme, the bond market basically fired Liz trust. I mean, she's not a
SPEAKER_01: populist. And you know, in Balsanaro, Balsanaro in Brazil, he actually just lost and there was this big narrative that somehow he was going to not relinquish power, and he just announced that he will relinquish power, right. So you know, some of the stuff that is about how populist pose this great danger, I think is threat inflation, and that the threat is magnified by elites who want to stay in power. And the truth of the matter is, we need accountability for the people in power. And when they set the wrong policies and decisions, they need to be replaced. No more no more on accountability. Yeah, I 100% just just to my personal belief, 100% agree
SPEAKER_04: accountability is what's lacking most across all of these institutions. 100% agree. accountability, maybe competence, and also
SPEAKER_03: transparency and accountability. Like I think that's what the public wants. I mean, there's no measured by through if you want to hear, but there's no second hold on. There's no way to perfectly react to the pandemic. But in your mistakes, all of these mistakes, owning them and explaining them would be much better than trying to obscure it and asking for amnesty.
SPEAKER_02: Chumath, you're not if you want to hear an incredibly interesting interview. Because it's very thought provoking, of a modern progressive, but with a very different mindset, or sorry, you know, maybe you don't want to call him a progressive, but is the president of El Salvador naive, Bukele. And he did this incredible interview with Tucker Carlson on Fox News. I encourage everybody to watch it on both sides of the political spectrum. That man is impressive.
SPEAKER_01: Did we just get an admission that Chumath watches Tucker?
SPEAKER_02: I watched that interview. You watched the Tucker? Oh my Lord. Jason's head's exploding right now. Well, you know, because I try not to be a complete ignoramus. He's an entertainer. I like to watch things on both sides. But that interview is incredible. He is unbelievably impressive. And it's a, it double clicks into, you know, the skepticism that smart people and the outsider class has with the insider expert class. In a nutshell, if you want to see it, I would encourage you to watch this interview because it's incredible. Incredible. Really, really Jason, the peasants with pitchforks are rising up against
SPEAKER_01: this elite class who've put themselves up, they've set themselves up as Lords. They want exclusive control over their blue checks. And we're about to overturn this establishment because it is corrupt. And it is incompetent.
SPEAKER_03: It would be great if the people who work for us have gone back on making owned and were transparent. You know, I think that's why people are opting out of this is they don't feel that there's a level of competence in these institutions, nor ownership and transparency. And it really is frustrating, whether it's education or it's health, or, you know, any of these topics we've talked about here on the show, let's go to science corner and we can wrap. What do you got free breakfast
SPEAKER_03: to mock?
SPEAKER_04: I think we were going to cover the Facebook meta announcement that their AI research team had generated the physical structure of 617 million proteins from these metagenomic data sets. And so remember, AlphaFold made this big announcement that they had highly accurate predictions of protein structure, the three dimensional shape of proteins. And remember, proteins are kind of the machines of biology that do everything from catalysis to enzymes where they break stuff down. And they're like, you know, they have all this structure that allows them to do specific physical things. And proteins are coded in DNA, every three letters of DNA codes for an amino acid, a string of amino acids makes a protein. And so, you know, we have about a million species, where we've sequenced the entire genome of those species, only about 3000 animals, by the way, including humans, half a million from bacterial species, and then a bunch of viruses and other stuff, but but call it about a million species that we've sequenced. And so, you know, earlier this year, Google's AlphaFold project published the 3d structure of 200 million proteins that they had derived from the whole genome databases that existed, where we've gone through and figured out what's the full DNA sequence of all these different species. Now, when you look at the DNA in the environment around us, you were just to take the DNA out. It turns out that we have seen very little of that DNA, the vast majority of DNA that you would find in a teaspoon of soil, for example, we've never classified, it's not part of a species that we've actually built the whole genome around, we may not even know what species that DNA is from. And so when you take a teaspoon of soil, you'll get about 100 billion microorganisms in that soil from about a million unique species. But you don't see those species because the way DNA sequencing or shotgun sequencing works, is DNA is chopped up into little 250 base pair likes little 250 strands, and those 250 letters are read at a time. And then statistically, bioinformatics puts together all of that little DNA segments and tries to create long strands of DNA to figure out what the genes are, or what the whole genome is. And so shotgun sequencing gives us kind of a snapshot of the DNA. But until we've done the hard work of figuring out the whole genome, we don't know what species that DNA comes from. So when you take a sample of soil, or you take a sample of human poop, and you sequence it, or even a teaspoon of ocean water, and you just sequence the DNA in it, you get all of these little segments of DNA that we've never seen before. And you can string them together statistically, because you get lots and lots of copies of them. And you can figure out the overlap. And then you can create these genes. And a gene is a segment of DNA that codes for a protein. And those genes make up the metagenome, or the combination of all the genes that we find in a piece of the environment. And that metagenome comes from millions of species that we've never seen before. So what alpha, what they did at meta is they took all of those genes that we pull out of the soil, or we pull out of the ocean, and they picked a bunch of random samples. And they then predicted the physical structure of the proteins from just those genes, without knowing what organism they came from. And this gives us a whole new universe of proteins that we've never classified before, or never seen before. Now, I will just kind of speak a little bit critically about it. Number one, they didn't do what alpha fold did. What alpha fold did is they took 3d structures from typically x ray crystallography, then they took the the DNA code, and they built machine learn models to figure out the 3d structure from the DNA code. What these guys did at meta is they took the 3d structures and the code, and they basically did a fill in the blank, they found all the metagenome data out of these samples, and a lot of it was missing. And they filled in the missing blanks using kind of common protein structure that existed out there in the wild that we already knew from the alpha fold data. And so they kind of did a fill in the blank. And as a result, it allowed them to very quickly build these 3d models versus doing the hard and rigorous work that alpha fold had to do. So they claim that it was 60 times faster, but it's actually an entirely different technique. And the second thing is that they represent that only about a third of it is high quality, meaning only about a third of the proteins that they've created structure for are really useful or that could be kind of applied in terms of this is the real representation. Now, why is this interesting and important? proteins can form the basis of new medicines. So you know, we can find proteins in the soil, genomes in the soil and proteins in the soil that can kill certain fungal pathogens that can kill bacteria. And those can be turned into fungicides, they can be turned into antibiotics, we can find proteins that bind to specific things, we can find proteins that fix nitrogen from the atmosphere. And those proteins can be turned into new types of fertilizer. So you know, searching through this universe of proteins that exists in the metagenome will allow us to find new molecules to do new and interesting things with in the applied engineering world. And I will say like this is what would the output of these
SPEAKER_03: be is what everybody's going to be thinking antibiotics,
SPEAKER_04: fertilizers, I mean, the idea of the metagenome is rather than start with the species and then take the genes out of it, just go get the genes. The genes are already there. They're in the ocean, they're in the soil. And there's millions of genes, hundreds of millions, billions of genes that we've never seen before. Therefore, there's billions of proteins. Now, we could randomly create proteins. But the number of proteins that could exist is more than the number of atoms in the universe. Because remember, there's 20 amino acids. So 20 to the 200th power, 20 to the 300th power, 20 to the 1000th power, meaning how many different combinations of amino acids can you make? That's more than there are atoms in the universe. So the best place to start is what evolution has already given us all the proteins that exist in the environment. So let's go find those proteins in the environment. And then let's figure out what do we think they can be used for? Can they be used in industrial applications in medicine? Can they be doing a material science, you're saying material science, and so you know, a lot of drug discovery, minds proteins, it tries to find proteins and figure out what can these proteins be used for. And now we have all these new data sets of proteins that are being generated from these metagenomes. And so it's amazing. I mean, you know, look at the world around you look everywhere up and down on the walls on the ground below you. There are billions of species of organisms that we've never classified before that are making billions of unique proteins that we've never classified before. And any one of them could unlock an amazing commercial opportunity for industry. So and for medicine and for human health. So that's what's really exciting about this ability to kind of mind the gene the metagenome. silly question for you, or maybe not silly. We have gotten the
SPEAKER_03: precursors to DNA for meteorites. If I understand correctly, what are they called nucleobases nucleic acids? Yeah,
SPEAKER_04: like acid. Yeah, yeah. I mean, cetera, like things that exist
SPEAKER_03: in DNA that are precursors. We've never had DNA from space, obviously, but we could at some point start to find DNA out there in space. And this could have an even crazier impact on what we built here. Is that the next cart to turn over after we enter a human genome? What's here? No, I wouldn't say so. I
SPEAKER_04: like I think, look, if there's DNA that's coming to us from meteorites, call it a couple 100 genes, you could pick up a piece of soil and find over a billion genes in that piece of soil. Right. So we have far more to mine here on Earth, and the low cost of DNA sequencing and shotgun sequencing, coupled with bioinformatics, where we take all that. So just to give you guys a second, take a teaspoon of soil, and you get the DNA out and you read the DNA out of it sequence the DNA, that's potentially 10s of gigabytes of data. And then you could do that millions of times over. And then you statistically can find genes, and then statistically estimate what they physically look like what those proteins look like. And then you can start to build models around which ones do we want to try and use for drug applications? Which ones do we want? So there's so much work to do. It just in terms of what we have here on Earth, and the tools are getting so cheap and so available. There are labs that are all over the world starting to kind of spring up to do this work. It's super exciting.
SPEAKER_03: Jamath, any thoughts?
SPEAKER_02: It's kind of, you know, just to put two ideas together. I've said before, like the two big investable themes that I'm orienting my organization around is this. One is that the marginal cost of energy goes to zero. And the second is that the marginal cost of compute goes to zero. And the second one is really about shifting compute to more parallelism on GPUs and ASICs and FPGAs. But that's why all of this stuff is possible. The fact that, you know, Meta can do this and Google can do AlphaFold is largely because the cost of all of this stuff is, you know, trivial for these kinds of companies. So it's really exciting. It's going to move science, in my opinion, out of this in vivo in vitro experimentation model into silica. And so those who can actually build learning machines will solve some of the most important biological problems. So I, I'm a real believer in this stuff. I think it's super exciting. When do you think this stuff actually hits? friedberg, our
SPEAKER_03: life, that's always when people talk about these discoveries.
SPEAKER_04: Yeah, a lot of people don't realize it. But so many molecules that that are used in agriculture, like fungicides to kill fungus in the fields, those are derived from this sort of work. A lot of antibiotics, a lot of medicines are already derived from mining genomes, finding new proteins, and seeing what those proteins can do. Because these proteins didn't evolve in the environment randomly, they evolved to do something. And in many cases, we can take that thing that they do and then harness it into a product. And that's what's so exciting. And this this affects everything material science. You know, agriculture, human health. It's, it's a food. It's really profound.
SPEAKER_03: Awesome. All right, everybody. There you have it. That's another all in podcast in the can. By the way, so many so many
SPEAKER_02: of freeberg stands were afraid J. Cal that you and I were going to make some joke and we didn't know we didn't and so for all these stands, I just I hope you guys can exhale. Take a deep breath man. Have some you know, eggless mail and enjoy your weekend.
SPEAKER_03: I enjoy your week. Bye bye everybody. See you next time. Love you guys.
SPEAKER_04: Love you guys. Love you besties.
SPEAKER_01: Oh, man.
