E163: Market rips, Media RIFs, Texas defies Biden, Fintech reckoning, ARkStorm 2.0 & more

SPEAKER_05: It's a real picture SPEAKER_03: I recognize the gut very SPEAKER_06: I Don't think you guys know there's a treasure trove you go to Google Images You type in Phil's name and WSOP is the last thing I would ever do dozens of these dozens every year He dresses up in some outfit SPEAKER_03: Let me see which ones I like. Yeah, the plunging V lines a little much SPEAKER_07: He does have a perky C cup so SPEAKER_08: Oh SPEAKER_05: No, wait, it's Poseidon's well, it's no no, it's oh SPEAKER_05: Phil we love you. We love you. We love you SPEAKER_01: The source of the fans and they've just gone crazy SPEAKER_07: All right, everybody welcome to episode 163 of the all-in podcast with me of course the Sultan of beep Science, we'll find out his crop soon David freeburg and David Sachs the rain man himself and of course chairman dictator Jamath by hot tea. Let's get to work boys Tons and tons of interesting topics on the docket markets are ripping jobs and inflation looking good as the Dow hits an all-time high forget about soft landings boys Sentiment is now flipping to a market melt up in 2024 the GDP numbers that just came out smashed it 3.3 percent year over year in the fourth quarter expectations were just 2% Dow and S&P 500 both hit all-time highs in the past week. That was above 38,000 first time in history CPI number reasonable of 30 basis points months over a month 3.4 percent from last year getting close to that 2% target and The jobs data beat expectations 20 23 jobs Not so bad at 2.7 million. It's the fifth strongest year for job increases since 2020 real test will be of course this year We've seen a bunch of layoffs We get to that later gas prices plummeted 40% from five dollars a gallon in the summer of 2022 now just three dollars a gallon And Consumers are apparently feeling great about the economy University of Michigan, which is the most respected report on consumer sentiment said it increased in the past two months the most since 1991 and the Federal Reserve Bank of New York survey found that Americans Inflation expectations have reached their lowest point in three years Call she is a prediction market. I like to use and it says 37% chance of a cut by March that's dropped So people are thinking the rate cuts are gonna get pushed back and prediction markets Also think four to five rate cuts still in 2024 But again people seem to think they're gonna get pushed towards the spring or second half chum off you alluded to this melt up I don't know. What's it like three or four episodes ago that we might have a chance of a market melt up Everything seems to be aligning here. What do you think? SPEAKER_05: Think the important thing to note is that Tesla put out a pretty important missive at the end of market close yesterday, which essentially said that Expect a very different demand curve in q1. Hmm and You have to understand that Tesla has done the best job of Understanding supply demand and their pricing power and the pricing elasticity of their cars And so the fact that they put this out To me says that we are now really in the belt tightening phase Of this kind of like economic process, so I think that the next probably six to nine months Are more of these kinds of things where folks realize that the amount of discretionary income that people had is less They Will either lower prices or lower expectations and So the the thing is then what happens to the market this is sort of why About a month ago when we on the pot I was kind of like we're gonna be in a melt up and it's because the economy will cool demand will cool inflation cools Rate cuts come in again. It's not really worth debating whether it happens in six months or nine months But when we look back 18 to 24 months from now The market will probably be materially higher Because there's just so much money on the sidelines and that just continues to grow and grow and grow so trillions of dollars on the sidelines cooling economic consumption actually on the ground meets Reasonable to resetting to lower expectations for some of these companies I think that all roads lead to a continued melt up Sacks you were just on the prediction show saying hey, maybe it's going to be a little bumpy SPEAKER_07: So and again, this isn't none of this is investment advice for dudes talking but what are your thoughts on the the economic data and the Melt up scenario versus the soft landing versus the rocky landing. Well, Jason, we're only three weeks into the new year SPEAKER_03: So there's plenty of time for bumps here, but this report was good I mean the GDP growth was good inflation continues to come down So, you know, we are on track here for a soft landing It seems like but yeah, there's definitely potential storm clouds on the horizon like Jamaa mentioned. There's some Data points out there suggesting that the consumer may not stay as strong as the consumer has over the past year There's a few other things though that are kind of going on. The Fed has announced that they're gonna end BTFP the bank term funding program on March 11th That could reveal weakness in the regional banking system. Remember we had a banking crisis in March of last year that BTFP sort of papered over you also have What looks like a crash happening in China the Chinese government took some actions to prop up the stock market there Which is a pretty negative signal that mainly impacts the Chinese economy not us But it will have an impact on the global economy if China has you know a big crash and then we still have a lot Of geopolitical risks. I mean, I still think we get an oil shock in the Middle East if this Situation Broadens into a larger regional war maybe with Iran You could get you know a shock in the price of oil and then that could have a big impact on the economy So look, I think the baseline is that the economic outlook is good But there's definitely potential for things to still go wrong SPEAKER_07: Freebreak we've talked about the debt here in this country 35 trillion now or so, what are your thoughts in terms of How politicians are gonna look at the future now and spending when they keep spending and markets keep going up and maybe it's good for Elections and getting votes as well. I put a SPEAKER_06: Chart from Paul Krugman here. He put out this tweet analyzing unemployment against inflation over the last 20 years and plotted on a graph how they're related and as you can see there's a pretty linear relationship Between unemployment and inflation except for the last couple of years since kovat where inflation has Spiked completely off the charts while unemployment has remained low and I think if you look at what's happened from a federal debt perspective over this period of time We've seen US federal debt Climb from 22 trillion dollars at the end of 2019 to 34 trillion dollars, which is where it sits today an extraordinary Increase in in federal debt in the last couple of years which largely explains what happened we effectively took this massive hole in the economy that arose from the pandemic and the shutdowns around the pandemic and we filled that hole with money and we took on debt to fill that hole and As we filled that hole assets inflated Financial assets inflated so the stock market went up even as you know core Inflation and economic growth meant that we were paying more for less So things look good the stock market as an indicator looks good, but it's largely been filled By the capital that we've now taken on Into the economy through fiscal and monetary policy over the last couple of years Which has driven up inflation over this period of time and now at some point We're gonna have to pay the cost for the hole in the economy over the last couple of years So we bridge the gap but we've got a bigger problem looming on the horizon if rates don't decline fast enough I think I tried to do the math on this every day that Interest rates are off our 1% higher based on the current federal debt level We're paying an incremental billion dollars in interest payments per day SPEAKER_03: The u.s. Is that makes sense? I mean actually let's pull up this chart real quick I think the average interest rate on our debt is now around 3% That's up from about one and a half percent in 2020 so during the desert period and The tenure is still at what for 4.1% So there's still room for that number to move up Even with rate cuts on the front end of the curve and you can see that if you annualize the q4 interest that we paid surround a trillion dollars Which makes sense, right? You got about 34 Trillion of debt about to be 35 trillion 3% is 1 trillion and so freebert to your point 1 billion a day 365 billion a year. Yeah, that's basically 1% of a 35 trillion dollar debt number So yeah, that makes sense You know SPEAKER_06: It's pretty scary because it's already consuming a large chunk of the federal outlay and we're still running 2 trillion dollar deficits I'm not a single person. It's talking about how we end that why is it important? We have to keep the stock market up We have to keep financial asset prices up because we're so heavily levered and if they fell down pensions Retirement funds everyone's housing value where most people have most of their net worth tied up Collapses it creates a cataclysmic effect. So we had to inflate all these assets and that's what happened We filled that hole over the last couple of years now We've got the quandary of how do we get out of the hole that we're gonna have to pay back over time? SPEAKER_07: Yeah, and we cut these rates to lower our interest payments What's gonna happen people will take money that's sitting in cash as you've pointed to Chamath is trillions of dollars sitting in cash and they want to look for some returns some alpha they're gonna put it into Markets and so then we have a rush into the magnificent seven and maybe even you know, the next tier of stock that's gonna I think that's what's gonna exacerbate all of this because SPEAKER_05: You can't correlate stock market returns with The number of people that are actually making money so even though the top seven stocks are going up Those holdings may actually be concentrated enough That it's not the case that the millions of market participants are actually seeing those gains It's just that a smaller percentage that's gonna further exacerbate this sense of FOMO that everybody has because they own All of these other stocks. Let's just take the top 500 So even if you own the S&P 500 or some component of it There are 493 other companies that people just don't care about right now. That's crazy So all of that pressure is just going to create a lot of psychological Necessity in people's minds at some point where they just see these things going up Where they say I need to be a part of this and I think that's what unlocks a lot of this money on the sidelines and then As long as you have rate cuts and a reasonable inflation and reasonable growth There's no reason to think that the that people will not reinflate risk assets and just so people know about 60% of Americans own SPEAKER_07: Equities it always goes between 50 and 60 percent interestingly It kind of parallels the homeownership in the country, which is also low 60% It went as high as I think 67 68 percent homeownership right before the Great Recession So 2006 2007 it kind of peaked so now everybody Chamath Runs into equities those go up and then consumers maybe some percentage of them feel affluent They feel rich again and they start spending again and then the inflation might kick back up. Is that the cycle? We might see here. I don't think so. I think that SPEAKER_05: rates are probably I think that we're in a much more interesting and And non obvious trend that I think is worth talking about Which is that for most of us forget boomers for a second. So take people that are 50 years and down We've spent 20 years of our productive economic lives. So for us Jason, that's Two-thirds of our productive economic life as workers for younger people it's a hundred percent of the productive economic life as a worker in a zero rate environment and We adjusted and we made decisions because of some variables that were true that may fundamentally no longer be true and one of the things that I think we've never really understood is how to build a business in the face of sustained rates that are not zero that are not always getting cut that don't have trillions of dollars of stimulus because of Government stepping in as three bird well-said to fill these holes if that doesn't happen over the next 10 or 15 years We're in a different phase which we've not really seen For our generation and I think that's really what is worth debating is are we at this inflection point where? Rates will always be between two and four percent for a very long time and then you know, we said this last week This is why there will be gross margin decay. This is why the government's will step in to Make sure that winners don't get much much bigger All of these things are about using the tools of capitalism to basically reallocate who the winners and losers are and to reallocate what the risk-free rate of return will be in a world where It's just very different than what it was. And I think that that's that's the really big question that I had in my mind Yeah, and if we were to look at the Fed funds rate we've lived since 2010 with almost no SPEAKER_07: Yeah, zero percent interest rates essentially, but if you go back to the 80s and 90s when we were first starting our careers It was a much different situation for mortgages and for this is the Fed funds rate Mortgages you can add a couple points to this to get the equivalent So what do you think that'll be sacks if we're going to be operating businesses differently in this environment? What is the new discipline going to be here or do you think we're gonna get right back to? You know when interest rates come down to three percent or two percent or whatever. We're gonna just get back to the party I don't think it's ever gonna be quite the party that it was in 2020 and 2021 SPEAKER_03: Where both the Fed and the federal government were just air dropping money into the economy at that beginning of kovat The economy was contracting in an annual rate of about 30% and we ended up adding what? Seven trillion or so to the national debt to basically paper over that problem that we largely created through the lockdowns so in any event, it's never gonna be like that again because we're never gonna have that magnitude of money air dropped on the economy, but Well things get a little bit frothier if rates go down. Absolutely SPEAKER_03: But I think that just because Short rates come down meaning the Fed drops the Fed funds rate From where is it now like five and a half to I guess expect to come down to four Doesn't mean that the long-term rates call it the tenure will come down much. I mean normally the yield curve is upward slipping So, you know in a normal economy It's not clear that the tenure is gonna be gonna be going back down to Two three percent where it was during the zerp period it probably will be around four percent plus or minus so just capital will be a little bit scarcer and valuations will be lower more normal But things could pick up for sure Relative to where they've been the last couple years last couple years been brutal. But yeah, I'm with the rest of the panel here SPEAKER_07: I don't think we're gonna see I don't think in our lifetime. We're gonna see that 20 20 20 21 again I don't think that's happening for 20 years or so All right, listen speaking of like the economy Layoffs have continued not just at tech companies But I wanted to point out just how brutal this has been for media companies recently in 2023 20,000 job cuts That's on top of 30,000 during the kovat era and it's not stopping Business Insider Just announced 8% cuts LA Times cut over a hundred people The billionaire owner of the LA Times says he's getting close to a billion lost owning that Asset use air quotes on the term asset Conde Nast cutting 300 people and all of this is happening while unions are Hosting what I'll just call meaningless protests Sports Illustrated and Pitchfork two really well respected brands, obviously They're done. Basically, they're cutting 100 servers Sports Illustrated Vox cut another 4% Jezebel shut down vice went bankrupt last year It's just absolute complete chaos and Bill Ackman is loving it This insider is a sleazy unethical defamer of some of our greatest heroes It's a worthless POS rag run by the lowest of the low in journalism It is a stain upon humanity was his quote today his commentary on the press Jason SPEAKER_06: You've run like these media businesses before like what's the underlying? SPEAKER_06: Economic condition here that's changed in the last couple of years that's causing all these layoffs to happen. Like what what do you think's actually? SPEAKER_08: Yeah going on like financially with these businesses is it advertisers running away or what is it advertising and classified businesses got gutted and SPEAKER_07: Obviously print got gutted over the last 20 years Google and Facebook all the gains and advertising have gone to those two firms and now tick-tock Obviously and Amazon uber building respectable ad businesses as well So all of that takes ads out of publications and puts it closer to the point of purchase, right? You're on Amazon You're right there with the buy button. So would you advertise in the New York Times are there? So if you were to look at like say a journalist salary Pick a hundred thousand all in fully baked most journalists are at 50 60 K in the United States You know get up to 80 90 100 K would not be abnormal Well, your overhead is going to typically be two or three times that so you can put that journalists at two or three hundred Thousand dollars in cost you look at that What can a journalist do in terms of the number of stories a week if you had them as a beat reporter Maybe two stories a week you do two stories a week if you're You know 100k salary and you have like maybe two or three hundred Fully baked with overhead and managers and salespeople that means each story is costing about a thousand bucks If you were to do a $10 CPM or RPM on that that means every story to break even in today's market 100,000 people 150,000 people to read it. Obviously that's not happening So these publications are just hammering hemorrhaging cash if you were to put that same journalist on a subscriber Platform that means they got to get like 15 20 subscribers per story for a year to hit their just their salary so the economics are just Hugely broken except for subscription businesses a ton of other nuance, but I could drone on and on about it But the the math basically does not work at the same time sacks You have experts right who are now going direct so if you want Draymond Green and JJ Radek to tell you about Basketball you can watch them talk about it Yeah, I did a tweet on this the other day or if you want this is just not to toot our own horn here But we're the number one business and tech podcast and we do this as experts in the field. We're not journalists, obviously So that's probably I would say experts Encroaching and people going direct to sources. That's probably taking 20 or 30 percent of an already crippled business It's gonna get worse and worse and of course Having unions and going on strike freeburg at the same time is like literally the kitchen staff on the Titanic You know, like I just going a protest doing a walkout after the Titanic's hit nice bird like it's completely meaningless SPEAKER_06: I think that there's this like Flow attrition over time away from centralized sourcing of data and centralized analysis of that data to a more decentralized sourcing of data and then distributed analysis of the data which is the evolution of the Internet has enabled that to compete traditional media has largely had to create sensationalist approaches to taking the data that's out there and creating stories around it that are more sensational that bring emotion that Make people upset that make people happy that drive an emotional reaction If you look at the New York Times and you can look at these archives online from the 1960s The articles are so damn boring like you read them. It's like literally just reading a ticker tape of information There's nothing that we see today Represented in the media of old which was really the source of data It would now it's had to have become a narrative It's had to have become a storytelling operation in order to keep people's attention and to drive clicks The problem with that is that over time? The media businesses have lost the trust and faith of the viewership and the readership Because they see how much of this is biased and opinionated and they don't just get pure analysis and pure data So in the current model, which you've described Well, I think it's more about the fact that you've got all these crowdsourced citizen journalism type systems Whether it's Wikipedia or WikiLeaks or Twitter where people are per or YouTube people are putting direct video direct evidence direct data direct documents on the internet and then analysts like we're a good example of four people on a friggin podcast that just talk about stuff that We're reading and data that we're picking up and we analyze it in a way that people then choose Which analysts do they want to go to? For which understanding of data that's out there and that model totally breaks the old media model Which unfortunately is evolved into this like untrustworthy biased and opinionated source to keep the business alive So it's definitely a breaking that's happening I think it's very hard for that model of centralized sourcing of data and Centralized analysis of data to happen in one place to continue in that old form and this is definitely the breaking of the old I went to trends dot google.com and I just compared wsj.com to bi.com to twitter.com to new york times calm and SPEAKER_05: What's incredible is two takeaways? The first is that media is? Really the least relevant it's ever been and they really are on a lifeline That's number one and second is if you just scroll down a little bit Nick Twitter is really like a universally Relied upon resource in the United States the wsj actually also does a pretty good job, but if you look at for example Business Insider, it's really three states, Texas, California and New York And if you look at the New York Times a little bit further down, it's a bunch of the traditional Democratic states. So what you have is this regional kind of segregation that's happening in terms of information But for the most part nobody cares about these print outlets and I think that that explains why You're forced to lie if telling the truth, which is basically a commodity It's weird, but it actually is a commodity. It's just there the truth is there and SPEAKER_05: You can't build the business by telling the truth You have two choices One is to opine on the truth opinion, but that then is a function of frankly to be honest your intellect and how Interesting you are as a person and how you relay that information and you see the people that do that Well, you can debate the truthfulness of all of these people but the Rachel Maddow's and the Ben Shapiro's of the world Tucker Tucker they're just extremely eloquent interesting arbiters of Information they may take spicy takes on the truth yeah, but they don't outright lie and then you have everybody else who's frankly not nearly as good as them and SPEAKER_05: the choice is to lie and that's why Ackman can say this about Business Insider because Business Insider doesn't have a Rachel Maddow nor do they have a Tucker Carlson or a Ben Shapiro? And so what choice do they have? Except to lie and so for all of us it's a very simple litmus test you're better off trusting a Really opinionated articulate person why because the thing that they probably don't want to lose is their fame But the anonymous person at Business Insider has gone into a totally different direction. They've decided to lie as a service And so you just have to ignore it all. Yeah, because you can't rely on That's my simple takeaway looking at it's good take hot take spicy. Yeah, I mean look SPEAKER_03: I think there's several things going on here one is that Outlets like Business Insider have an incentive to be Sensational and to either lie or to cherry-pick in the way that you're not the saying and basically they put out a lot of clickbait Defamation I mean that's basically what Ackman was saying Second I think there's a glut of a lot of mainstream media publications all putting out The same thing and it's not the truth. It's the official narrative So, you know how many political reporters do we need just being stenographers for the White House kind of party line SPEAKER_03: and if you're not gonna actually dig deeper to Expose how the official narrative they're telling you is not the truth If you're simply gonna print whatever they tell you to print then why do we need so many of you? so I think that there's a glut of Publications is all putting out the same official narrative I think the third thing is there is a go woke go broke dynamic going on I mean you talk about like the LA Times The reason why they're losing so much money is that family that bought it they put their Woke daughter in charge of it. This is basically like a woke nepo baby on steroids Basically an Alexander Soros type who's made the LA Times the most radical woke publication You know within the range of the mainstream media Remember the ones who put out that ridiculous story on Larry Elder called face of white supremacy or something SPEAKER_07: Yeah in the case of Sports Illustrated SPEAKER_03: They they basically pulled a bud light and they lost a lot of subscribers when they put a trans person on the cover I mean look at the tradition that's from suit issue I mean look they had a formula that worked there what their audience wants is Christie Brinkley on the cover not Dylan Mulvaney Okay, I'm not mean to offend anyone by saying that it's just the truth SPEAKER_07: SPEAKER_03: and then I think the last thing is Jason what you're saying about the experts. I do think that the gel man amnesia effect may be wearing off Remember what Michael Crichton said about the gel man amnesia effect where I saw one part of the paper Where you actually know something about the subject matter and you realize it's all just lies or lazy reporting But then you turn the page of some other part of the paper You don't know as much about you just assume it's true I think because experts are able to go direct for every section of the paper Now people are realizing that the whole thing is bogus And I think gel man amnesia is starting to wear off and people are realizing that they just go around these official channels and get their News direct so it's not because these publications are Telling us the truth in a boring way that they're losing readership I think they're losing readership because they're just not telling us the truth at all And I think a boring version of the truth would sell better than what they're doing right now SPEAKER_07: This is why I think subscriptions are starting to work people are doing subscription podcasts subscription newsletters You know, it's a little bit of back to the future But you can lower your overhead have one person doing real journalism and there you could actually thread the needle you could get A thousand people to give you a hundred bucks you can get two or three thousand people to give you a hundred bucks or two hundred bucks and That's enough to cover a couple of solid legit journalists doing legit journalism. I have a question for you do you think there's a business opportunity to SPEAKER_05: actually build Like an AP news which is just basically like there's no byline and They just write the truth and they make it super cost-effective for anybody else to just license the truth so that they know it But why do you need an arbitrator? SPEAKER_06: Well, somebody got to be boots on the ground to go somebody on the ground to just tell the truth SPEAKER_06: Doesn't the distributed model work for that but people just post you don't know SPEAKER_07: I mean listen, we we all the time have this when we're building the docket like SPEAKER_07: Cain Koa, you know random Twitter account or you know Tyler dirt and you know zero hedge like who are these people? What are their motivation? You don't even know their names That doesn't mean they don't get stuff right But you may want to have somebody actually go check that this person exists in the real world so to your answer your question, you know, you would need people to subscribe to that service and Economist AP news and Reuters are the closest to what you describe the economist doesn't use people's bylines They have people work on the story together and the economist is the brand AP and Reuters obviously do Typically have the journalists names on it But she's describing news wires, they're they're not great businesses, I think AP and Reuters are just as bad as everything else SPEAKER_05: I think what I'm saying is like, you know, maybe Twitter should have like a new service which is just like here's the truth I'll argue that SPEAKER_06: page rank which is Google's algorithm for determining which sites to rank higher or lower and the protocol for Bitcoin and other systems that operate on the internet Have all kind of followed the same model where there's some system for scoring or for voting The quality of the site in page ranks case. It's how many links come in in Bitcoin. There's a voting system that determines whether or not the Transaction should be approved and I think in Twitter the number of followers seems to be a proxy for the quality of The account there's some version of that chamath that I think just naturally evolves on the internet versus saying let's pick the arbiter of the data And let that state be static versus let it be dynamic and let the system of consumers Dynamically vote on what is the arbiter of the data which seems to be working with Wikipedia seems to be working with page rank And other systems fairly well unless you look at your own Wikipedia page and you realize it's completely biased and yeah SPEAKER_07: Is the function of the people trying to say something what happened here? No something bad on your Wikipedia page I went to the early Wikipedia conferences in the first couple years of Wikipedia and the bios of living people blps Were the biggest problem they had because you had people like let's say, you know You had a company fail or something. Somebody was an investor in it, you know, they're motivated to SPEAKER_06: SPEAKER_07: Write something on your Wikipedia page you fired somebody whatever and so the the people who have the wherewithal To edit your Wikipedia page if you are human alive today sometimes is your detractors and that's just yeah SPEAKER_06: But over time if you're doing that and you get down voted you no longer have authority on Wikipedia That's part of how that system works. I think that It doesn't work very well. It's been totally it's been totally weaponized. Yeah, it's weaponized SPEAKER_03: It's been weaponized by people with money. I think it's been weaponized by interest groups yes, mainly left-wing interest groups activists who are well funded and It's their full-time job to basically disseminate their propaganda on sites like that SPEAKER_06: Ideally that becomes a temporal phenomenon that there because if you picked an arbiter and you said this is my source of news my Source of data my source of truth over time that source becomes hacked it becomes biased in some way And so I think having a system that's dynamic where those who are doing the editing those who can be voted up and down and? ultimately the system Can be voted on by the consumers of the system So anyway, I just think that's naturally how the Internet's gonna evolve. Anyway, I think it's crazy to rely on one source SPEAKER_03: Especially Wikipedia, although I do use Wikipedia for some things SPEAKER_03: But I guess what I do is I try to triangulate to the truth based on having a number of sources I mean, isn't that is the best technique and that's why X you know formerly Twitter is the best way to get news It's the main way I get my information is because I can triangulate towards the truth by Looking at my feet and I'm following a couple hundred people who I take seriously and you can kind of figure it out Well, yeah SPEAKER_07: Cuz if you saw a business insider story over here and then you hear Bill Ackman give his side of the story now You've got the principal in the story going direct and I think that's where going direct and experts have Created that triangulation you could listen to this podcast You go to direct to Wikipedia and check our facts You could look at people criticizing us or creating Derivative podcasts of this one of which there are many and like you can kind of get all these different vectors and angles To kind of fun the truth, but your answer to math rich people You can't get rich doing what you're describing and running a company so smart people are looking for opportunities to maximize their compensation and That's it's kind of like teachers. It's we don't pay teachers enough. You can't pay journalists enough because the system is broken Therefore you're just getting lower and lower quality people in the profession who the smartest people leave and become venture capitalists Marketing communications people developers whatever or they do solo stuff So I think the solo journalism the independent voices is gonna wind up in the solution because nobody's gonna want to try to hire a thousand Journalists for 100k each and then if they get really smart, what do they do? They get hired by somebody like you Rachel mom They'll come work for one of us or come work from one of our companies When they get to the ceiling of what they can do at Business Insider or vice or wherever They're gonna go try to look for a $200,000 a year job. I SPEAKER_05: Think this is important for the following reason I think that society if society doesn't have a good way of getting to the truth it just ends up really decaying in very bad directions and there's all kinds of truths that are out there that we ignore because People can actually just totally change it where I would rather be in a place is there's the truth then there's the opinion on the truth and then there's fiction and I'm fine with all of it existing It just needs to be better arbitrated because I think there's a lot of people who don't know any better Who should know better and who will just make? An assumption and then that's a very limiting Limiting decision for them the whole process again super messy, but that's actually a good thing to happen SPEAKER_07: The reason it's getting messy is because people are challenging the sources of the news So you don't just believe a politician about what's happening at the border. You don't just believe a publication about what's happening at the border You see citizen journalists going to the border whether it's Elon or RFK went to the border People are going there and saying well, I'm gonna go check it out for myself and see what's happening there Actually, I'm not just gonna trust a publication. I'm not just gonna trust a politician. I'm gonna go myself and that Messiness is now led to a more vibrant SPEAKER_05: System, but it's messy. I think it probably also led in part to Texas suing the federal government SPEAKER_07: Yeah, which we'll get to in a moment Yeah for sure and you know if you think about that we were trying to parse the numbers here Remember we had the number and we were trying to parse the number of encounters So we never were able to get a number. We still don't have a number People the numbers I didn't finish my sentence. We don't have a number knowing how many people have gotten past the border We know how many people got intercepted. We don't have the number of the people who didn't get intercepted by definition SPEAKER_07: We don't have that. We only have the ones that are encounters. That's why they call it encounters that SPEAKER_03: You've been running interference on this point for like a year on this pod like saying that we don't know the numbers and Fox News This is providing, you know, biased footage and it's not really a crisis at the border And I said I said I wanted to know the numbers SPEAKER_07: But the only numbers we can get was encounters not how many people you really get like six million encounters inspired SPEAKER_03: updated those numbers SPEAKER_07: Show the chart of it. It looks like a hockey stick SPEAKER_03: Sure, it wasn't that was the point when I showed it last year every week every month every year is SPEAKER_03: When we looked at it last year, it was flat. I'll pull up the episode. No, it wasn't at the time SPEAKER_07: It was flat. It was it was only in the last year Rocket since code. Okay. Well, we'll pull it up. We'll pull it up. So if you look at this chart this SPEAKER_07: Perfectly, so let I'll explain this chart. Where's that from? SPEAKER_07: This is from the CBS border patrol. So this is the exact chart that we pulled up last time and as you see SPEAKER_07: yellow 2022 was essentially flat and then the dark blue 2023 2021 spike see this this chart is not correct And then if you look the one thing that does look like a massive spike is 2024 So there was and I said at the time it's showing from Jan's or December of 50% spike. Yes. That's what I'm saying SPEAKER_07: But if you look when we looked at this last year in 2023 It was it was right there June when we started talking about this last year at this time Yeah, it started to spike but the other years it was flat as my point It was flat and then it just started the nut and that's why I think even trusting the numbers is my point Like I mean, I don't know SPEAKER_07: Like from October of 21 there was a hundred thousand encounters at the border to this last code SPEAKER_06: Look at the yellow line It's like tripled since SPEAKER_06: In the last two two years, that's crazy. Here's another chart from the Wall Street Journal. This goes back a long way SPEAKER_03: This is from I believe October. So it's already four months old but zoom in on 2020 like I said, it was at a low there You know under during chilean. Yeah. Well, yeah, and then but even if you go back it looks to me like since about 2010 we've been holding it to under half a million and since 2020 basically since Biden took over it shot up like a rocket and what I've been reading in SPEAKER_03: Recent articles again is since October every month every week every day is a new high. It's not a stable number because Obviously there are millions hundreds of millions of people all over the world who would like to come to the United States if they could Yeah, so as the word gets out that we have an open border, they're gonna come and that's what's been happening It's gone viral is what's basically happened. And also what went viral was there are YouTube videos now of how to claim asylum SPEAKER_07: So everybody's kind of hacked it It's completely I guess we could go which way do you want to go? Do you want to go right to the border now since this has come up or? SPEAKER_06: Texas gonna secede from the Union South SPEAKER_07: What's gonna happen do you want to just go you want me to tee it up you understand? Well, I think we should explain it. Let's just talk about it last year as everybody knows, Texas started installing Razor tape razor wire along the Rio Grande near Evo pass federal border agents the feds removed it in October Texas sued the federal government to stop them from removing in December a federal appeals court temporarily banned the Border Patrol agents from removing the razor Tape then the Biden administration asked the Supreme Court to intervene then last week Biden's office told SCOTUS that a couple of migrants Tragically died a woman and two kids near that same area We got a ruling on Monday Roberts and Amy Coney Barrett actually voted against party lines and supported the feds The justices didn't explain their decisions but this basically upheld a prior ruling that gave the federal government sole responsibility for border security governor habit has responded and He is saying that he's going to challenge the Supreme Court ruling and that Texas is under invasion and it's going to defend itself That authority is the supreme law of the land and supersedes any federal statutes in the country. He said so Sax what are your thoughts here is this and there I guess there's two things I'll ask you about is the ruling a good ruling and Is it in terms of law and Constitution, but is it a bad implementation given the circumstance of the border? SPEAKER_03: Well, I think governor Abbott here is probably gonna lose in a court of law But he's gonna win in the court of public opinion The public by a huge majority Once this border enforced they want to have border security they can see the photos and the videos and the numbers and the charts of Record breaking illegal immigrants streaming into the border and again, it's not stopping. It's growing So I think that governor Abbott is on his way to being a national hero for standing up to this and it's outrageous That the border agents are actually removing the border security That Texas is added. We're supposed to have a border wall, you know, I'd rather have a wall than barbed wire but if we can't have a wall then you take the barbed wire and they're actually cutting it down and This is following in a pattern of the bind administration Remember when Biden first came in there were pieces of Trump's wall that hadn't been finished and they basically stopped construction and they sold off these large pieces of wall that we're just laying on the ground as scrap metal for Two cents on the dollar and remember that Robert F Kennedy flagged this when he went to the border at the beginning of his campaign and said that it was petty and outrageous That Biden had done that then Biden changes the whole remain in Mexico policy and he starts granting asylum to To what are basically economic migrants who are streaming into the country and what the asylum rules say is that the immigration? Officials are required to detain Asylum applicants who are not what's called quote clearly admissible So if you're not clearly admissible, you're supposed to be detained You're not supposed to be let into the country and the bind administration is basically paroled millions and millions of these economic Migrants who are not clearly eligible for asylum into the country They just hand them a ticket say show up in court in three years. We know that's never gonna happen It's gotten to the point where the mayors of blue cities like New York and Chicago have tapped out and said we can't handle this We've run out of space. We run out of hotel rooms. We've run out of budget to accommodate all of these migrants and these are sanctuary cities and yet the by demonstration has persisted in this policy and now They're actually removing border security. They're actually cutting the wire It's unbelievable and when Texas has tried to reinstitute it, they've actually gone to the Supreme Court I mean to do that Biden has to send his solicitor general to the Supreme Court To take on the state of Texas. So look at the end of the day governor Abbott may lose this case But I think he's gonna win over the American people and I can't understand why Biden in an election year is Pushing this this losing argument. I mean, I think this is his worst issue Maybe inflation is slightly worse but there's not a worse issue for Biden and the Democrats than border security and to Actively be fighting Texas on this when Texas is just merely trying to reinstate a border Just seems to me like a crazy political strategy and it just shows you how fanatically wedded the by an administration is to this policy SPEAKER_07: Yeah, and the country is not if you look at the CBS News poll This Is just from September to now should be tougher 55% to 63% just just one second here SPEAKER_05: Which is just it's important to note that I don't think Biden's Contesting Texas has anything to do with their desire to actually keep the border open I think what they were saying again, we can debate whether it's right or wrong but what they were saying is the federal government needs due access to all of these places and We need to get we need to cut through this concertina wire to get access and we can't now because it's wires there and the Texas National Guard and all of these folks are there and so Just give us the due authority that that we have to do what we need to do That was what they were saying in the lawsuit now that sounds like total nonsense to me SPEAKER_03: The byproduct David is what you're saying, which is it does then facilitate more illegal migrants SPEAKER_05: To be able to cross in the intervening time because I think that then What the government federal government isn't saying is here's our plan to secure the border they're just saying we need access in order to render critical aid if one of these folks get sick or Drowns or what have you and that's why these three people died So cut get you know remove this wire so that we can do what we need to do. That's what they're saying Yeah, so on the migrants who drown point SPEAKER_03: What governor Abbott says is look if you actually had security along all these points We've put in the wire It forces the migrants to go to the 20 something checkpoints where you actually have an organized process Which is where you want them to go? They wouldn't be trying to swim across the Rio Grande and enter through all these different areas if you could funnel them through border security to the checkpoints and the federal government does control those checkpoints and I'm sure that you know if Republicans could Control it Republicans like Abbott. They would be detaining asylum seekers that weren't clearly admissible but They don't control those checkpoints. So the federal government can still implement the policy at once I actually think that fewer people be drowning the Rio Grande if they were actually to again push everyone to these checkpoints so I don't really buy that argument and it looks to me like the Biden administration has now crossed over from Failing to do its duty because again, it is a federal responsibility to enforce the border and the president has a constitutional duty to Enforce the laws of the land. So he's moved now from failing to do his duty to active sabotage. I Mean, this is actual sabotage where what little border security that we have in these parts of Texas. They're taking down They're cutting the wire. I think to most Americans they can't fathom that this is Biden's policy What is the reason that this if Biden wants there to be free-flowing? SPEAKER_07: Immigration which he says he doesn't but if he did why would he want that? What's the What's the reason there's some arguments I've heard from economists that? SPEAKER_06: the fundamental value the u.s. Can gain from the flow of immigrants across the border at an accelerated rate is to lower the cost of labor and So you get low cost labor to participate in the labor market we have skyrocketing Costs for you know basic goods and services Many of which are tied ultimately to the cost of labor in the u.s. Due to the tight labor market and so if you can open up more manual labor roles in the u.s. Or fill those manual labor roles with a lower cost of labor. You can bring inflation down You can bring the cost of goods and services down So there's an economic argument for doing that and it also grows the economy because fundamentally when you have More productivity through more participation of the labor force you see the GDP grow and you also increase the consumption of goods and services In the u.s. By the immigrants that are coming across the border. So the there's an economic argument. That's so theory SPEAKER_07: Yeah, that's a theory that folks don't want to say out loud. They don't want to be very public about it SPEAKER_06: But there is kind of an underlying kind of economic story that behind closed doors folks are making About why you want to see this happen particularly now SPEAKER_07: Chamath What do you think of that theory as proposed? I'm not saying that you're endorsing that free bird, but I have also heard people say that that's the reason and Why would Democrats be in favor of that over say Republicans wouldn't both of them want to see the economy? Grow and have more labor available in record low unemployment, you know, whether you agree with it or not So or is it just become a political? Weapon now. Yeah, what do you think? I think that theory is stupid that theory were to be valid SPEAKER_05: let's try to steel man why that theory could be true even though it's SPEAKER_05: Was probably thought up by a nitwit You would want to know first of all all of the different types of labor shortages that exist and Then you'd want to know all of the different types of labor inputs that these people can provide and then you'd need to know all of that labor demand By Geography and then you could sort of like do a reasonable job of allocating That's supply and demand. So if that was really the case It's even more reason to have an organized border Why because as David said you get them through very specific points? that allow you to actually enumerate these details about these people and Then actually send them to the places where they're actually needed so that then they can become a productive part of the economy Where they can lower labor costs, etc. What that explanation does is actually Tell put a nice lie in front of what is the actual truth? I think that there are a lot of people Who feel fundamentally guilty? because a lot of the quality of their life they didn't earn necessarily and So they have this self-loathing that they feel like they can appease By allowing all of this other stuff to happen and one of them in this weird way is immigration but if you actually ask an immigrant somebody like me I Kind of feel that it is very unfair for those of us who actually stood in line who waited Years and in some cases, I know decades highly skilled individuals to try to actually fill this labor gap that you talked about Who are prevented or who are slowed down from actually doing what you say that theory is all about? So I just think that this is just frankly like a lot of folks that live in a very very comfortable way who Feel Fundamentally guilty and so they're like let me share my largess and riches with other people And maybe that comes from a good place but the manifestation of that is Bankrupting all of our major cities and it's creating an enormous security vulnerability for this country SPEAKER_07: yeah, I mean you could Describe it to having an open heart and wanting more people to come into the country But it's crazy because you have to have at least some control over this So we talk about this control. What about just documentation and awareness? Of course. Yes I mean terrorists can be flowing across the border right now What about something even as simple as like communicable diseases? I SPEAKER_07: Mean SPEAKER_03: The car And criminals also like we should we we've talked about this before point-based systems and merit-based immigration SPEAKER_07: Yeah, we have a skills-based system SPEAKER_03: But that wouldn't get in as many people as quickly as just having an open border And look I think there was an economic rationale for this a while ago, yeah, we talked about that SPEAKER_07: Yeah Republicans were in favor of it 20 years ago the Wall Street Journal editorial page like SPEAKER_03: 30 years ago want to support a constitutional amendment to have an open border I mean They just saw the world purely in economic terms and having free trade free movement of capital and free movement of labor was all part of that conception I Think it was naive in a lot of ways and I think now If you're still supporting it I don't think it's for economic reasons, I think it's mostly for political reasons and Look, there's this clip from Tucker that would just went viral today Explaining it. I mean if you want to play it The numbers you need to understand Yale University released a study last week by three researchers all the liberal SPEAKER_04: I believe who concluded that the actual number of illegal aliens in this country is not 11 million It's north of 22 million 22 million. Hmm fact one fact two The Democratic Party is now as a matter of policy calling for the legalization of all illegals in this country citizenship voting rights 22 million new voters back three the overwhelming majority of first-time immigrant voters vote Democrat fact for the largest margin in American Presidential history was 17 million votes 1980 election. Thanks, brother 1984 election between Mondale and Reagan Reagan. Yeah 17 million you would add to our voter rolls SPEAKER_04: You would add to our voter rolls 22 million at least Permanent electoral majority in perpetuity. That's what this is about. It's not about making the country better serving our labor needs helping the population It's about putting Democrats in power. Okay. How do you how do you react to that? I don't know. How do I react to it? Yeah SPEAKER_06: She was the question like why would the Democrats want to do this? That's that's a theory votes basically to get votes is what he's saying SPEAKER_07: We just had a conversation here that just I think was on the predictions episode that we all felt That more immigrants people of color were going into the Republican Party. So there's only that I don't think all 22 become magically Liberals we talked at work Democrats here. So I don't know if that part of the argument I think what? I think what Tucker is saying effectively is that if if 22 million people are converted to US citizens by a given political group SPEAKER_05: They will be rewarded by the vast majority of those people with at least one cycle vote in their favor SPEAKER_07: You believe it Chima you believe that that's why Biden's had some open borders to give votes. No, I think that actually SPEAKER_05: my opinion is what I just stated which is I think that Highly over educated liberal elites have a certain amount of self-loathing about their lifestyle that they believe is not earned and so they have this weird thing of like They need to feel better. Well instead of just like looking at the truth, which is SPEAKER_05: Yeah, they didn't earn it and a lot of it was given to them by their rich parents and just move on and do something Good with their life. They want to just destroy it Sax you believe it you believe Chuckers argument there that this is a democratic vote getting conspiracy SPEAKER_03: Well, I don't think it's a conspiracy. I mean our strategy Democrats have actually said on a number of occasions that this type of immigration is good for the country because a Diversity and be it these people will eventually vote Democratic or you know when they get citizenship or they'll have kids and Because of birthright citizenship. They are more likely be Democrats Democrats will say this and say it's a good thing But then when someone like Tucker says it, they'll basically say it's great replacement theory. It's a conspiracy. It's racist No, he's saying the same thing that you're saying. He's just saying it's a bad thing and you're saying it's a good thing So I never said it's a good thing. No, I didn't say it's a good event. No, I'm talking about other people SPEAKER_07: Okay, so I didn't get my opinion yet. Yeah, what do you think Jason? SPEAKER_07: Well, I wanted to hear sacks sacks. There's acts do you agree with him that this is a strategic move by Biden to get more Votes, I think it's like a lot of things. It's an issue where the party that's SPEAKER_03: Championing it can claim that It's kind of like doing well and doing good. They think that they're doing good But it's also highly motivated by their own desire to benefit and so will function. Yeah SPEAKER_07: Yeah, I'm the rest of the country. We should have An orderly process here and it should be merit based I've said that a thousand times on this podcast that we should be a point based system and we should be recruiting people we should have some compassionate slots and then Everything else should be a waitlist and we can we should pick a number of how many people we could absorb Based on the labor markets and do it very thoughtfully. Maybe we need a half million teachers No, you've just got your solution many times just razzing for your opinion on what Tucker just said SPEAKER_05: I would go with sacks this position that it's probably SPEAKER_07: Convenient that you yeah, it might go 60 40 70 30 for votes I don't think it's a hundred percent of them are gonna vote there I think this could blow up in Democrats faces if it is their strategy because a lot of people who are coming here immigrants don't want to be part of the Democratic and the liberal woke Democratic Party They want to be part of the Republican hard-working party I want to go two for two last week to sacks. I mean freed broke pulled up stats that showed that a SPEAKER_05: Bunch of people got really angry and quit the pod when I said that And recent basically put in the money to generate a UM and we were joking in our group chat That was all the VCS that stopped listening They all hit the stop button at once SPEAKER_07: Yeah, because it was again the truth the uncomfortable based truth. So I want to ask you guys I SPEAKER_05: just a reaction to my comment that there is an amount of Self-loathing amongst liberal elites that causes them to embrace some of these ideas that are not rooted in actual logic But are rooted I think in their own insecurity. Can I just get your reaction to that? You guys think that's true? I think that among this SPEAKER_03: Elite this call it woke elite Who defines their politics in terms of? social justice which basically means you divide the world into Oppressor and oppressed groups and you try to figure out with every issue who the oppressed group is and you take their side That's basically how politics works for this group So in their view of the world all these poor migrants were streaming across the border They're the oppressed group. And so we should help them. We should let them in and you saw Gavin Newsom in California just extended health care to illegal immigrants So all these government services basically being provided and they think that's a good thing. That's official policy So I do think that there is this ideological view that we should be doing as much as we can To provide help and benefits to these people. I think that at a certain point It gets to a place where the system breaks and again you have mayors of New York Chicago other blue cities saying it's breaking we can't afford this there has to be some common sense Around what we can afford, you know Can we afford the social services the hospitals the schools the infrastructure? Do we have enough housing for all these people and I think we've just like become completely unmoored from common sense now I think that's the ideological people in the party, but I don't know if that's Biden in the Biden administration I do think that for the administration they think more about some of these other calculations But even so I don't really understand their motivation But even so I don't really understand their motivations and their actions because recruiting more Democratic voters is more of a long-term Proposition it's something that they can achieve over the next couple of decades But Biden could lose the election this year over this issue. I mean, this is his Part this is on your spotlight on this SPEAKER_03: I mean He's actually sending his solicitor general to the same court to get permission To cut the wire at the border, right and You know again He's shining a spotlight on an issue where the vast majority of the country and even I think half of Democrats Don't agree with this policy. So I just know 100% right on sacks. This is like for Republican SPEAKER_07: This is abortion is to Republicans as the border Democrats you you have to solve this problem Look at this chart to be so disconnected from the populace SPEAKER_07: Only 7% of people reported and this is a recent poll This is from this year that it's not much of a problem the situation the border 45% and 30% very serious or a crisis that 75% think it's a crisis or very serious and then 18% thing is some source That is the majority overwhelming majority of Americans and you just have to change your policy here This is just too many people flooding across the border period full stop, right? SPEAKER_03: Just like for Republicans like they shouldn't have to overturn Roe v Wade and we should shut down the border SPEAKER_07: You know on the Democratic side, but I come from a blue-collar family. I can tell you there are two Democratic parties right now there's the the working-class Democratic Party that totally doesn't understand what Biden is doing with the border because They want to see wages increase. They want to see low unemployment They want to see their wages increase and not have to deal with illegal immigrants, you know fighting for jobs That's a real thing wages have gone up in this country because of low unemployment that's great for the bottom half of the country and And they live in New York and New Yorkers want to see Services for their families not for families that are streaming across the border. It's that simple And so what you're saying chamath about like woke liberals. That's not the majority of people in New York That's like a really elite class. They control the Democratic Party. That's the thing SPEAKER_03: For now they control for now, but I think they're losing control SPEAKER_07: And this is why Biden did that huge debt forgiveness program that the stream court found unconstitutional is because of course professional elites SPEAKER_03: college graduates and specifically Ivy League graduates are The people who run the Democratic Party as well as the media and all these other professional institutions They're the center of gravity and the power within the party and the blue-collar the lunch pail type Democrats The union rank-and-file not the leadership They are starting to move to the Republican Party the working class in bigger and bigger numbers And I think that's Trump's appeal as he actually knows how to appeal to those those people Absolutely, knowing a lot of both my experiences SPEAKER_05: There's a lot less self-loathing amongst Republicans right now than there is among Democrats a hundred percent of my middle-class family SPEAKER_07: Does not want an open border. They may move to the Republicans one day Jason. Oh, I know they are There are literal people in New York proving my in Brooklyn in You know the boroughs who are looking at it saying like I I don't understand this. Well crazy ideology I don't want any part of it and they might they might vote Republican. She both is right. It is self-hating. It's self-destructive SPEAKER_03: It's the same thing that we have with these da's, you know, who are letting all the animals out of prison You know the decarceration movement I'm on order Jason. You keep saying nobody wants that but I think the people that are making these decisions live in high-rises that are SPEAKER_05: 50 stories up where there's doormen and security or they're living behind a gate with private security and so they can make these decisions Because they don't feel the impact. Not yet This is why what's happening in these elite cities is so important because for the first time The broad infrastructure of a city is getting crippled in a way where these folks have to live With the implication of their decision and actually understand for themselves Why did I endorse something that is so fundamentally destructive to me and the people around me and this is the first time and so In many ways what the southern states have been doing by sending Migrants to all of these major cities is it is actually can allow The leadership of the liberal elite in these cities to confront. Why have I been proposing? These programs and these solutions in this way, they've never had Same thing that's happening to the Republican Party as well their leadership Nikki Haley, etc. The the neocon war-mongering SPEAKER_07: Republican Party is now losing to Trump as well. Everybody's going populist now But you need only look at the statistics the majority of people want the border closed that is across both Parties the majority of people don't want to be involved in foreign wars. That's across both parties And that's why you know Trump and RFK are just crushing it in the polls And that's why they're both having such a great show It's because they're appealing to the majority of Americans and the majority of Americans don't want to be involved in foreign worlds It's not a Republican position Republican positions the opposite their neocons. They want to go to war let's go to fintech on the topic of fintech and More Journalism a bunch of news has been leaked recently we can get into that aspect of the story as well Confidential financial data from Brex and entropic were leaked this week If you don't know Brex they offer credit card and expense management software. It's pretty dope actually very hot startup They raised a billion five between 2017 and 22 and they were last valued at 12 billion dollars Earlier this week. It was reported that Brex was burning 17 million a month 200 million a year on net revenues of 280 These are select leagues. We don't have like the full P&L here So we can't tell you exactly what's reality or what parts of this are true But later that same day after the leak Brex announced it was cutting 20% of its staff 300 jobs, which it said would help it extend its runway by two years and prop it one of the breakout AI companies That's building a proprietary large language model called Claude. It's really dope actually as well into the cool product they've raised over seven billion at an eighteen billion dollar valuation recently and Their gross margin was leaked this week to anonymous sources said it was between 50 and 55 percent Obviously we talked here about SAS software being a 70 to 80 percent margin business so free bird you want to maybe I don't know which way you want to go with this stuff being leaked by the press or The finance side. I wanted to ask you guys your opinion. Do you think? SPEAKER_06: It's almost like the gossip Version of business when you get private companies financials and report on it With like an angle of being effectively disparaging towards the business. Look how much they're burning. Look how bad the business is It hurts employees It hurts shareholders any one of us who have been investors in or involved in or on the board of a company Where the press then writes an article where they got a hand on? Confidential financial information about the business always hurts the business. It's almost like taking Photographers outside of celebrities homes and taking photos of them through their windows I don't understand the true newsworthiness and I just like to take a step back because we always kind of dive into these conversations and treat it as totally appropriate When private confidential information about businesses is leaked and discussed like this and we kind of have accepted it as the standard but you know Do we really identify the newsworthiness in this or is this really just like the gossip fodder for hurting businesses? It's the kind of sensationalism that we've kind of come you gotten used to in in the news in general Who does the reporting benefit what the journalists would say is it gives the public? SPEAKER_07: The ability to understand business and trends at a deeper level and that's good in a free society That's what they would say, but you could argue like what's the point of this? Isn't it a sensational story? SPEAKER_06: It's like oh look how much money this company's burning. Oh, wow. That's why we should all talk about it Like they would say maybe it's like look at the mega yacht that the billionaire is on, you know SPEAKER_06: We're like look at the yeah, look at the celebrity at the beach, you know SPEAKER_06: Like look at how they're dressed the journalists who reported this would say it's no different than us talking about the zerp era or overspending SPEAKER_07: And it's just part of the reporting. That's a general framing of like I said, I don't know SPEAKER_06: I just think like going in and getting confidential financial info it hurts the employees. It hurts the shareholders It hurts the board it hurts the company and the customers of the company that ended up questioning the business from a journalistic perspective There's nothing about this that to me seems to benefit the public at large by revealing all of the salacious information It's a private business That's not required to disclose their financials and all of their shareholders privately on the stock and someone took some private company data and leaked it I can tell you in you know, when we ran in gadget 90% of the leaks 95% of the leaks were calls from within the building SPEAKER_07: So this is disgruntled employees well I think in this case It's actually an investor who doesn't want to see them burning 17 million a month and wants the runway to go further And they leaked this because that's who would have access to it the accountants and lawyers would have access to it But that would be the end of their careers and their firms if they did leak it SPEAKER_07: So somebody who has a financial interest in this typically an earlier stage investor or an investor who's frustrated with the management that they? Won't cut the burn leak this in order to create pressure So in other words the press is just a tool being used by the insiders and that's how this went down 95% of the time I think it's more likely to be a low-level employee SPEAKER_03: I think that's typically where this comes from a board member has a fiduciary duty To basically keep proprietary data secret. I really don't see most investors wanting to take the chance of It coming back on them by again violating their Delaware obligations there are fiduciary duties Furthermore I think even passive investors are on the board generally don't want to hurt their investments I Think it's generally Disgruntled employees who do this I'd say lower-level disgruntled employees and the reason they do it is that either they feel like the management the company is asking them to do something unethical or is non responsive to their concerns, so I think it is The motivations you're talking about J Cal but my view on it is that lower-level employees have less Like what do you think the journalists like objectives are besides sensationalist headlines on like what's the news worthiness to the public on? SPEAKER_06: reporting these stories SPEAKER_03: Well, I mean you talk about how damaging these stories are and they hurt the company So why would the reporters do it and the reporters like right that they're not there to help companies They are there to hurt companies and sell clicks by doing it So now is it newsworthy what I would say is it's annoying When the media gets a hold of proprietary information and puts it out, but it's hard to argue that it's not newsworthy I wish the media would do it in a non clickbait way like they're gonna put out some numbers Don't cherry-pick one or two So by that vein shouldn't a journalist go out and try and get the private financials of every private company in Silicon Valley SPEAKER_06: They would if they could and just publish it on our website, okay SPEAKER_07: But if they did ask for that explicitly that would be illegal so they can take inbound But they can't go out and try to steal it themselves, obviously, right? So why wouldn't someone just set up a WikiLeaks for private financial information? If you look at every journalist now SPEAKER_07: They have a PGP key or whatever. They have a phone number. They say anonymous hit me on these anonymous services and That's how this is done having been on the other side of it. It's back in the engagement days people used Yahoo I think they use proto. I just reacted kind of negatively when I see these stories and I'm always like SPEAKER_06: What's the point here? Why are we reporting and hurting companies based on like reporting? That is the place to hurt them SPEAKER_03: well But the media has a different incentive than you to get a subscriber if you put this behind a paywall SPEAKER_07: And you have all the salacious details and you have one story like this every week Then you know the fifth time somebody comes to the paywall. They're like, you know, yeah, this is great insider information I'm getting smarter because of it I'll pay the 25 bucks a month. All right, if people in our industry didn't want to see this happen They shouldn't subscribe to the publications that do this free bird. Did you read the article? SPEAKER_06: Yeah, it's just got some numbers. I mean I got it like so you did read it. Yeah. Yeah, so they accomplished their goal SPEAKER_05: Oh, I read it because you guys send it to me SPEAKER_06: But I hate all these articles that I see on the internet that do you subscribe to the publications that do? SPEAKER_06: No, I don't subscribe to any of that. No, I don't Want to read about every startup is a challenge every startup is a disaster until it's suddenly not like that's reality And it's it's really awful for years to have seen like tech reporter after tech reporter Who's supposed to be kind of covering the news the innovation the progress in the industry? SPEAKER_06: Target and focus on the inevitable failure that every business is dealing with on a frequent basis and make that the headline story Which just ultimately hurts the business hurts the employees hurts the ecosystem hurts progress doesn't really benefit Anyone except their viewership. I thought you wanted to talk about the quality of these businesses SPEAKER_03: I think it's hard to have a conversation about the quality of these businesses based on a couple of these data points because I think They could be cherry-picked. I think one of the problems these articles is you don't get the P&L You just get like one or two numbers. I can't tell you based on yeah I mean look 17 million a burn is not good That's almost always a red flag, but I don't know if that was one month or like the steady state SPEAKER_03: I need to see the piano Minutes if it's a good business or not by looking at the P&L yeah in the Brex case if we for those of us that know the SPEAKER_05: the founders They're really sharp guys. Enrique is a really really sharp guy. So SPEAKER_06: In that company anyone I'm not no but I'm friends with Enrique and I think he's wonderful if they are cutting the burn by 20% SPEAKER_07: Who knows we don't like sex is saying we don't know the denominator here. We don't know the total spend We don't know how net revenue is defined It's just what are your views on FinTech go ahead free bread is FinTech a great business or not SPEAKER_07: I mean, is it a tech based business? Do you believe in the category? So I started SPEAKER_06: Metromile which was an online auto insurance business with a telematics device that plugged in the cars back in 2010 and The term FinTech wasn't used at that time and in the years that followed FinTech became a term where it was like technology Companies or software companies reinventing financial services in different ways and you know So we're now 14 years past that and a lot of quote FinTech businesses are looking like thin businesses without the tech Meaning their margins and their LTV to CAC or their return on invested capital It looks the same or in some cases worse than the traditional financial services businesses that they're meant to disrupt And so this spans insurance to lending To banking because the technology advantage was meant to accrue either a better margin or you know better return profile or A better call it LTV to CAC meaning you can acquire customers for less or you can get more money from those customers by retaining Them longer and get more money over time. I Always used to sit at the board meetings at Metromile and I would scream guys If if we don't demonstrate margin advantage, the business will eventually trade like the market trades Which is one times revenue and if we trade at one times revenue, we're already overvalued and we've burnt so much money It was always a challenging conversation about pulling up the margin pulling out the LTV to CAC numbers. The truth is Over the years a lot of FinTech companies fell into the same trap that D to C businesses did which is to grow they started acquiring customers through Facebook and Google and Facebook and Google became all the page views on the internet and they ultimately Got competed away and the price went up and the conversion rates went down and so the CAC went through the roof there was a lending company I was involved in early on as a Main shareholder and we were spending four dollars to acquire a customer making 12 bucks a month in gross profit fast forward 24 months and it was costing north of 30 to 60 dollars to acquire a customer and Gross profit per month declined to two to four dollars So, you know this this margin advantage went away as the business scaled and the CAC went up and so the LTV to CAC ratio Started to look worse than traditional lenders So what are the FinTech companies do in response when this happens which many of them faced is they had some? Inherent margin advantage or some inherent growth advantage that over time got competed away Well, they start giving product away for free in FinTech It's really easy to grow by giving away a dollar for 90 cents So you could drop the price of auto insurance and suddenly everyone buys your auto insurance and your revenue growth goes through the roof But your margin profile is terrible You'll lose money over time because you'll have higher loss ratios and same in lending in lending You can offer people a lower rate revenue goes through the roof Everyone signs up for loans from you and over time you end up having defaults They eat away your gross profit and you end up losing money on that product So many of these FinTech companies it takes a couple of years for those economics to play out Are now starting to run into that headwind which is they couldn't just grow through some unique margin or CAC advantage They acquire traffic and when they couldn't acquire traffic with a good LTV to CAC ratio They have to start doing this give it stuff away and then the margins get eaten up over time or the business gets unprofitable And they can't get out of that cycle So I think we're in this kind of like realizing the truth Which is that a lot of FinTech businesses are just fin businesses There are a few that are doing great but many of them for many years. I think masqueraded as Having some unique tech advantage until those numbers started to play out which demonstrated that in fact they did not SPEAKER_07: yeah, and you can understand the Customer acquisition cost that's what CAC stands for for those of you who don't know Very easily because I was an investor in Robin Hood and one of the genius things they did was a give to get program It's called in the referral space If you if I get you to sign up with my referral code They would give me a share of a company and they would give you a share of a company So you get a free share, but you have to then sign up, you know And put your bank account in and all that kind of stuff They'll pay a referral program a couple of hundred bucks etrade's etc of the world's to get a funded customer Robin Hood was able to do it for giving away two fractions of a share and you weren't getting like a $300 You know Tesla share you were getting a whatever one percent of that you get three dollars worth of Tesla shares or whatever and they did it with a little device like a Mystery box so it's quite addictive and in the mystery box They would have dollar shares two dollar shares whatever and they would and they would net that out to be well below Tens of dollars instead of hundreds of dollars and I maxed out the problem because I tweeted it and got 250 people Now they're doing one where if you move your money into the account, they give you 1% So if you remove a million dollars of shares and they'll give you like ten thousand dollars to build up their assets under management So you need to have something that is cheaper than what's in the market like TV is very expensive, too I'll say two things which are build on what I've said before and maybe I'll try to make the point clearer SPEAKER_05: Do you guys know what the average gross margin is of the S&P 500 and how it's changed over time? SPEAKER_06: My guess is gross margin. Yeah, my guess is SPEAKER_06: 28 percent SPEAKER_05: Wrong but it's a good guess It's about 43 percent over the last kind of 25 years Except in two years and those two years were on the tail end of the web 1.0 bubble bursting So the average is about 43 percent in 2002 it went to 30 percent 2003 it went down to 23 percent. So a half right of the steady-state average That's one comment. But the second comment is when you actually look at the S&P 500, right? So it has all of these different sectors, but this is the 500 best companies in the world, right? everything else is much worse than this and You look at who has the highest probability and the highest correlation over long periods of time of generating high gross margins It's actually the companies in the markets with the lowest gross margins So if you put these two things together, what is it saying? It's saying that high gross margin companies are rewarded for growth But they generally speaking have a very poor track record of two things one is generating profitability and two is actually doing it in a consistent manner and so I Think this is just a way of saying what I said last week but I'm just gonna keep harping on this because I think this is a huge trend over the next decade is Technology, freebird to your point, is no longer a definable sector I know that we want to point to a company and say it's the tech company but I think it's much you'll be much safer if you say this is a tech enabled version of X and X is all of these other historical sectors of the economy that have existed energy consumer staples consumer discretionary materials IT, industrials, real estate, utilities Whatever it is It's actually that company and those companies Have a prevailing gross margin a prevailing gross profitability a prevailing ability to convert gross margin to gross profit and That has not changed that much and so all of these companies that are massive outliers to these trends are going to go through a process of getting refactored and maybe your example of FinTech being more fin than tech is a very early sign of what may be happening to the rest of all of these companies that we point to and say That is a tech company Actually that may just be a real estate company. That's tech enabled Yeah, it used to be the case that tech companies sold technology to traditional companies and now SPEAKER_06: traditional companies are getting rebuilt quote as technology companies But maybe don't have as big of an advantage as the incumbents who can easily adopt technology themselves So it becomes ubiquitous that technology is you know the way the market evolves But could you imagine if we have a mean reversion to the average gross margin profile SPEAKER_05: Oh, by the way, the other thing was a gentleman made a very I think misguided comment when we posted the pod last week about how gross margins can never change and this is crazy and I just wanted to explain that for a second. Let's just say you have a software company that has 80% gross margins But you have an accounting rule now all of a sudden that changes the capitalization of R&D I think Sax you said it last week, but I'll reiterate it If all of a sudden these companies go totally pear weight pear shape Because of these kinds of accounting rules where you can't capitalize these investments over five years But now you can only you pay for them up front, but you can deduct them over 15 or 20 years, which is What is happening right now? Companies will lobby the standards bodies to change the definition of gross margin so that those gross margins look very different because they'll want to deduct them Immediately and now you'll see gross margins decay by a thousand and two thousand basis points all of this is to say that This may not be new and different It just may be a rhyming version of the past and we know what that past looked like and the new the numbers are kind of unavoidable Sax any thoughts on this FinTech SPEAKER_07: Reckoning bubble or some other perspective you might have I think you're right SPEAKER_03: It is a reckoning and the reason for that is because FinTech is one of the hottest spaces during the bubble I have the saying that the hotter they are the harder they fall and So when a space gets really frothy and speculative obviously the reckoning is going to be that much bigger in terms of your question about Revenue multiples and how to think about that. I agree that it's a big mistake to think of FinTech Revenue as Having the same quality as say SAS revenue I mean the gross margin profiles of FinTech business typically are very different a good software business 70-80 percent gross margin FinTech businesses typically have Transaction costs on every transaction that are pretty high. So like freeberg mentioned if you're making loans You're gonna have a loss rate on that portfolio if you're doing insurance, you're gonna have claims payouts if you're doing payments you're gonna have transaction fees that you pay to save visa MasterCard and certainly, we saw this at PayPal where The margin on any particular payment was pretty low and I do think that investors who are putting hundred times plus multiples on FinTech revenue definitely we're not taking the margin profile into account You know another mistake that I think investors make is they'll think in term. This is certainly true with the payments companies I mean I could I saw this all the time after PayPal is that People will confuse gross payment volume and revenue with a payments company What you have to understand is, you know, take up a payments business That's doing maybe a billion dollars in payment revenue. That sounds like a lot right, but if they charge two and a half percent Transaction fees on that that's only 25 million in revenue. Okay now, let's say that of that two and a half percent One and a half percent on average goes a Visa MasterCard and another 50 basis points is fraud losses and another quarter point is customer support costs on Transactions where there's a problem. Okay. Now your real margin your real gross profit on that transaction is 25 basis points 10% so really of your 25 million of revenue You only have two and a half million of true net revenue And then you have to use all of that revenue to pay off all the overhead of the company all the R&D all the sales and marketing All the the G&A the overhead kind of ours. Yeah, exactly So you very quickly shrink from a company that's doing a billion dollars in payment volume SPEAKER_03: To one that really is only doing two and a half million of net revenue So, I mean unless you're a company like I don't know like OnlyFans is able to charge 10% Transaction fees, but they're rare, you know, and they tend to be kind of in these you know subprime or kind of sketchy spaces So people just don't really understand that the scale that you need to make a payments company work I mean it needs to be not just like a billion is not enough. You need to be doing trends or hundreds of billions of Volume to make these businesses like exciting at all and I think there's something probably pretty analogous with some of these other areas like loans of various kinds or insurance because of the losses SPEAKER_03: The margins are just way smaller than people think and therefore you just need huge volumes to make them interesting Yeah, so I think that's part of what's going on here SPEAKER_07: Yeah, and people conflate the numbers especially in the early stage of startups people were referring to Airbnb and Uber and DoorDash's revenue as the gross market You know transactions and like well, yeah Airbnb is taking what like a 15% rate and it's all margin. Yeah SPEAKER_07: But you know people would take the whole, you know, five-day stay and attribute that to like, oh, this is the revenue of Airbnb it's just Intellectually dishonest. All right, Friedberg. I have been seeing a bunch of tweets about this arc storm hitting, California Is this going to be amazing snow? Is this going to be floods and disasters? Is this the day after? What's reality here? Yeah, there's this like rumor that is SPEAKER_06: You know not Corroborated by science that this arc storm event is gonna hit us in the next week or two in California Which is this massive storm Nick if you pull up that tweet That I sent you last night. So this is the 200 mile Cross Pacific jet-screen. Oh Yeah, I saw that with the you know, very hot and moist Pacific So a lot of energy that the ocean temperatures are hotter than they've ever been on record so This causes the air to move more quickly It causes more moisture to go into the air and then it gets moved and pushed all the way to the western United States And so some people have said wait, this is gonna lead to an arc storm event. So what's an arc storm event? in 1861 to 1862 in California There was a atmospheric river event for 43 days. So water poured down for 43 days straight Completely flooded the Central Valley Sacramento, Los Angeles All of these regions were underwater for six months at the time causing a hundred million dollars in damage and the USGS the United States Geological Survey did a Analysis and what they projected would happen if such an event were to happen again this day and age These sorts of events are predicted historically to happen every 150 to 200 years but based on the warm temperature in the oceans we see it's now predicted that these will happen every call it 25 to 50 years or much sooner and These high temperatures are driving a higher increased frequency and severity of these sorts of events So the most recent model called arc storm 2.0, which was an analysis done By the USGS showed that if this sort of an event were to occur again would drive over a trillion dollars in damages in California so based on the image that you just saw which showed this massive 200 mile an hour Hot wet jet stream plowing towards the western US a lot of people on Twitter started speculating. It's arc storm 2.0 It's coming our way and a lot of meteorologists have looked at the ensemble, which is the simulation model forecasts and said, you know what? It's not gonna be arc storm 2.0. It's gonna be wet over the next couple of weeks It could be very wet, but this isn't the big mega flood event that everyone's been worried about So rest assured it's not imminent I know a lot of people are talking about it saying it is imminent but I do think it's worth being aware of and cognizant of this arc storm 2.0 type scenario and you know It's the kind of thing that folks are waiting for and now, you know Predicting the other week is about that when these sorts of things happen last year SPEAKER_07: They refer to the storms we had in California as atmospheric river and the arc the AR in an arc storm is for atmospheric river I see so last year we had flooding we had damage to our house I think like $50,000 in damage SPEAKER_07: You have the snow in Tahoe the floods in the Bay Area it was crazy it was it was bonkers And how many days was that? It was only like 10 days. So basically it's gonna be like wet warm moist SPEAKER_05: But it's really not gonna be like dripping and Like I got it. It's not gonna be drenched. It's not gonna be drenched. It's gonna be wet SPEAKER_05: But not drenched it's gonna be wet for 25 days SPEAKER_06: They got 25 days. There you go SPEAKER_06: Anyway, it's worth being cognizant We talked about the hurricane event in the Pacific a couple weeks ago these sorts of events more frequent more scary more significant Hotter oceans are driving these events, but this doesn't seem to be the mega flood event, but it could happen Some point got to be cognizant. That's the reality There are people are buying like sandbags and stuff like that and putting things around their homes these days to prevent this kind of stuff SPEAKER_07: So yeah, and then hopefully it hits I got a leak in my office here right now SPEAKER_06: I got a tarp on my roof. You got a tarp on your roof SPEAKER_07: This is at your house or this is at your office my house my office at my house SPEAKER_06: Your home started leaking is like water was pouring in through the roof the other day Do you have wood shingles or do you have other? I've got composite shingles, but apparently underneath it. There's some holes SPEAKER_06: They got to redo the roof Anyway, I have to take I have to take the wood shingles off because we can't get the insurance people to yeah sure SPEAKER_05: It's no longer because of fires in California and you can replace up to 30% of them is what I was told and SPEAKER_07: So you can do like patchwork chamath But if you want to at a certain point they won't let you do it and you just have to replace the whole damn thing This happened to me in Brentwood and those wood shakes that you have the Sun dries them and they become like tinder basically So you actually don't want to have those those shake roofs anymore. It's super I think they're treated to be fire retardant SPEAKER_05: But they look so beautiful and now we have to replace them with composite shingles or like, you know, yeah He's we're about to start but we don't we can't even get five days straight of good weather for the folks to come in So that's what's so crazy about this thing is we could be sitting six months from now and have 25 days of moisture SPEAKER_07: Yeah, I mean on course 40 days. I'm gonna tell them that 40 days straight of wet SPEAKER_05: Moisture wet and moist. Yeah, but not dripping not drenched SPEAKER_07: No, 40 days. That's it consistently 40 days of moisture consistent 40 days of just yes SPEAKER_05: wet and warm moisture SPEAKER_07: And listen if you were up in Tahoe would be Flurries and yeah soft Powder which is what I'm hoping for. All right, everybody For the Why is he laughing keep it together, please for the dictator chumath Palihapitiya and is there when we look at these atmospheric things that occurred anyway, does this have any kind of gravitational pull Multi-planetary effects freeburg any planetary effects that might pull the oceans out like the gravity of the moon or I'm turning off my microphone Mars SPEAKER_07: Nothing none of those would cause this. All right, everybody. Bye for for for the Sultan of Science David for the dictator chairman dictator chumath Palihapitiya and SPEAKER_07: David Sachs Love you boys. Yeah, love you besties. We'll see you next time SPEAKER_01: Oh SPEAKER_02: You're a beast SPEAKER_08: