SPEAKER_01: Alright everybody welcome to 2023 everybody's well rested and ready to take on 2023. Yes. Chamath. How was your break? Amazing. Okay, Saxy poo. I know you don't go to
SPEAKER_01: Temperatures that are under 57 degrees anymore. Did you have a nice break? Did you go somewhere warm? Yes. Okay. That's a confirmation
SPEAKER_01: Wow, man of so many words and freeburg. I'm over cold weather vacations
SPEAKER_01: Yeah, that does happen at a certain point. I actually went to Florida went to the the free state of Florida
SPEAKER_03: Oh, really? Yes. What's going on in Florida at the turn of the new year? I wonder that drew you down to
SPEAKER_01: The great state of Florida. We're just freeing it up in the free state
SPEAKER_03: Oh
SPEAKER_01: We have our 2023 predictions now play some music and all that kind of stuff producer Nick at this point Let's get to it Last year we do you guys notice that every time we talk about something somewhere between?
SPEAKER_00: Sort of two months to a year later. The Wall Street Journal ends up writing a big piece about it. Think piece about it Yes, so I tweeted into the group chat like last year. We all talked about Sequoia and distributing public equities and yeah how it's very fraught and difficult and then today they write this big article about how People have just burned enormous Amounts of billions of dollars that they could have returned to LPS like these venture investors by not distributing It makes sense three weeks ago when we did our end of the year wrap-up my big winner for 2022 were the pot shops right Citadel and Today in Wall Street Journal an article lands that these guys with 56 billion of a um Over the last two years have made almost 45 billion dollars of revenues Isn't that incredible?
SPEAKER_01: And this is what happens Chamath Usually they are these guys are just crushing and then Citadel securities did like almost, you know, seven and a half billion of revenue
SPEAKER_00: I mean, it's unbelievable these businesses how good they are
SPEAKER_01: Yes, so let's get into and this is typical Chamath if you think about journalists They're trying to get into the conversations that are occurring at the bar after the event the late-night conversation The group chats will and that's what this podcast is. It's the exposed back channel, right? And so if you listen to this pod, you got the back channel of Silicon Valley Politics tech science, etc. So let's do our predictions in 2020. We said our biggest political winner would be Sax and I both said to Santas Chamath said Xi Jinping and freeberg said Putin Who do we think is our biggest political winner going forward? Who do you pick sax biggest point of winner for 2023 who will be your biggest political winner for 2023? Well, I went a little bit outside the box here because I think we're gonna have gridlock in Washington
SPEAKER_03: So I'm not expecting a ton to be coming out of Washington over the next year My pick for biggest political winner is Asian American college applicants There are two Supreme Court decisions that the court heard on Halloween last year There was a lawsuit against Harvard and another lawsuit against UNC by a group called students for fair admissions and that they maintained that Harvard and UNC violate title 6 the Civil Rights Act because Asian American applicants are far less likely to be admitted than similarly qualified applicants from other groups and The federal courts in Boston and North Carolina rejected this argument, but the stream court took up the cases so they kind of went out of their way to hear this and I think that they are going to They're gonna feel a primitive action. I think the majority will rule to strike down these policies that Really discriminated against Asian Americans and I think they're the last group in America where it seems to be okay to discriminate against and I think the stream court is gonna is gonna find that unconstitutional
SPEAKER_01: Tama any thoughts there you have brought this up multiple times on the podcast over the last two years. I
SPEAKER_00: Have said that this was unfortunately Affirmative Action when it started I think had very very good intentions and I still think that there's a place for it The problem is that these very liberal institutions decided to play judge jury and executioner on which minorities counted in affirmative action and that's not what the intention was the intention was to look at the establishment and Their ability to get their progeny into these incredible schools even when they didn't deserve to be there and So I think this was always an issue of classism that was disguised as racism and People who were in the upper classes of society have always had an edge You had the legacy admissions into Harvard you had people The Kushner's very famously right like the five million dollar check from the father that got the Sun into the school all of this stuff It's all it's been well written about and whether or not those things are right isn't the point I think the point is that there are folks in emerging lower middle classes who have the potential to crush and Those kids should have a chance and you can't just decide who those kids are based on the color of their skin And in this case what happened was some blacks were still allowed in some Hispanics were allowed in but Asian Americans Broadly were discriminated and that was a really stupid outcome You cannot punish kids for willing to work their ass off And I think that that was the unfortunate outcome of what affirmative action has become by 2022 so it is gonna get repealed the reason it's gonna get repealed is that You know we have case law that very clearly states that any institution that accepts federal funds Cannot have any form of discrimination, and this is how these folks who have tried to repeal affirmative action have taken up this lawsuit and Hopefully the outcome is a more meritocratic system that also Tries to create a plurality of different people from different backgrounds free burger any thoughts Free burger any thoughts and if not your biggest political winner for 2023 my biggest political winner for
SPEAKER_02: 2023 is MBS Mohammed bin Salman, I think that Saudi Arabia will have The most important year in kind of the modern era in terms of their role, I don't know if you guys saw this Reuters report from a few weeks ago, but there's kind of a deepening discussion about the oil yuan trade in that Saudi would sell oil to China and they would get paid in yuan. Saudi Arabia sits at the intersection of the United States Russia and China they have relationships with all three nations and In the kind of conflict and power struggle that is underway. I think that ultimately the direction of Where global currency kind of reserves will be taken? and the importance of these great nations and who sits atop whom can actually be dictated and significantly influenced by MBS this year by some of the deals and trades he might put in place and the and the the kind of Partnerships he might forge I think as a result you will see him kind of rise in terms of influence not in terms of You know, hey the world has accolades for this for this guy, but I think in terms of global influence He will rocket ship to kind of the top because of this this kind of jockeying He can now do between these three great nation states And defining, you know, what's gonna happen with the US and what's gonna happen with China and what's gonna happen great selection currency reserves Great selection. I mean private selection the shitty thing by the way about your selection is that Biden our
SPEAKER_00: explicit stance is unfortunately Quite confrontational with MBS and yeah, you saw that play out in q4 We asked them to ease up on OPEC plus to introduce Supply cuts and They did some nominal hundred thousand barrel per day cut That didn't do much of anything. There was an article to your point freeburg just recently about Saudi really doubling down on Getting the oil out of the ground and monetizing their petrochemicals so there's just going to be a glut of supply in the market and we have the least amount of influence with Saudi Arabia than we've ever had and It seems like we could change that if we decided to but I think Biden has taken this very confrontational approach Which doesn't seem to make and remember a lot of sense their stated intent is to diversify away from oil and into
SPEAKER_02: Technology and other kind of emerging growth economies. That's why they funded the vision fund that's why MBS made that big kind of visit to Silicon Valley a few years ago and There is technology that they want to import into Saudi Arabia and they want to have ownership in around the world And if the US is creating a barrier for them to import US tech Into Saudi or for Saudi to kind of invest in the US but China and Russia have open arms and all they want Is for Saudi to start doing trades in Yuan it's gonna happen And I think that's where this guy has kind of a real opportunity to shift the global economic dynamic Say what you will about Trump. He had open dialogue with North Korea, China
SPEAKER_01: Russia MBS your enemies close sure want to be able to talk to anybody and he was able to Talk to anybody now you also want to be able to say hey listen You can't dismember a journalist like kashoggi and you need to be able to have both of those ideas in your head You can't be rigid in foreign policy. You have to be fluid and keep people at the table talking. Chamath. Who is your Big political who do you predict will be the big political winner of 2023? Chamath's prediction everybody. Go ahead I really like spread trades right where you go long something and short another so I'd like to pair my biggest
SPEAKER_00: Political winner with my biggest political loser for 2023. Okay, and I am going to focus on the Republican nomination and I am going to go long Nikki Haley, and I'm going to go short Ron DeSantis now, let me
SPEAKER_01: Sax again, if you're watching you're not watching sax right now. He is Ready to interject go Chamath So I think that all of this nonsense for example in the house speaker race
SPEAKER_00: All of the midterm results what it really speaks to are as people are getting Exhausted with the lunatic fringes of both parties that's point number one and point so that favors moderates as an emergent class and Point number two is that if you look back through many many cycles of Republican and Democratic nominations It is a very negative thing to be in the lead. So early going into the Iowa caucuses in January and So if you put those two things together The risk is that DeSantis decays Things emerge people attack him because he's the clear front-runner and the opportunity just like it was for Trump in 16 or for Clinton or for George Bush Not Herbert Walker, but you know W Is to emerge from the back and so if I think about a moderate person who can emerge from the back who can consolidate the ranks They should probably be from the south They will have a lot of these purple compromises that's actually going to be a problem these purple compromises that Sachs mentioned in their policy program and They will have a history of winning and a history of normalcy and So I think that of all of the places where you could ever elect a woman as president of the United States I think it will come from the Republicans before it comes from the Democrats. I mean the Democrats are Unfortunately increasingly judgmental and I think it's very difficult for a woman to emerge there But I do think that Nikki Haley has a shot So I'm gonna go long Nikki Haley and I'm gonna short Ron DeSantis. Okay, I like it a spread trade for his prediction
SPEAKER_01: Well done before sacks you interject. Let me just do mine and the cuz then you'll have to to interject to I Was looking at Biden and Trump and thinking hmm, which one of these is gonna have the big win in 2023 So the two biggest I think players I have a prediction for Trump. I think he's gonna lose 50 pounds on the Ozempic everybody loves a weight loss story I think he is going to be indicted by Garland is he on wait a minute. Sorry. He's on Ozempic No, I'm predicting an Ozempic run and he's gonna drop 40 50 pounds then we're gonna have a schveldt Trump get indicted by Garland and
SPEAKER_01: The debates and the rigmarole with DeSantis. I think he's gonna go after DeSantis based on weight and height and Then he's gonna win the nomination in 24 and we're gonna have Trump versus Biden But this is a crazy prediction here. I think we're gonna have a settlement. I Think he's gonna agree to not run and get the pardon. This is a crazy prediction. I know but I think he loses the weight He wins the nom He gets indicted and then he gets the Richard Nixon pardon global pardon for all of the shit. He's done I'm Sacks you can reply now To these two crazy predictions this right right in my I mean
SPEAKER_03: This is like proof positive that everything you have to say about Trump is an act of projection. Go ahead mean like For Trump
SPEAKER_01: Has been Ozempic and super good. Yes, both of those things are fasting. Have you sacks done any of them back? Oh, yeah, I've tried it. Yeah, I think everybody should be looking into this if you're have weight issues It's a it's a it's a great new Even more broadly. I've been reading a lot about these GLP ones and I gotta tell you statins are a clear wonder drug
SPEAKER_00: Yes, okay. I think that the 50-year longitudinal data on its value is pretty unimpeachable met Foreman even taken prophylactically has shown incredible benefits for cell regeneration longevity And glucose management and the real the reality is let's just take a step back the American diet. We're all pre diabetic Okay so let's just let's just not beat around the bush the way that Americans eat and our food supply and also probably in Western Europe is Prediabetic by definition it's shit. It's trash So met Foreman makes a lot of sense and again its longitude data is incredible But I got to tell you the early data on these GLP ones are Unbelievable It's extraordinary and I can tell you from first-hand experience. I would lose half a pound a week when I would die it
SPEAKER_01: No, but what I'm saying is just drop 10. It's beyond that. I'm what I'm talking about is insulin response
SPEAKER_00: It's a cardiac health. And so if this data tracks like this man, you're just gonna want to put everybody on these GLP I just want to also put a disclaimer out here do your own research work with your doctors whether it's for met Foreman or is
SPEAKER_01: Empic, but I had great results on it. I I recommend if you're struggling with weight loss like I did for many years you talk to your doctor about it. That's it It's not a commercial for wagovir or zempic, but I do think these things are gonna change the world Jara well and they're getting better and it seems like diab people with diabetes are on them for life So if your question is like if I could do this for a year to lose weight, you know I think diabetics are on it for life So when I made my decision again work with your doctors not random podcast or venture capitalists for your health advice. I Was like well all of these people have diabetes are gonna on it for years unless it's non-toxic go get a pre nouveau scan
SPEAKER_00: Just make sure absolutely you got so they have it. There's our
SPEAKER_01: Predictions so you want to respond to any of this? I want to I want the sacks to react to my spread trading
SPEAKER_00: Yeah, so look, I think you know if you're going on a betting site
SPEAKER_03: I think that you could place that bet that Chamath made pretty cheaply and probably it's like has some good upside to it So I don't criticize it as a bet do I think it's actually gonna happen? No, and I think the reason is is this that if you look at what's happening right now with the speaker's race There's two very clear wings in the Republican Party there's establishment wing and then there's kind of this populist maga wing and The candidate whoever it is in 24 needs to unite those two wings And I think this is really the best argument for DeSantis as he's widely accepted by both I think Nikki Haley's problem is that she's very well regarded within the establishment wing of the Republican Party, but she has no meaningful support within the populist wing and So I don't think she's capable of bringing the party together at least at this point in time She would have to prove let's call it populist Bonafides that she just doesn't have right now. So this is why I think you know DeSantis, he does have front-runner risk You're right that people are gonna keep taking shots at him as long as he's the front-runner, but all right Let's go he's capable of uniting the party in a way that it desperately needs right now as we're seeing with the Kevin McCarthy thing Playing out. Yeah. Okay. Let's go for our biggest losers. We'll rip through this last year. I said Biden and Trump in the extremes
SPEAKER_01: Chumot said the progressive left again the extreme sack said Pelosi Who just wrapped up her tenure and freeberg said u.s. Influence globally? Was the biggest political loser? let's get our Predictions for the biggest political loser of 2023 freeberg. Who do you think would be the biggest political loser of? 2023 the world wants to know freeberg. I would continue my u.s. Influence, but I am gonna shift
SPEAKER_02: Here's what I think is gonna happen this year my big prediction Is based on I think the world has too much debt I think that the economic slowdown coupled with rising interest rates globally and a dearth of kind of asset capital inflows It means that there's gonna be a lot of issues with a number of debt markets around the world particularly kind of emerging sovereign debt Just to give you guys a sense global debt is about two hundred and thirty five trillion dollars in public and private You know That's somewhere between five and fifteen trillion dollars of interest payments a year Depending on what the net rate is on ninety six trillion dollar global GDP And there's another trillion and a half of unfunded liabilities in the US and pensions and Social Security and all this other stuff I think this is the year where a lot of the debt markets start to unravel The so pretty good is a business that steps in
SPEAKER_00: Or a political loser. I'm gonna tell it one second political. Yeah, so the political ramifications
SPEAKER_02: So the political ramifications for me, I think that the the entity that steps in to try and support these Unwinding moments is the IMF and I think that no matter what the IMF does they're gonna look bad I think that the you know, it's sort of like like Jerome Powell this this past year, right? Like you you raised rates too late you raise rates too quickly No matter what you do. It has some adverse effect and impact. It's either inflationary or it impacts growth
SPEAKER_02: And so I think the IMF is gonna get a lot of heat for either acting not too soon or sorry not fast enough or Or acting too aggressively and causing inflation as a bunch of these markets face credit risk this year So my big bet is the IMF is gonna play a major role and we're gonna be talking a lot about the IMF later this Year, I think as a result the IMF will get a lot of heat and you'll end up seeing a lot of pressure and political You know, just like we blame NATO just like we blame Jerome Powell in the Fed will end up blaming the IMF for a bunch of problems that'll arise but the natural Physics of what's going on is the world has too much debt and not enough growth to cover the debt the cost of debt That's it. Okay, and the IMF will be the political kind of you know hit that'll that'll result Of a point of view, but I think yeah And who do you have as your biggest political loser prediction for 2023? Mr. Davis hacks
SPEAKER_03: Well, I mean Kevin McCarthy may not survive the week. So let me go in a different direction. I Think California is my big political loser and I would say in particular the city of San Francisco Both are gonna have gigantic budget shortfalls You may remember that this is back in 2021 when we had that asset bubble California had a surplus of 76 billion and then insane and then 2022 happened and now the state is looking at a 24 billion dollar deficit Well, if we had taken say a third of that surplus from 21 and put it in a rainy day fund We wouldn't have to worry about this deficit but that was never done Newsom started handing that money out like candy to the electorate to goose his election his reelect numbers and to get him past the Recall remember? Okay, so the state never got a fiscal outlook in order and now I think it's gonna be even worse in 2023 and San Francisco the city very similar kind of problem where its tax base is heavily dependent on commercial real estate Which is really suffering. So, you know the city of San Francisco in the state of California. They've moved their tax base to To highly volatile capital gains and with a really lousy stock market. I don't know how these guys gonna meet their budgets So a lot of pain could be a lot of austerity and pain coming
SPEAKER_01: That's for sure and these people do not know how to manage a budget. They're incompetent So you say California free Burke says IMF Chmoth who do you think the biggest political loser for 2023 will be already gave us your present is right Okay, and I'm in alignment with you I think de Santis peaked a little too early and the forever Trumpers and the in the chaos is going to be a Little too much for him to handle. Okay. Now we get into what everybody wants business business business biggest business winner for 2023 who do you have Chmoth for your biggest biggest business winner of 2023? I'm gonna pick something out of my portfolio
SPEAKER_00: Mm-hmm. I think I'm the only non-trivially large investor in both SpaceX and relativity space Relativity space has a huge SpaceX is clearly just crushing on all cylinders and They're really the only game in town with respect to launch capability And if you just google it, you'll see that the Europeans, you know have a hit or miss Capability on launch the Russians are completely unable to do launch now because of all of these sanctions The private companies in New Zealand or the United States have also had fits and starts really incapable Relativity which is really which is now the second most highly valued space business Is about to do a launch in the third week of January and the big difference between it and SpaceX which is sort of why we did it. This is a Early YC company. I did the series a and kind of went along the whole way they have 3d printed everything and the reason why 3d printing is interesting is you take a So if you think a rocket costs five billion dollars it built by NASA Elon was able to take that to a hundred to five hundred million and If you 3d print everything you can take that cost to like five to fifty million And so it allows you to just have this repeatability and manufacturability now SpaceX also has a lot of 3d printed parts But relativity is entirely 3d printed It has a launch in three weeks At Cape Canaveral I think and we have a like a 10 billion dollar order book that gets unlocked So I don't know how to see beyond a lot of these market forecasts right now So I'd rather pick a company I'll pick something in my portfolio if the rocket does not blow up There's a 10 billion dollar order book and this company is now On a trajectory to be as valued as SpaceX and if it doesn't his book times two and if it doesn't it goes to zero
SPEAKER_01: Freeburg go ahead and talk your book times two or three. Let's see if you can one-up chamath Which one of your investments will be the biggest business winner of 2023 freeburg? I'm not an investor. My big bet is open. Ai. It's just way too obvious to be anything else this year
SPEAKER_02: As you guys know there are dozens of startups that are being started right now Based on an open ai demonstration of dolly and chat gpt. I think we're seeing this in the enterprise and consumer markets I think open ai will become to some degree maybe they could be there's many paths they could take the aws Providing tooling and infrastructure to all these startups that are building applications for consumers and business users Or they will end up doing a massive deal with microsoft. I think it's inevitable They're going to get a billion dollar plus investment this year they could power, you know, ai driven bing search And voice driven search they could build their own products and their own tools and they're becoming great investors They invested in d script which is a product company we use here for our podcast, which is an incredible product And I think that sam altman is a very smart and shrewd investor as well So for a lot of reasons, I think open ai could End up having an amazing year this year and a lot of different paths They could walk and we're going to come out of this year and say they're one of the top tech companies in the valley Okay sax open ai has of course increased your ability to talk to other humans
SPEAKER_01: So you're seeing a lot of big wins there. I know um He's how do I talk to a child about their college hopes and aspirations? No, no, how do I talk to a child about their day?
SPEAKER_00: Hello, it literally is hello. Hello progeny of mine How are you faring today in this complicated write me a script of talking to a 12 year old about their hopes and dreams?
SPEAKER_01: Say that's interesting using gpt for talking points on different topics. We should try that for the pod, you know
SPEAKER_03: Oh, okay. Here we go. We should have actually we should have done the gpt predictions That would be great for each of these categories sax as a person on the spectrum. Uh, yeah, how delightful is uh,
SPEAKER_01: This uh, chat gpt and you know your treatment of your condition. That's great. Let me let me get to my answer here So, um, my answer for the big business winner of the year is america's natural gas industry
SPEAKER_03: And I have to admit this is an aspect of the ukraine war that I didn't fully appreciate until I read This new york times article the other day about how natural gas prices In europe have now fallen to the level they're at before the war and everyone thought that there'd be this huge shortage And they wouldn't be able to heat their homes. Well, what happened the the answer is that Europe completely cut off their dependence on russian gas and in fact the north stream pipelines were blown up so physically They separated but then on top of it They basically started to get into the market and they started to get into the market They basically started importing liquefied natural gas from the us and here's the key paragraph in this article from the new york times is that Europe rapidly built terminals to receive liquefied gas sweeping away many of the usual bureaucratic obstacles and environmental objections So in other words what normally would have taken decades to get approvals now was all put on a fast track And europe is now completely dependent on American natural gas and I think this is Again, the thing maybe I underestimated the cold hard american interest in this war is to basically turn europe into a vassal Of america's natural gas industry previously they were about to be dependent on russia and north stream was going to make that situation Permanent we've you know, somebody blew up north stream now they're dependent on american lng. They're going to pay higher prices for that But it's uh, it's been a pretty impressive win for the american natural gas industry and I think biden Has really pulled a 180 here because you remember when he first came into office he canceled keystone he canceled drilling He was very tough on the oil and gas industry I think after he then delivered the hundreds of billions for the climate special interest In the inflation reduction act now he is taking care of the oil and gas industry. I love it Yeah, and that and so what you're saying is biden dynamically changed course based on inputs like a great leader would okay well done
SPEAKER_01: Well, I don't I don't listen. I don't know Well, no, listen, I think biden has done something politically smart here. There's no question about it. I am giving him credit
SPEAKER_03: Does it mean that this war was worth it? No, I don't I don't think we should be engaging in oil wars Like we did in the middle east So i'm not justifying this war but I am saying that this war was worth it I'm saying that there is a cold hard american interest Undergirding our position which is it's about lng. It's not it's not just about moral platitudes Yeah, I mean strong start to 2023 vassal and undergirding
SPEAKER_01: Uh, my biggest predictions i'm working backwards from two here I think the uh door dashes airbnb's ubers etsy's of the world who need entrepreneurs. They need workers. They need supply They've always been supply constrained So as unemployment becomes let's call it what it is sticky You're going to see a lot more people participating in gig platforms or entrepreneurial platforms that enable them to make money So I think they will be huge beneficiaries Especially if they continue to lay off employees like door dash and airbnb did to right size their businesses but my first one My number one is laid off tech workers I think laid off tech workers who? Get together in groups of two three or four Uh developers product managers people who actually build stuff and start companies together are going to become Extremely successful and they're going to make incredible lemonade From these lemons of these big tech layoffs So I think the startup space is going to end these laid off tech workers who choose to take control of the destiny and starts Companies are going to be the true big winners if you do it do it with two or three friends Because you're going to need developers you're going to need those those talented people in the startups that have three founders get funded faster Than the ones with one Uh, so those are my two winners. All right Oh, yeah And last year our biggest business winners were uh, chamat said smbs saxton rise to the rest Freeburg said stripe and I said disney millennials and gen z let's go on to biggest business loser for 2023 freedberg Who do you think will be the biggest business loser in 23 this year? In fact, okay. So my biggest loser is the general category of capital intensive series b through d growth businesses in the startup
SPEAKER_02: landscape private companies Um, as you guys know, there's been a big shift in capital allocation A lot of the folks who were writing big checks into growth rounds Are retreating back to writing smaller checks and c and a rounds. They don't want to write the 20 million dollar series b They want to write the 5 million dollar seed in a round Uh, no one wants to kind of follow the valuation. No one wants to set the valuation for these growth businesses Particularly if after this round, you know You need another big round of capital and no one's sure if someone's going to be waiting on the other end as a result We're seeing tons of these businesses run into capital infusion walls. They can't pivot I think we'll see what we saw in the dot-com bubble Where 99.5 percent of these companies actually die the half percent that win are going to emerge as the next hundred billion dollar Enterprises the googles and the amazons of the world so there will be light at the end of the tunnel for the winners But generally there are hundreds of companies in hardware in syn bio in biotech in high growth enterprise Software that require significant sales investment expense a lot of these businesses where the capital intensive nature of the business Just doesn't have the market for it right now Uh, and and investors are are all retreating and they're going to be selective So that that's where I think there's going to be more capital intensive Systems, by the way, c c to n a investing hot as a button Uh, be chef's kiss. That's that. Yeah, that's it
SPEAKER_01: Okay, sax biggest business loser for 2023 Well, I just by the way, I 100 agree with what freeberg said, but my my biggest loser for business in 23 is the consumer
SPEAKER_03: I just don't understand how the consumer isn't going to finally tap out in this economy I mean they they have a mountain of personal debt credit card debts at all-time highs I think the average credit card rate hit 19.6 percent last week and is expected to rise even further The mortgage rates are above seven percent now. So forget about trying to buy a new home or Sell your home and your stock portfolio is down too and now layoffs are starting to pile up So I just don't understand how we're going to avoid a recession and you saw you know Cash car is saying that right the fed's gonna keep raising five point four percent's his prediction You know, I don't understand how if rates are at five and a half percent that doesn't finally break the back of this economy And we go into a session. So you think sacks that the economy is actually broken right now
SPEAKER_01: We just don't have the data because the data lags 60 days In most people's minds because it does feel like the consumer is just and real estate has just broken at this very moment It seems like I mean the pain is very unequal right but in the tech industry
SPEAKER_03: We've been in a recession for a year. I mean like the growth stocks are down 80 percent But freeburg said is true. No one's going to fund these, you know high burning companies There's an enormous amount of retooling that has to happen. Look, I think the recession is here. It's just very unequally Distributed distributed exactly. Yeah. Well, I mean if you look at it
SPEAKER_01: Buy now pay later. That's a category starting to break credit card debt as you're saying hitting, you know, a big Bad records in terms of how much we love spending also people's Savings are going down. So the consumer's back has been broken I think we're just going to feel it in the in the first and second quarter chamath Who's your biggest business loser prediction for 2023 the world wants to know let me just build on What freeburg and sack said for a second before I give you my pick sure
SPEAKER_00: I this is the conversation you and I had when we just got on guys what I was telling jcal is at the end of q4 I did five deals And four were pro radas one was a new deal And they were all clean markups. So the four deals that other people put money into And I was looking at them and I was trying to figure out okay what differentiates these things and freebert to your point these were Super clean startups with very clean cap tables that had clear progress And then conversely I had seven converts showed to me for companies whose valuations were anywhere between three and I would say 12 billion And I did none of them and not only did I do none of them. Nobody else did any of them And the problem was the real market clearing price was 80 to 90 percent down And so I was like what is going on here? So freebert to your point. I don't even think it's just cash intensive startups I think it's like all growth companies are in a really bad place. I thought that This growth stuff would get sorted out in two to three months and now i'm worried. It's two to three years I think it's here's toxic toxic. Here's the definition chamath what what I think has happened
SPEAKER_02: And where I think the cutoff is is when the value the implied market valuation of the company based on where public comps are trading Is less than the total capital preference in the company the total preferred stock And there's so many companies now that raised 400 million a 2 billion valuation But the company is actually worth 300 million now based on public market comps So they're worth less than their preference stack. So how do you sort through that? No that this is why I think all these converts are getting done
SPEAKER_00: That's where the rubber meets the road on all these deals. Yeah, that's right. Who does the convert benefit the convert benefits?
SPEAKER_00: the vcs who want to maintain The illusory valuation that they had before They do that on the book. Yeah, they do that to assuage the limited part of the company Yeah, they do that to assuage the limited partner who gave the money that the marks aren't as bad as they thought
SPEAKER_00: But the people that really get screwed as jason said are the common shareholders because eventually those converts deals that do get done Those people will end up owning the company the cap table gets completely flushed and reset And the employees get wiped out Yeah, and then you gotta basically take all the employees who were there previously who now hate the founder
SPEAKER_01: And you gotta start over and give everybody all the other wiped the people to do all the work get fucked
SPEAKER_00: And the people who do none of the work and who just want to maintain this Shell game gets to basically live another day
SPEAKER_01: Basically people are investing as you gave in the example earlier like hey if it's a three billion dollar company But it's actually worth 750 People instead of taking the valuation from three billion to 750 will say okay buy one share at the three billion dollar price And we'll give you three or four shares for free or for a penny warrants They're called typically or you know, just different ways to structure this And then all of a sudden nobody knows the actual denominator they may own them 10,000 shares But they don't know how many shares are actually issued because the warrants are not on the cap table They're in some side document in a folder in a lawyer or cfo's office. So let me let me tell you my biggest business loser
SPEAKER_00: Yes, please I think that The biggest potential business loser this year is google search Who has measured by stunning profitability? and engagement I think it's easier for me to see where the The usage comes from as opposed to picking open ai or chat gpt In terms of where the usage goes to and the reason is because I think a lot of people don't still fully understand how Machine learning and ai work but just 30 second primer. There's two big buckets of work There's what's called learning which is how you learn how to make predictions And then there's what's called inference which is when you actually type something into the search box you get the answer The thing with learning and what chat gpt is showing is that they have learned by crawling the entirety of the web There are five or six other organizations that are capable of crawling the entire web In terms of cost in terms of compute in terms of the quality of the transformers and the quality of the ai And so I find it easier to predict The decay in the quality of google search as that much better than everybody else than I find It is to predict who will win because I think that with enough time and money oracle microsoft google The chinese internet companies Can all compete Facebook and so I think that you'll converge on the same training with the same Inference and so I think consumers end up getting confused and will end up being able to get high quality search results from many places versus today You know, you would only think that google is the only game in town quite honestly for most people So I think that statistics, you know that google could lose 10 or 15 percent of usage to all these other sites And that may not make any of those sites that relevant but it'll have a material measurable impact to google and google
SPEAKER_00: Fantastic prediction and I think that's a really good thing Fantastic prediction and I think you know chat cpt or these other ones are going to have a very interesting marketing
SPEAKER_01: Attack that they can do on google is why search when you can get an answer, right? Hey, we'll just give you the answer. You don't have to search I had so many losers that I went through here I'm, just going to run backwards through them number five I thought founders refused to downsize in 2022 could be big losers in 2023 Obviously have five and the rest of us are just i'm just going to tell you my thought process
SPEAKER_00: I this was the one I had a long hair your thought before I thought vc funds founded in 2020 then I thought crypto because gary gensler says it's all stock then I went with you
SPEAKER_01: Chamath number four google my god, they got so many headwinds against them with the shot gpt, but I wound up on white collar workers with no hard skills twitter going down to I think you know Elon said a couple of hundred people is all you need to run twitter and I think he said he has two thousand employees or Something like that. He has shown everybody, you know, hey listen These more can be done with less or these things are over staffed in a massive way. I think white collar workers now The idea that you're going to have four offers and you're going to be able to play them off each other is over when we Surplus elites sure white collar workers aka surplus elites people who actually you know are mid managers who don't
SPEAKER_01: Who don't actually code or don't actually build a product or sell a product don't actually do real work As as I think Many people would frame it in the managerial class or the ceo class Man, they're gonna have a hard time and this week Andy amazon andy cut 18 000 white collar workers not the blue collar the white collar workers in amazon That was a big turning point and benny off You know, he's ohana. He is mahalo. He is uh, aloha. He does not like to lay people off he considers Salesforce or family he laid off eight thousand. I predicted that. Yeah, and I mean that is to me about that
SPEAKER_01: Well, I mean the reason is pretty simple, right?
SPEAKER_03: Their growth slowed down by two-thirds of the most recent quarter, but they're still spending the same amount on sales and marketing So when that happens your cack payback Explodes right you go from three years payback to like 10 years So they have to cut costs in order to rationalize their uni economics So and now it cascades right because all of salesforce's vendors are going to be getting less money from salesforce Because they're tightening their belts So then those companies are gonna have to cut and the cycle just keeps going and going
SPEAKER_01: Right and everybody tightens their belts at the same time freezes the economy aka recession And and possibly worse so that mine was a surplus elite. So that's a nice little quartet In 2022 just so you know, uh, I picked crypto freeburg also picked crypto chamat said visa mastercard and saq said assets classes that benefit from government uh dumps And and liquidity. Yeah. All right. Let's go to biggest business deal of 2023. It's a prediction What do we think could be the biggest business easy easy this one? Okay. Chamath go. Let's go right around here Go ahead. Chamath quickly starlink will go public. Oh spacex will cut and paste the cap table
SPEAKER_00: And we will take that Yum, it'll be yummy and delicious. And my prediction is that the starlink valuation? Will be at least half of spacex's current private marth 75 billion just 75 billion. It will be phenomenal and I think the reason why is that I think
SPEAKER_00: In order for elon to have complete financial flexibility and do what he needs to do and you know He talked about this on our pod about the difficulties and the dangers of margin loans and all of that stuff Yes, he's gonna create breathing room for himself Ah, this is the simplest and most obvious way for him to do it. It'll give him a ton of more dry powder sure, so I think that this is
SPEAKER_00: An obvious outcome in 2020. They already have a million subscribers in there better than nothing beta as they call it
SPEAKER_01: I have two of them. I think This is a great great. I was I was the first one to get it for for the global 7500
SPEAKER_00: So, okay. Well, I got it for yeah, tahoe. So yeah similar, uh, so
SPEAKER_01: So, uh, there's my plate in your house in the same size. Yes, exactly. So there you go
SPEAKER_01: There is a point here people are underestimating the tam I think of this product The tam is not existing broadband connections. It's second connections. It's connections where connections didn't exist Just so you know buses The best in class the best in class broadband connection for a plane is called ka band
SPEAKER_00: And it costs 500 grand a year That's ridiculous and you can replace it for you know, a tenth of the cost and starlink on a plane is dramatically better bi-directionally So I think starlink is going to go public and I think it's going to be it's going to be The best chance that we have of opening up the capital markets in 2023 There's another way of saying people who own private jets if they are flying
SPEAKER_01: 250 hours a year, which would probably be a reasonable number two or three hundred hours a year They're paying two thousand dollars an hour for their internet service. That is bonkers. Okay, sax Who is your uh big deal biggest business deal prediction for 2023? Biggest business deal 23 prediction is
SPEAKER_03: There will be a deal between uh, putin and g And they met by satellite late last week to discuss ways to further help each other in 2023 Putin characterizes it as a no limits partnership. You may remember that the two of them Inked a 175 billion dollar gas deal in early february last year. That was three weeks before putin invaded ukraine I think now Russia is even more dependent on china We've really driven russia into china's arms and I think there will be a big deal not just on energy but on agricultural products mineral products and rare earth minerals that You know chamath likes to talk about I think there could be a trillion dollar Deal between russia and china this year if I was going to go out on the limb make prediction Okay, so there is your 2023 prediction of the biggest deal the legion of dictators is forming
SPEAKER_01: I do think it's uh, it is like, uh, you know that the axis of evil. This is more legion of dictators like hey Let's do business together Freberg You got a prediction for the biggest business deal of 2023. This is really going out on limb here I'll do two real quick. The first was the similar to what sack said, but it's
SPEAKER_02: Kind of echoing what I said earlier, which is the petro yuan trade. I think that's the saudi China trade if this happens And oil is sold in yuan It marks the beginning of I think um the End of the assumption that the us dollar is the global reserve and the risk-free currency In reserve for the world. So I think the petro yuan trade is the Reuters article covering ji's visit to saudi arabia last month for second week of december Once this gets inked and signed it's a real shift globally I think the other one that i'm that i'm going to point out that I think is A bit of a out of left field one maybe and maybe i'm just going to look like a total idiot at the end of the year But do a wildcard. I like this is my wild card. So my wild card is I think apple And I think it's a really good idea to do a wildcard This is my wild card. So my wild card is I think apple ends up buying something completely out of the ordinary And here's why I think apple's core business. They're facing significant pressure with respect to their relationship And ties to china as you guys may have seen last week foxconn announced that they're actually going Further downstream in terms of their production model and they're trying to diversify away from being kind of the sole service provider to apple Apple as you know is under such pressure to get out of china and china politically that they've started to try and invigorate activity in vietnam and elsewhere so a lot of pressure on
SPEAKER_02: Their relationship with their low-cost producer and low-cost production partner They're also under a lot of political pressure because of the app store revenues You guys know this 30 app store they have that they take a lot of people are calling it monopolistic And antitrust is getting involved. So they're feeling that pressure. There's also the pressure with respect to the the waning consumer demand for high-end electronics. Samsung last yesterday, or last week, or yesterday I think, announced significant declines in consumer demand for electronics, or their forecast as such. That has to impact Apple as well. So when you put all of this together, right, they're being pressured to get out of their low-cost manufacturing center, they're being pressured to stop making money on the App Store, they're being pressured because the demand may be waning, they have to do something big to kind of diversify the business. So I think they might end up doing something like buying a real content company. Maybe they do something like buy a Disney, maybe they do something like buy an automotive company like Fiat Chrysler. I think there are a number of these kind of like, what may seem today, outrageous deals that Apple might end up kind of being pressured into doing so that they can get ahead of their forecast of the impact that all these pressures are gonna have on their core business. And so I think this is something interesting to kind of think may happen this year. I certainly have no insight or intel on anything, or I could be completely wrong on this one, but it feels like they've got to do something this year in order to keep that business growing. I think this is, I think I love your wild card
SPEAKER_01: because the MBS, China trade, and that relationship, sure, legion of dictators, but this one is really good. It's hard to buy Disney, monopolistic issues, but buying a car company, pretty easy, because that's a fragmented market. I love this prediction. I mean, now with Tesla, with this depressed stock price, Apple can make a run at Tesla. They could almost buy it with cash. Let alone BMW, Volvo, one of those brands they could buy easily. What a great prediction for me. The prediction is Amazon's three-legged stool grows into a sturdy chair with a fourth pillar. For those folks who are not familiar with how Amazon has built their businesses, there are three pillars in their stool. E-commerce, obviously, when you buy stuff, Prime memberships, which is kind of considered a separate revenue stream, and of course, AWS cloud computing. I think the fourth is gonna be this continuation of following the health stream, not advertising, because that's not a consumer-based product that's just the way they make money. Health is gonna be a big one for them. They obviously acquired One Medical, which was a small purchase. I think they're gonna buy Roman Hymns, they're gonna buy Peloton, they could buy a Whoop, and they're gonna go all in on health, and that three-legged stool becomes a very sturdy chair. And my runner-up is TikTok is gonna divest under duress. I think that it's going to have to go public, and the Chinese are gonna divest their interest in it and just take their chips, because they're gonna be faced with the existential threat during the political debates of the next two years. There will be unanimous support from Democrats and Republicans to get TikTok out of the US. Therefore, they divest.
SPEAKER_02: Can I just test that with you guys? Because we've talked about this a lot, that, hey, we're gonna ban TikTok. How many of your friends' kids or your kids do you guys know spend hours a week on TikTok? It's a lot. 90%. How do you get over the political mountain of trying to ban TikTok? If you try and ban TikTok, whoever raises their hand and says, we should ban TikTok and actually gets it done, they're out of office. There is gonna be so much pressure and backlash, because people are hooked and love that app and use it all the time. To take that away from people will feel like this kind of-
SPEAKER_00: Young kids that don't have phones actually get everything that TikTok has on YouTube shorts. So I don't think TikTok is that important, because it is not actually, there is no sticky network effect inside that app. So there isn't usage that's dependent on people you know, or a graph that you build. It's a lot of passively consumed content. And so you're getting pushed a lot of algorithmically defined content. You can do that on YouTube. And so I actually don't think it's that meaningfully important if TikTok goes away. I think the content creators stay. It's harder for them to build a business on YouTube shorts. But if you look at the, and measure the density of content inside TikTok, it exists almost one to one on YouTube.
SPEAKER_01: That's interesting. It's an interesting point, Jamal. You think it'll be okay if we cancel TikTok in the US
SPEAKER_02: and we say that's it, you can't have TikTok anymore. Everybody moves to YouTube and Instagram. It'll be disruptive,
SPEAKER_00: but people will just go to YouTube and Instagram. It's not that big of a deal. In fact, a lot of my favorites, if there was a network effect inside there, then I think people would have a reason to complain to somebody, whether it's your representative or whether it's somebody else to say, hey, don't do this. This would have a deleterious impact on my quality of life or my quality of experience. And you could make that clear claim on Instagram, Facebook, Google, YouTube. But TikTok is much more brittle that way. And that's why they need to get public sooner and monetize this bloody thing. Because I think that it's very easy actually to deconstruct TikTok's value into these other places.
SPEAKER_01: I can tell you my favorite TikTok is Chef's Reactions and I consume him now on Instagram because he just copies one to the other. So Chef's Reactions is a great example
SPEAKER_00: where he actually got banned by TikTok and then diversified on his own. And now what he does is he publishes across multiple streams. And if you look at all the big creators, they all do that because it makes no sense to actually give the power to any one of these things. Why have a dependency? Why have a dependency?
SPEAKER_01: All right, let's keep the trains moving. Most contrarian belief, this is the Peter Thiel Award. Your chess partner, Sax. Who's winning in 2022 in chess? How many chess games do you have going with Peter Thiel right now? And who's higher rated? You demolished me with your Queen's Gambit. I played one game, I got killed in seven moves. I'm ranked at 800, 900 right now. Sax is at 1800, he just walloped me. Who's higher rated right now? You or Peter Thiel?
SPEAKER_03: You accepted the Queen's Gambit.
SPEAKER_01: Well, you know, I just, I didn't even know what it was. I was like, what opening is this? You're like, Queen's Gambit, you're dead. Boom. Queen's Gambit accepted. It was like I got cyber-shotted. You don't want to accept the Queen's Gambit.
SPEAKER_03: All right, now you tell me. Very pleasant game for White. I'm gonna go on a limb here, you know, and risk being wrong. My prediction, or most contrarian belief, is that the bromance between Biden and Zelensky comes to an end at some point in 2023. And let me state the part that I think is conventional wisdom and everyone agrees with, which is there's gonna be a massive Ukrainian counter-offensive in the spring. And I think that could go one of two ways. Either it could make limited gains, basically the Russians fight them to a stalemate, or it could be successful. And they could basically push the Russians back to the February 23rd lines and then make it play for Crimea. I predict that in either one of those circumstances, Zelensky's interests and Biden's interests will start to diverge. So in the case of a stalemate,
SPEAKER_03: which I think is probably 50-50 here, Biden's gotta start going into election mode for 2024. And I think we're saying that we're gonna be in a recession. So I think that if there's a stalemate, I think Biden's gonna tell Zelensky, wrap this thing up, it's time to negotiate, we need to get this over with. By the same token, if the counter-offensive's successful, I think that the administration, hopefully cooler heads will prevail and not let them take Crimea. That's basically what they're gunning for, is they not only wanna get back to the February 23rd lines, they wanna go all the way back to the 2014 lines of retaking Crimea. I think that's extremely dangerous. I think that could precipitate a nuclear war. And I think that the cooler heads of the administration will tell Zelensky to stand down, and that's the right time to make a deal. So I think in either one of these scenarios, I think you will start to see a divergence between the Ukrainian and the American interests, and that could create a rift. And I think no one's really predicting that.
SPEAKER_01: I think this is great. This is kind of what I thought the plan all along was, which was to deplete Putin of resources, distract him, and then get the West off of his oil and try to do regime change, but do it by bleeding him. This would be a proof positive of that strategy, which is bleed him to the end, and then sell Zelensky out. I think that's actually, I know it's cynical, but I think that's what we're doing. I think Ukraine is a tool to deplete Putin, and then maybe get to regime change. I'm as cynical as it gets with this, Chamaf. What's your most contrarian belief of 2023?
SPEAKER_00: I will go and pick that inflation, which people expect to fall off a cliff, doesn't fall off a cliff as fast or as meaningfully as people want. And so I will explain inflation as three different chapters, and we've seen the first two chapters play out. So 2021, chapter one, was all about energy inflation. And we all talked about having almost $10 gas at the pump, and what does it mean for everybody? And it caused that initial spike in inflation. And then we had it come off, and Sax called us. He said, we're gonna have this sort of double hump. And 2022 was really the story of goods inflation, right? All these prices and all of these things went up because the input costs went up, and we all had to bear the implications of that. But then that started to ebb. And now, if you looked at the tail end of 2022, what I found super interesting was the number of articles I saw about wage inflation, whether that was Biden using an 1800s-era law to prevent a railroad strike, the number of states that increased minimum wage, the trend around unionization. So in general, my thought is that the pendulum is swinging very markedly away from capital and towards labor. And as the labor participation rate stays low and continues to go down, and also it's compounded by an unemployment rate that may go up, right? People are, it's gonna be harder and harder to get people to do the work you need at the company you have unless you pay them more. And if that gets exaggerated, then inflation will stay where it is. It won't be as muted, and it won't fall off a cliff as people want. It'll be persistent.
SPEAKER_00: That's my big contrarian- Got it. Wager for this year is that we see inflation- That is quite contrarian. We see wage inflation that keeps inflation not going down as much as people want. This is contrarian because everybody's saying,
SPEAKER_01: hey, it's over. The consumer's back has been broken. The credit card debt is high, and everybody's being laid off, yada, yada, yada. Therefore, goods and services, there'll be more supply than demand, and the prices will lower. Very contrarian. Freebreak, do you have a contrarian belief for 2023?
SPEAKER_02: I think my, it follows my earlier points about the Saudi-China-Russia trade. This year, exiting 2023, it may be the case that, you know, there's historically been this belief and this continuing belief that the US dollar will always be the de facto global reserve currency. And the current mantra is that it's better than the rest. Everyone else is worse off than the US. Western Europe is in trouble. Japan is in trouble. China's in trouble. Everyone's in trouble. But if there is a coalition, an economic coalition, a scaled economic coalition that starts to shift the balance of power a little bit, and the US, meanwhile, is taking on extraordinary debt load, spending $1.7 trillion in an omnibus bill, you know, has this massive unfunded social security problem coming down the pipe, and are trying to manage multiple funded conflicts around the world, it could be that the US dollar coming out of 2023 starts to trade more like a risk asset and less like a risk-free asset. And so I think that that's my big contrarian bet, is that maybe this year marks the beginning of the end of the US dollar as the kind of global de facto reserve currency based on some of these big trades that I talked about happening. Unbelievable. So that would be my big kind of contrarian. Perfectly said.
SPEAKER_01: That's your contrarian bet. The legion of dictators, the MBSs, et cetera, they become, they form a new global currency.
SPEAKER_02: My term, not yours. I'm not calling it, yeah, I wouldn't say legion of dictators, and I wouldn't say form a new global currency, but I do think that the fact that large economic trading models
SPEAKER_02: start to be done in non dollar denominated form, weakens the kind of reserve status of the dollar to some degree, not fully, right? It doesn't happen in a binary way. And then the dollar starts to trade more like a risk asset, like other currencies do to some degree, not fully. So maybe this year we start to see that shift.
SPEAKER_01: Once again, I take the exact opposite of your contrarian belief. I believe American exceptionalism continues to soar as Russia, China, Saudi Arabia, to a lesser extent, continue to self sabotage themselves with insane wars like Putin has done, or cutting off the heads of entrepreneurs in China, figuratively, I'm saying here. I think you cannot have exceptionalism without entrepreneurs, without people having freedom. And I think that means American exceptionalism based on freedom is going to continue and the legion of dictators, I believe, are going to stab each other in the back before they change the world or move the currency. Can't trust them. They'll snippet each other. And all their self sabotage. So where do you fall out on these two? Where do you fall on our opposite side?
SPEAKER_03: I think that America is really feeling its Wheaties right now. I think that American power is immense. I think that the superiority of our weapons in Ukraine has been one of the big surprises of the war. Let's go, Pama lucky. I don't see the world in the simplistic good guys versus bad guys frame that Jake does. However, America is on turbo right now. And yes, it is true that the BRICS would love to get off of the dollar because we are now using the dollar and the financial system of SWIFT as a geopolitical tool and a weapon. And they would very much like to be off of our dependence on our currency, but I don't think they're anywhere close to being able to do that yet. And like I said, America is on turbo right now. Now, one thing I want to mention, this just came out, White House correspondent named Jennifer Jacobs just reported that the US has agreed to send Bradley armored vehicles, basically our best tanks, to Ukraine.
SPEAKER_03: Previously, US officials had balked at sending armored vehicles, saying heavier weapons would be too difficult for Ukraine to operate and maintain, but allies are moving to provide such weapons. So we keep providing the Ukrainians with more and more sophisticated weapons, more and more support. Like I said, this is leading up to a huge Ukrainian counteroffensive in the spring. And I really don't know what's going to happen at that point. I do think that the Russians will escalate. I don't think they can afford to lose this war. They view it as existential. And like I said, I hope cooler heads will prevail. And if the Ukrainians are successful at breaking through, I hope that the Biden administration will shut this down before they try to retake Crimea. Because we've discussed this before, I think the Russians confronted with a choice between a total defeat that includes losing Crimea and their Naval base at Sevastopol and seize the Ukrainian flag flying over their base at Sevastopol. If that's a choice between that or potentially using a tactical nuke, maybe at the mouth of the Crimean Peninsula as a firewall, I think they could choose the nuke option. So it's a very dangerous situation and very dynamic. There's a lot of possibilities.
SPEAKER_01: All right. Let's go on to best performing asset of 2023. I'm going with seed stage investing again. I don't think people want to get into these toxic cap tables at the late stage, as Chamath pointed out. So I go with seed stage. And you know, enough to series A, the people brave enough to place bets, the founders brave enough to start companies. I believe it's the best performing asset class of 2023. Chamath, what do you got?
SPEAKER_00: I think that there's still a lot of uncertainty in the world and in the markets. And so I'm generally concerned that there's a lot of chop. And so I pick something that's pretty conservative. But I would have a combination of cash and the front end of the yield curve. So T-bills all the way up to two-year bonds. So you can generate 4 and 1.5, probably by the end of this year, 5%, pretty safely owning this stuff while you wait for things to become more certain. And the way that I think about it is that I would rather miss the first 10% or 15% of a rally once we're really done with this stuff than try to overcorrect and try to pick a bottom, just because I think that you could lose a lot of money. So I think the goal for this year is to stay resilient and in the game. And so owning, having a bunch of cash on the sidelines, ready to pound it in. Meanwhile, a portion of it, collecting 5%, is not such a bad thing while you wait for the bottom.
SPEAKER_03: Fantastic. My answer was actually very, very similar, which is if Kashkari is right, that rates are going to 5.4% in Q1, why wouldn't you just put all your money in short-term T-bills? You earn 5%, 5.5% risk-free? Yeah. Set it and forget it. Yeah. And that's why capital flows are moving hugely right now from equities into bonds, especially
SPEAKER_00:
SPEAKER_03: if we're going to a recession, which is inherently deflationary.
SPEAKER_01: What do you got, Freeberg? Forming asset class of 2023.
SPEAKER_02: One of the things, so I think it's inevitable that we continue to have significant infrastructure spending from both the stimulus and security point of view. So we kind of want to continue to stimulate the economy and support growth. We want to continue to create jobs and support this transition. If the recession predictions play out true and the job market does loosen, it's very tight right now, there's going to be even more of an impetus to continue to do infrastructure investment. But I think there's also these big economic transitions happening underway right now with pharmaceuticals, with semiconductors, with energy. There's a lot that we've talked about where there's a security problem and a redundancy problem. And so there are a couple of ways to kind of play this infrastructure spending thesis in each of those areas. I've kind of highlighted four of them. One is in semiconductor capital equipment. So K-Light 10 Corp, like materials, that range of businesses that provide and sell the equipment into the fabs and the organizations that build semiconductor manufacturing facilities. The second is kind of an oil and gas services. So similar to what Sax said earlier, Schlumberger, Baker Hughes, that class of businesses, I think, benefit in this environment. And this is independent of kind of economic conditions, certainly, because these are big multi-year spending projects. The third is in the equipment to support them, so Deere and Caterpillar. And then the fourth, I think, is an important one. I'll talk about this in a minute with respect to my biggest kind of anticipated thing for next year, which is in pharmaceutical infrastructure, so Thermo Fisher. And there's some company and others like them, because there's a lot of build-out happening to support these big transitions happening in the modalities that are being used in pharmaceutical drugs and diagnostics. And then I think that there's also a couple of these businesses that are diversified, like Dan and her Honeywell. Thermo Fisher is a good example that play across multiple of these opportunities. So those are all great businesses to own, and you don't need to worry about, you know, they're growing cash flow positive, dividend paying companies, and you don't need to worry about, you know, am I getting 5% or 5.5% based on the equity price this year? These are long range businesses that are building real value, growing their top line, and compounding value from within. And then they're acquiring a lot of smaller businesses that are very cheap. I'll say what, that's an important trend I've seen across these companies, Dan and her Honeywell, Thermo Fisher, they buy small companies, they pay very little, and they immediately get massive return on invested capital, like they're in the high teens. So why get 5% on T-bills when you can get high teens ROIC on the management teams running these incredible platforms? So that's where I'm most excited for this year.
SPEAKER_01: Okay, now let's move on. That was like a mad,
SPEAKER_02: that was like my mad money segment. I've never done the mad money segment before, but there you guys go.
SPEAKER_01: Worst performing asset. I went with energy because, not that I think it's not important, but it just feels like everybody rushed into it in 2022. So it feels like it's overheated. And if we are in a recession, people might lower consumption in terms of energy and be looking for cheaper alternatives. So it could be overheated. So I went with energy. Chamath, worst performing asset, you got one?
SPEAKER_00: I think that if we've learned anything from the last three years, you have to separate the valuation of a company and how it performs in the stock market with its value in society. So for example, if you look at Zoom, Zoom's valuation has cratered, but its value in society has probably continued to go up. It's still a massively relied upon tool. The point is that markets do not give you credit for the value in society. They will give you credit when you are about to over-earn, but then they'll pull it all back when they think that you're going to under-earn. So in that lens, I think that tech will have a tough year. I think energy will have a really shit year. And probably the biggest asset class that is going to get pressured is going to be junk debt. And the reason is a bunch of these variable rate loans when rates are at five and 6%, that all of a sudden are like 11, 12, 13, 14% coupons, a bunch of companies will have trouble meeting their debt obligations and we'll have to restructure the debt or we'll have to file. So tech, energy, and junk. Zach's worst performing asset for 2023.
SPEAKER_03: Subcategory of what Jumaan just said, I think office towers in San Francisco are, that is some serious toxic debt, 27% vacancy rates and growing as Lisa's role. I think that a lot of these buildings, maybe virtually all of the San Francisco downtown is going to be owned by the bank soon because no one can meet their- The whole real estate in San Francisco
SPEAKER_01: and perhaps real large. Well, specifically the office towers
SPEAKER_03: because no one wants to be in those skyscraper buildings south of market, mired in homelessness. So yeah, I mean, I think that a lot of those buildings are going to be owned by the banks. There's going to be some major fire sales. Remember, this was the hottest commercial real estate market in the country a few years ago and now it's the worst. Well, look what happened to B. Reet.
SPEAKER_00: What do you think about that crazy thing that happened with the Blackstone Reet? I mean, that's nuts. Explain what happened. Blackstone has a product called B. Reet. It's like a $70 billion exchange traded fund effectively. And what it is is the ability for individual investors to own access to Blackstone's commercial real estate portfolio.
SPEAKER_00: And they had such a massive amount of redemptions that they had to close redemptions at the end of Q4. And they were worried that the redemptions were going to continue to go up. These are individual investors who basically sees the writing on the wall as David said, and wants their money out. And so they went to the University of California pension system and they essentially got a huge infusion of capital. I think it was about $4 billion where they guaranteed 11.5% interest to these guys for the $4 billion. And they also posted a billion dollars of their own equity in the actual REET to backstop it. So what does it show you? I think what Sax is saying is really right. It may not just be in San Francisco, but with all of these people either getting laid off, with all of these people now working remotely, we may finally start to see the beginning of the reckoning in commercial real estate, which has been an unbelievably performant asset class up until right about now. And on top of that, you have to factor in these much higher rates. And so these building owners, if they financed it, which they invariably have always financed, they have huge variable rate payments that are due on these buildings. The rent rolls are lower. Even people like Twitter is just refusing to pay the rent. So you have to take them to court. So it elongates when they have to pay. And so you could miss a bunch of rent payments and all of a sudden the banks could just go crazy and take ownership of these things.
SPEAKER_01: Okay. Do you have a worst performing asset class for 2023 prediction? Sultan of science, Queen of Kinwa, Dave Freiberg.
SPEAKER_02: It's really simple. I've mentioned it before. It's consumer credit. We assume that rising rates and inflation would taper down consumer demand, meaning consumers buying goods and stuff. And that certainly hasn't happened. I'm in Vegas right now. I was in the car yesterday and the driver grew up in Vegas. He's like, I've lived my whole life in Vegas. He's like, I've never seen a December like we just had. It was packed the entire month. He's like, normally in Vegas, it's dead up until Christmas. And then New Year's people come into town, but it's normally dead. I've never seen such a busy month. And I think we see this in the numbers. Consumers are still spending like it's 2021. They're still spending like interest rates are zero. As we talked about consumer credit is skyrocketing, while rates are skyrocketing. And so I think we're gonna run into a real wall with respect to consumer credit in sometime this year. And you're gonna see, as you guys know, it's such a complicated interwoven market of assets that the way that this can be traded, there's a lot of different ways to trade it, but I think it's gonna be, in general consumers are not gonna be able to meet their debt obligations. And it's gonna be really-
SPEAKER_01: Could be mortgages, could be credit card debt. Defaults are coming. Yeah, the market has priced in a bunch of this stuff.
SPEAKER_02: Obviously companies like Affirm and the, what are they called? Buy now pay later companies, but credit card companies, mortgages, there's a lot of assets that you can start to kind of pick apart. Where do you think this unravels first? What gets hit hardest? What's underpriced and overpriced? Probably a lot of good pair trading to do, as Chamath kind of loves to talk about, with respect to which of these are more likely or less likely to be sensitive to this dynamic. But I think it's gonna be a pretty ugly scene. Consumers just have way too much debt relative to their earnings right now. And it's pretty nasty.
SPEAKER_01: And they have some confidence that they'll always have a job or some way to pay their for easy payment for the biggest- Dude, it's hard. I'll say it's hard.
SPEAKER_02: Muscle memory is serious. You know, you come out of 2021 when you had, it's not just stimulus checks. It was the low interest rate and easy credit availability everywhere. And it's just easy to jump into getting new stuff and cool stuff. And then when you get used to getting new stuff every week or every month, you kind of stick with it. And you're like, I don't want to give it up just yet. I just, not just yet, not just yet. You know, and so it's hard to kind of step back from spending when you have a new type of lifestyle. And I think that's what's going on.
SPEAKER_01: I think this is an incredible observation.
SPEAKER_02: There's a great TikTok of this guy that runs car dealerships and he sent them out on like how much incredible money, like what a significant percentage of people's income they are spending on their monthly car payments. And people buy these cars that are well beyond what should be kind of a reasonable budget. If you were to go to Suze Orman for advice. They stretch. They should not buy that freaking car. They stretch. And the stretching is gonna snap this year. Yeah.
SPEAKER_01: Absolutely. Which brings us to the most anticipated trend. I love it, great one. Most anticipated trend of 2023. Related to yours, I went with austerity. I have a friend who sometimes flies private often. And I was talking to him about his Christmas vacation. This friend of mine, Shamath, instead of flying private to his vacation, he had to pick up his kids. He had to go back and forth. He was driving his car three hours. That was you. Oh, okay, I didn't want to decluck you. Yeah. But I had a friend named Shamath who would normally fly private to Lake Tahoe. And he's like, no, I can't go out with you. I'm skiing on Friday. I gotta pick up my kids. And then I'm driving by. I said, wait a second, how are you doing that? He's like, I'm driving a car. I said, what? Who's driving the car? He said, I'm driving the car. And that's why I say austerity is my anticipated trend of 2023. I agree with you.
SPEAKER_00: I actually think this is a really good opportunity to pull back on so much waste. I haven't really looked at my household budget in probably two or three years. Didn't even bother. Why? And then when I looked at it, I was like, wow, this is really inflated to a level that I didn't expect. Yes. But it makes a lot of sense to live in a more heads down, austere way. I don't know, yeah.
SPEAKER_01: Well, I mean, look at tonight's menu. You went with duck. I guess the Olive Fed, Wagyu, everything's off the menu now. No black truffles, we're having duck. We're down to poultry. Next week, we're gonna have pasta. It's okay, Chamath. Austerity measures for everybody.
SPEAKER_03: They call it foul for a reason, right?
SPEAKER_01: Oh, God. Sax, do you buy into austerity? Chamath and I are austerity belt-tightening as our trends. Well, where are you? What's your trend for?
SPEAKER_03: I think that's a pretty good trend. The trend that I am gonna suggest will be to your great disappointment, Jay Cal, which is Trump's influence in the GOP continues to wane. You're seeing it in real time right now. The headline is Trump's endorsement proves worthless. To Kevin McCarthy in the speaker bid, even the MAGA faithful like Matt Gaetz, like Lauren Boebert, they are ignoring Trump's pleas to get behind my Kevin. And in fact, they're kind of not just defying him, but making fun of him. Matt Gaetz had a repost to Trump saying, "'Sad!' And Boebert was saying that Trump needed to get behind her movement." So we have now a level of open defiance to Trump and the GOP, his endorsements just not, are not what they once were. And even if somehow Kevin McCarthy pulls us off, I think all that means is that Trump gets blamed for every swampy rhino compromise that McCarthy has to make to keep the government running over the next two years. So it's a lose-lose. Does that mean that populism is on the wane, do you think?
SPEAKER_02: Because it's the electorate that got him elected in the first place. He was not very popular with politicians. He was kind of an outcast when he got elected the first time and that may be the case now, but he still got elected because the population loved him, people loved him. Is that gonna happen? Do you think that means that the populism is kind of waning or the interest of the voters is waning on him or is it just the political parties alignment with him?
SPEAKER_00: Boebert only won by a few thousand votes. She didn't exactly crush it in Colorado.
SPEAKER_03: I think a lot of this has to do with Trump's personal standing after the midterms. The candidates that he personally picked that were all in tough races, they all basically lost. It was about the distraction he caused by making the 2020 election such a big deal, constantly looking backwards. So I think the Republican Party doesn't like the antics. It's not about the policies, I don't think. I think it's 100% about Trump's electability and about his ability to get things done. And it's not really about the positions per se. So I think, for you to answer your question, I think that the future of the GOP will incorporate this populism, but it's gonna find a better integration with the establishment wing of the Republican Party and future candidates will have to basically satisfy both of those wings of the party.
SPEAKER_01: Sax, was the straw that, or maybe the two straws that broke the camel's back for Republicans and Trump in that relationship, was it January 6th and the election denial? Like for Republicans, is it just like, come on, those are the two things?
SPEAKER_03: This constant focusing on the 2020 election. First, it cost them, the cost of Republicans that Georgia runoff seat with Perdue against Warnock. Perdue won on election night, didn't clear 50%, had to go to the runoff. This happened the day before January 6th. This happened on January 5th of 2021. That was the first race where Trump's antics cost him. Then you had this midterm election where all the candidates who had to appease Trump by talking about, again, the last election, instead of looking to the future, they got punished by the voters. I think Republicans wanna win. I mean, they're tired of losing. It's that simple. It's that simple.
SPEAKER_01: Yeah, the job of a politician is to win. Freeburg, you got an anticipated trend of 2023.
SPEAKER_02: I am excited about and wanna share the point of view that I think cell and gene therapies are becoming more mainstream. So these are pharmaceutical modalities where we use gene editing systems where you can actually go in and change or add genetic material to cells in your body to resolve things like genetic diseases or change protein deficiencies or introduce new proteins. And then cell therapies where we engineer cells, put them in the body, and those cells go and do things like attack and destroy cancer cells, for example. There are currently 27 FDA-approved cell and gene therapies on the market. There are over 1,000 in clinical trials, many of which are already showing extraordinary efficacy and benefit. Today, these therapies cost upwards of a million dollars. So I think there's a massive, and talking about the infrastructure investment conversation earlier, because of the number of diseases and the number of conditions and the number of people that these therapies can treat, I think there's massive infrastructure investment opportunity coming forward this year. But also seeing these come to market, come out of the clinical trials, get FDA approved, we have to ramp up and build up the infrastructure needed because it's not traditional where you make a drug in a factory and send it to people and they get it injected. These are much more complex. They require a much more complicated delivery mechanism. You have to have systems to engineer cells and edit them and put them back in your body. Those systems today take days or weeks and cost, as a result, a million dollar plus per treatment. So I think that the cell and gene therapy opportunity, you know, the JP Morgan healthcare conference starts this week. It's the biggest biotech and healthcare conference in the world, starts in San Francisco on Monday. This is one of the biggest areas of interest and one that everyone's investing against. But as these come to market, you know, we talked about this last week, genetic diseases, types of cancer that are gonna be addressed. And I'm really excited about seeing more of these products come to market and seeing the whole kind of infrastructure and delivery system change.
SPEAKER_01: All right, sorry to interrupt, trying to keep the trains moving, gene editing. Very good choice. All right, we end with this, it's a little bit fun. Most anticipated media for 2023. These are things we like to talk about, the media here sometimes. We talked about White Lotus season two, amazing season. And maybe what you're looking forward to next year. I am really looking forward to in film, Oppenheimer, Christopher Nolan's movie about the Manhattan Project. That should be extraordinary. I loved, was Dunkirk his as well? I love Dunkirk. I like everything he does. And when this is him becoming like a history uncle, I'm here for it. I'm here for Nolan becoming our history uncle instead of Batman.
SPEAKER_00: What was the one after Inception though that was really confusing? The one with Denzel Washington's son, with John Washington?
SPEAKER_01: Yes, it was, I couldn't finish it. I tried twice. I got to go with third shot on that one. It was.
SPEAKER_02: Oh yeah, it was his worst film. What's the name of it? I can't remember. It was called Tenet.
SPEAKER_01: Tenet, yes, about like time and reverse and this. It was so- Very confusing.
SPEAKER_02: It was impossible to follow. Did you guys see his original film, which was incredible, Memento? Of course. Memento was fantastic. Memento was great. Inception's incredible. It was enough mind, yeah, it was mind bending enough that you're like, oh my God, incredible. And then I think they took it too far, Tenet. I tried to watch it three times. I'm generally pretty good with these sorts of films and love them, but oh my God, it was impossible to follow. He took it too far. Okay. So hopefully he goes back to his roots. In terms of TV series,
SPEAKER_01: I'm looking forward to Secession coming back, Ashoka, who is Anakin Skywalker, AKA Darth Vader's Padawan, Ted Lasso season three coming up. Those are for me, incredible. And then on the book front, man, the Michael Lewis book about SBF is going to be next level. I cannot wait for that. Sax, you're a media junkie. What do you got on your list of things you're looking forward to? Or I should say, what does Tucker's writers, what do they put down for you?
SPEAKER_03: Well, J. Cal, I thought you were gonna pick- I can't, I can't. I thought that for movie you're gonna pick cocaine bear.
SPEAKER_01: I can't wait for cocaine bear. Cocaine bear does look really amazing. It does look great. Cocaine bear. The process of cocaine bear is extraordinary. A bear is in the woods and I guess people who are trafficking in cocaine drop their, or crashes, and the bear eats the cocaine and then goes on a rampage. It's kind of like a genre film, like in the crocodile way. By the way, I'm listening to Quentin Tarantino's book, by the way, of criticism. Get the audio book. You'll like it, Sax. He talks about all the films in the 70s. Very good, shout out to Quentin. What do you got? What do you got on your short list? History Uncle?
SPEAKER_03: Me? Yeah, what do you got? Well, I just gave you one. But- Cocaine bear, top of your list.
SPEAKER_01: We'll watch it together.
SPEAKER_03: Oppenheimer was on my list. And I think Marvel is doing a good job developing a new villain to rival Thanos with the King. I don't know what phase they're on now, but Loki season two, and then the new Ant-Man movie. I thought after Thanos, you wouldn't really be able to top that. But they've come up with a really good concept, I think, for the next 20 Marvel movies.
SPEAKER_01: Well, and then it will eventually become Galactus.
SPEAKER_00: You guys have completely fucked up. You have missed the most obvious slam dunk. Here we go.
SPEAKER_01: Sade's new album, go. Dune, part two. Oh, I haven't watched number one yet. I gotta do that. Wait, what? You know, what happened was- It was kind of boring, wasn't it? My wife wants to watch it. It is so stylistically beautiful.
SPEAKER_00: It is a little boring. There's not a lot going on. Slow. But it's so well shot.
SPEAKER_00: It's visually just stunning. I mean, you need to watch it on a big screen with big speakers. But part two comes out in November of this year. Absolutely. That's gonna be great.
SPEAKER_01: Okay, Freeberg, tell us what documentary on veganism you recommend and you're anticipating for 2023. What vegan documentary or animal abuse documentary?
SPEAKER_02: I am excited about the generative AI-based media that I think is gonna start to kind of rocket this year. We could see, for example, the first AI-written symphony, the first kind of AI-written published novel. How interesting would that be? Like a full novel published by AI. And more maybe short films based on AI-driven script. And maybe even what I'm really excited about is these AI-based interactive video games or kind of experiences where you the user kind of get to create and live your own world through some sort of video game type modality. So I think AI-driven media. All right, there you have it, folks.
SPEAKER_03: There are- Speaking of pop culture chaos, I guess Prince Harry has a book coming out that's called Spare. The Spare? Spare. Like pick up a spare when you're playing bowling?
SPEAKER_01: No, but you know, like in the English monarchy,
SPEAKER_03: there's the air and the spare. So he's calling himself Spare. But to me, that's like a weird self-description. Yeah, like that's how you see yourself is just- He's being self-deprecating.
SPEAKER_01: He didn't pick that. They paid him so much money. I heard they have to sell 1.7 million books to break even.
SPEAKER_03: But you know what it reminds me of is when Leonard Nimoy wrote a book. I think he wrote a book called I Am Spock. And then he wrote a book called I Am Not Spock. Nice. He could never get comfortable with the fact that he was just Spock. Yeah, yeah. And there's something weird about calling yourself Spare. Like, you know, you're clearly not comfortable with the role you're in.
SPEAKER_01: Yeah, everything they taught you, everything I learned at Harvard Business School and everything they don't teach at Harvard Business School. You can do both books. All right, listen, this has been great. Breaking news as we're talking here, chat GPT, OpenAI, doing a tender offer at 29 billion. With no revenue losing three billion a day. Oh my God, who is buying a 29 billion?
SPEAKER_03: It's Founders Fund or reportedly according to the journal, it's Founders Fund Thrive Capital. So Founders Fund does not generally do super overpriced deals.
SPEAKER_02: Yeah, I would buy that. That's a silly bet. I mean, come on. Dude, are you kidding me? That could be a $300 billion company. That's a 10X. Right, but that, yeah. You think it's a 10X from here?
SPEAKER_01: I would not.
SPEAKER_02: Totally could be. By the way, you guys remember that the origin of OpenAI, I don't know what the current situation is, but it was a nonprofit where they said investors put money in, but the investor's maximum return was 100X on the dollar invested. No, I don't think- So it's a nonprofit, but it's a profit up to 100X.
SPEAKER_00: No, no, that happened afterwards. It's when they converted to a- That was the original model. Yeah. No, the original model was a pure- So did the nonprofits funders get any shares? No, no, the original model was a pure nonprofit where there was no cap because there was no concept of equity. Yeah. When they flipped, they capped everybody to 100X on the return. So the original money- 100X, but not anymore or still? But the original money, which was like Elon's money,
SPEAKER_00: who else put in money? Reid Hoffman. Yeah, all that money came in as pure nonprofit. So I don't know how it converted, but that's when they- Or did it convert? Did those people who funded it originally
SPEAKER_01: get any shares in the for-profit?
SPEAKER_00: We could find out. Probably they did. I mean, it would make sense that they would. We'll find out.
SPEAKER_01: I mean, wait, if this is a tender offer from 1% of the company- You wouldn't buy shares at 27 billion?
SPEAKER_02: So again, the thing that I want to impress upon you
SPEAKER_00: is there is an enormous amount of work that they do that their biggest gap to monetizing this will be finding unique content that they learn on that nobody else has access to. And this is why I really think it's important to understand, if you have enough compute, all of these unsupervised learning models, if you run them on the same training set, will converge to the same answer. So you're just getting there first. So in order to be really defensible, you have to get there in a unique way. And so either you're gonna hand-tune or you're gonna have inputs that are different. So I don't know the answer. That's why they have to answer that question in their fundraising. And I'm sure that they did because these are smart investors, but that's the big idea that you have to overcome. And again, you have to think like, you think Google is sitting on their hands? No. Or Deel is on a competitor that haven't launched. Why 29 billion?
SPEAKER_01:
SPEAKER_03: Like what fundamentals is that based on? Like why not 5 billion? Why not 3 billion? I mean, like why not 10 billion? Like what makes it 29 billion? They doubled their last valuation.
SPEAKER_01: That's what it is. It's all, this is all momentum. Said nothing to do with reality, right? I mean, this would imply at a 30, the public comps of like Google trades at what, 25 or 30 times EBITDA. So this would imply a billion dollars in EBITDA. A billion dollars in EBITDA, $3 million a day. They're losing $3 million a day on computer reportedly. $3 million a day in profit on what product? I don't know. If they have a- That's probably the issue.
SPEAKER_02: I think, look, I mean, my point was, if these guys open up a set of tools that support all these applications and services to emerge on top of what they've built, and they're getting RedShare or getting payments out of that, it's going to very quickly turn into a real scalable infrastructure business. Here's the problem, Freiburg.
SPEAKER_01: This is why that can't happen. They don't have the rights to the data they built the training set on. And the second they commercialize it, the second anybody pays them, whoever they base this on, they're going to get sued into oblivion. I predict sued into oblivion. Let's talk about that in the next show.
SPEAKER_02: Cause I think that's like the way that AI works, and we should probably bring someone like Sam on to talk about it, but the way that AI works on training data, and now people are making claims that the training data is copyright, therefore the model output is protect that copyright, is I think worthy of a good conversation. What's interesting is, you know, the early version of the internet was very simple.
SPEAKER_00: It's like you had this file called Roblox.txt, and you would basically be open to a crawl or not. And that's what would allow Google to basically go and spider your pages. Right. And so we have to replace this concept of that with this. AI.txt. Well, you could make a claim that this is no different than, you know, a spider crawling a webpage, except that in the search case, it was much cleaner, which is we're just going to index your page and redirect people to you. Here, it's we're actually going to create a derivative work because of you in part. And I do think that that's going to be a very interesting legal threshold that has to get figured out.
SPEAKER_01: Well, here it is, Chamath. You're nailing it exactly. It's a derivative work, and they did not have permission to use it. And it impedes upon the original authors, whether it's a photo, it's a song, it's a piece of code, it impedes upon their ability to do commerce in the world. You are interfering with their ability to monetize their content, and the percentage you're using is 100%. So when you get to fair use, non-commercial use is very protected, parodies protected, education's protected. But when you dip into using the entirety of the work, which they're doing, and you impede upon the person's ability to do commerce, and you confuse the public, well, this is a test that they will fail, fail, fail.
SPEAKER_00: This is why I think that most people don't understand what AI is. They don't even understand the difference between training and inference. So hopefully there is some more understanding of this, but if you use the same dataset, you will eventually converge to the same outputs absent of hand tuning weights, which has its own issues, and absent any asymmetrically different data that you have that nobody else has. Absolutely, yes.
SPEAKER_01: So if you are Apple and you have the watch data, or you're Google and you have the search data, or you're a weather company, you have the weather data and you're a proprietary, of course, there's a very easy solution to this, Chamath. Number one, citations. When the algorithm gives you an answer, it should say, what were the top percentage sources of this information? How did the AI use other people's?
SPEAKER_00: Look, if you look inside of a transformer, the problem is, okay, that you're gonna have trillions of ranks, trillions of weights, trillions. And so how are you gonna decide how to basically draw a line under a threshold? This was actually a useful input and this was not. So again, I just think that- It's hard. A very few small class of people actually understand this. Like the great person to actually bring in to talk about this would be Andre Karpathy, not. And I think, because Andre was there and at Tesla, but he can say it in a very dispassionate way to explain this to people, I think would be useful. We should ask him to come on. Yeah, for sure. I mean- I can ask him.
SPEAKER_01: I mean, this is brand, the law, Sax, you're an attorney, you understand fair use, copyright, all this stuff. The law, correct me if I'm wrong here, Sax, does not anticipate this.
SPEAKER_03: Look, this is a highly specialized area. I don't wanna pretend like I understand the law in this area. You know, I'd wanna talk to a specialist.
SPEAKER_01: Yeah, okay. So anybody- Let's have this conversation, because I think, yeah.
SPEAKER_02: This is a great, juicy discussion. I think there's more work for us to talk about, because-
SPEAKER_00: All right. This is probably why, by the way, they started as open source, because it was like a slam dunk thing to make this a nonprofit and open source everything, maybe in part because of these issues. But if you just let the code run free, you probably don't have to even deal with these issues, right? Well, they closed it.
SPEAKER_01: Remember their claim? The claim was, this is too dangerous. Their original claim was, it's too dangerous for people to not see the code. Then Sam flipped on that, and he said, it's too dangerous for people to see the code. And it started out as a nonprofit, where the idea was the way to keep this safe is for everybody to see the code. But they didn't make any money. Whatever it is- They gave it, and they flipped the decision. So keep that in mind as well. He's a very, very, very clever business person.
SPEAKER_00: He's savvy. You know, Paul Graham, when Paul Graham picked Sam to run YC, Paul Graham said that this is the most impressive person I've met since Steve Jobs. Yeah.
SPEAKER_01: Remember that? Come on the pot. I do remember that. Paul said something similar about Gary Tan is now running YC starting this week. Sam Altman, friend of the pot, come on all in anytime. And has played in our poker game several times. Yes, yes. We had a tough situation there where you interfered in the hand, if you remember. All right, listen. This is- Wait, what happened? What happened? There was a, Sam and I were in a hand of poker. He raised, I had two pair, and I'm trying to figure out does he have a set or is he bluffing me? I think he's got top pair. And you were like, oh, look at this. And you started commenting on the hand. Oh my God, I remember this. And I hadn't made the call or not yet. Oh my God, I remember this. And I'm like, chamath, for my labouche.
SPEAKER_00:
SPEAKER_01: Let's stop talking here because I'm trying to unplay hand. I'm like, okay, Sam would get, and I basically came to the conclusion, Sam would get great delight bluffing me off a hand. He's a risk taker. He knows I'm conservative. He knows he's a risk taker. I'm gonna call here with my, I had bottom two. I'm like, does he have a set? And there was also a straight on the board. I'm like, fuck it. At best, I'm even money here. And there was a lot in the pot. So I was just doing the pot odds. While I'm doing the pot odds, you were like, ba, ba, ba, ba, ba. Which is usually me. I'm usually the one being reprimanded for talking.
SPEAKER_00: But it was notable. All right, listen, love you, Besties. Why don't you tell people that there's no comments?
SPEAKER_01: And just as a programming note, we turned off comments for a couple of weeks on the YouTube just to see how it psychologically affects me. And it's for Chamath to just F with all you Brigadooners. We love you, Besties. This has been a great episode. Suck it, commenters. Too great. And his Twitter is at Chamath, and he doesn't read it. Just so everyone listening knows, Sax and I voted against turning off comments.
SPEAKER_02: Just as a headshot. I voted in favor of whatever got Chamath's vote
SPEAKER_01: for the All-In Summit 23. So that's how I vote. This is divorce trading now, but the podcast has never been better. Besties spending time together on the slopes is the cure to all evils. We'll see you next time. Love you, Besties. Bye-bye. Love you guys.
SPEAKER_03: Bye-bye. ["I'm Going All In"] ["I'm Going All In"]
