SPEAKER_01: Let's go Jason start let's go you have any intros let's go let's go let's go let's go all right if you want intros we're not willing to pay for them so
SPEAKER_00: don't even go there.
SPEAKER_03: Sax is awake. All right well then we'll start with you Sax. If you want to do your job you'll do the intros and if you want to slow roll your effort because you think you're
SPEAKER_00: negotiating with us don't we don't give a shit. Listen I'm doing all the projects outside of the...
SPEAKER_03: You think we care about your intros? Do a bad job we don't care.
SPEAKER_01: It's so true. Waiting in the wings all we need is three of four. Well then I'll just do three Sax intros in a row. Oh my god it's so true do do a couple of bad jobs so that we can boot you off the show. Oh that'll be so cool. All right here we go.
SPEAKER_01: All in Summit? I packed the joint but Sax won't give me an extra point.
SPEAKER_03: His crypto holdings they can't find a floor. Gonna have him fly in commercial for the first time since 2004. Welcome David Sax back to the program The Rain Man. Good to be here. Now Freeberg I never wanted to see him go but you got to show up for work you can't do every other show. The Sultan of Science he's certainly not a fad. But then again did you see those ratings with Brad? Welcome back The Sultan of Science.
SPEAKER_02: By the way our show beat Brad's ratings so thank you very much J. Cal. Okay well a little drama always builds a little audience.
SPEAKER_03: Okay here we go Chamath. A little healthy competition.
SPEAKER_02: Well Chamath he's in Italy living a life so grand his next spack a luxury wine and sweater brand.
SPEAKER_03: This market is leaving him in a daze so he's been tipsy in the Mediterranean for the past 10 days. Welcome back The Dictator. Thank you. I just I put them on stun. I didn't want to do any kill shots there since everybody's a little on edge including the audience. The audience had a lot to say about whether we cover a lot of the controversial topics. Roe v. Wade January 6th and Ukraine all I did a bunch of surveys 50% of people want us to talk about and 50% don't. So we'll see which ones we get to say. Do you think we should be surveying the audience to ask them what they want us to talk about?
SPEAKER_02: Because when we started the show we just talked about stuff that we thought was interesting. Sure. And people happen to like it and listen and tune in for it. If you end up asking the audience what they want don't you end up becoming like a Fox News or like any other kind of media company. Where you just ultimately use the feedback loop to drive. Yeah I wouldn't every week of the show I will tweet like hey anything you want on the docket because sometimes people have good ideas.
SPEAKER_03: But yes certainly you shouldn't base it on like a survey. No I think it was just like a way to get some feedback. We were just yeah that's how we started was we were just kind of being intellectually honest with each other and curious about stuff we were interested in and it worked and if people don't like it they don't like it.
SPEAKER_02: I mean I mean we should the big controversial thing like a like a vote for your topics and that's what we follow. Definitely not. We should I think we'll agree on that.
SPEAKER_03: I think just there is an ongoing debate amongst the audience of what percentage of this show should be politics and when should we talk about politics and are we doing too much politics. And so I think that's our with markets. Let me ask you one more question.
SPEAKER_02: Do you think our objective should be to grow the audience or should our objective to be talking about the things we want to talk about. What do you think. I mean what do you think. Yeah I don't think it's a good idea to poll the audience about what we want to talk about.
SPEAKER_00: Is the objective to grow the audience. Well I think it's good to have an audience otherwise what are we doing.
SPEAKER_00: But yeah but look at what the audience showed is that half of them wanted to talk about those topics roughly and half didn't. I suspect that most topics are going to be like that you know unless there's just some. Well not markets and people are like I think 80 90 percent of people want to hear us talk about markets and startups.
SPEAKER_03: Yes. Like our core stuff right David.
SPEAKER_02: I'm just saying if your objective function is to maximize your audience you're going to end up making a tick tock video of people twerking or something. You know it's not like the show. Did you just volunteer to twerk on the show.
SPEAKER_02: I'm not going to do that now.
SPEAKER_03: I think I'm pretty sure it's from awful. I have the video of free bird twerking at all in summit anyway. Oh hey who. All right let's get started with. I think what's going on in crypto because people do want to hear about that and it's been quite stunning. A British Virgin Island court ordered the liquidation of three arrows capital three AC after creditors sued the crypto hedge fund for failing to repay its debt. They had three billion in assets under management. They had a huge position in the now defunct stablecoin Terra and its token Luna and they were trading on some massive amount of margin. How much and what deposits they were using to do this. We will find out. Now they're being forced to liquidated to be liquidated three AC owed Voyager digital 650 million could not pay it which sent Voyager stock down 60 percent and caused them to need a bailout from Sam Bankman free. Which has led to SPF as he's known in the industry bailing out a couple of other major folks in crypto. He provided a $200 million credit line to Voyager digital. This is a Canadian crypto lender. They'll lend you money against your crypto and FTX provided a $250 million credit line to block fi FTX is obviously SPF company. And according to early block fi investors, the FTX credit line would wipe out all existing shareholders. So we're starting to see the really onerous term sheets to keep these things alive. This is of course in the face of an entire crypto collapse with many crypto coins seeing what we saw in growth stocks. Is this the end of crypto? Is it going to rebound again? What are your thoughts? Chamaat Sachs, Friedberg who wants to start on crypto? Did you guys see the chart that I posted into the group chat that showed Bitcoin activity as a function of year and value?
SPEAKER_01: Nick, can you just put that up just so that we can look at that together? The crazy thing about this chart when you look at it is, and it's pretty obvious, is that we are collectively in one way, shape or form basically trading up ever since 2018 really with all the stimulus. Because if you look at the mean price of Bitcoin in 2018, it was a nothing burger. What we were talking about was a price that was sort of between a few thousand dollars, two, three thousand, ten thousand, three thousand, and then all of a sudden when all of this stimulus money hit the market, look what happened to it. But I think something unique also happened, which is that people really understood how to run these very complicated off-chain Bitcoin ARBs. I think we should explain what those are because those are what's behind the three arrows capital. I think Sam had this kind of oblique tweet that said some of these exchanges are actually already insolvent. They're already the walking dead. The first thing to keep in mind is that this is a completely unregulated market. There are no middle maker, market makers per se that actually have reporting requirements to any regulatory authority. There aren't any clearing houses. There isn't a way for us to understand systemic risks as it builds in the crypto market. So what happened starting in 2018 and 2019 is people realized the following things were true. It's sort of what we talked about last week. You go and do some crazy round. You mark up some phantom equity in a company. That company then issues tokens. You then list the tokens not on a blockchain per se, obviously, but in a place where trades can happen off-chain. There's a bunch of exchanges where these things happen off-chain because it's one company and then they have a bunch of segregated sub-accounts. What happens is when these things initially get listed, retail goes crazy. The price goes up. Folks basically dump on retail and you spin that loop as fast as you can and you can extract an enormous amount of money. Along the way, all these things like DeFi all of a sudden popped out of nowhere. It's like, hey, you can earn 15%, 16%, 17%, 18% just deposit the Bitcoin. So folks would deposit Bitcoin. But then what would happen is the places where those deposits were held would then need to obviously find places to make that 11%, 12%, or 13%. So then they would go off-chain to some other random person who is offering to pay them even more than that and they would try to arb the difference. But it all catches up with you because when something like a Terra goes to zero, all the Bitcoin that was used to basically run that DeFi process around Terra vanishes. Then all of a sudden, you, the lender, are like, hey, can I have my Bitcoin back? The broker is like, well, actually, I don't have it. I lent it to somebody else. Let me ask that someone else. They're like, I'm sorry, I don't have it, but I have these Terra coins because I was running some arb and now it went to zero. That's essentially what we're seeing right now. So we have two big problems. Then I think we have a third that's kind of funny. The first big problem is obviously in the absence of any regulatory oversight, this stuff is going to happen. Systemic risks are going to build up. That's what we're facing right now is an enormous amount of systemic risk, largely around Bitcoin. A bunch of this money, I think, has been essentially just vaporized. And so all these people that try to find their deposits, especially in custodial accounts, in off chain brokers, may be SOL at some point. And I think that's just going to be a huge shit show if that actually happens.
SPEAKER_03: And to be clear, Chamath, they don't have the keys to their own Bitcoin. They gave money to a custodial account. They then did this lending, went out to get them to 15 percent, and they don't have any recourse here. They can't get there. Well, look at this article now. This is why real Bitcoin owners put them in a wallet and own the keys.
SPEAKER_01: Does anybody have recourse to this three arrows capital and all of this other interrelated parties that are now gone completely bankrupt because of this scam? The answer is absolutely not. So that's the first problem. You have absolutely zero oversight, which means systemic risk has been built up in the system. The second thing is that exactly what you just said, Jason, is that people don't even understand chain of custody here, which is that you thought that you owned this Bitcoin. It turns out you actually may not actually own them at all. You thought that you were properly lending them out. You actually don't. There is no enforceable contract, it turns out. And so I think that's going to be an entire set of different legal issues that are now going to come to the surface because people who actually legitimately lent this stuff out. For example, if you short a stock and you go and borrow stock from any one of us, they're really tight guardrails. If you wanted to go and put a credit derivative swap on against debt, there's a central clearinghouse that makes sure you're not overlevered. You have to go and get audited by a bank to even get the kind of account that allows you to put these derivatives on. None of that was possible in crypto. And then the last thing, which I think is kind of funny, is that we've had to listen to every millennial and Gen Z market observer in crypto, tout how this is not like boomers, and they turned out to be the same. I mean, this is the funniest thing of all. It's like of all of the times you've had to hear how it's so different, it turns out it is entirely the same.
SPEAKER_01: Entirely entirely the same. In fact, worse. The custodian issue is definitely a major one. Saks, what do you think is happening in crypto right now?
SPEAKER_00: The price is obviously going down a lot. I don't really have a new point of view on it. I'm mainly pissed off that SPF is trying to raise my taxes in California.
SPEAKER_03: Explain that. Sam Bankman-Fried, he runs FTX, and his company, he lives in the Bahamas.
SPEAKER_00: And there are probably reasons for that related to liability or taxes or something like that. Can you tell us what FTX does?
SPEAKER_00: They're like a Coinbase competitor, but they obviously think it's beneficial to be offshore and not under US jurisdiction. And they're very profitable, right?
SPEAKER_02: Yeah, supposedly they're super profitable.
SPEAKER_00: I mean, he's worth like $10 or $15 billion, is my understanding. So he's been very successful at this. I don't know why they're in the Bahamas. I think either they're in there for securities regulation reasons or for tax reasons, but it's one of those two. In any event, he doesn't live in California, and yet he is sponsoring a ballot initiative here that would add a 0.75% tax on incomes over $5 million to finance a pandemic prevention institute of his design. He's doing this with Dustin Moskovitz, another billionaire who doesn't know what to do with his money. You may remember that Dustin was the guy funding Jason Boudin. In any event, this pandemic prevention institute would be governed by an unaccountable board as opposed to something like the University of California. This is like them using the ballot initiative system to fund their pet philanthropic projects. I mean, there's really no need for this. I mean, first of all, this is... Sounds like something that should be done federally.
SPEAKER_03: Yeah, exactly. Well, first of all, it's looking in the rearview mirror in terms of like a budgetary priority.
SPEAKER_00: But even if you believe this was a priority, I don't know why it'd be the responsibility of California taxpayers exclusively. And even if it was, you'd want to do it under, say, the UC system, some sort of accountable board as opposed to having a report to, you know, Sam and Dustin. So it makes no sense. And this is really going to hurt the California tax base because if you start raising taxes on, you know, California millionaires, more of them are going to leave the state. And then that tax revenue leaves the state. And so it actually hurts the general budget. And that's why, you know, California Teachers Association, for example, opposes this is because they know that this is going to have a negative impact on core services. What is offensive to me is, I mean, so first of all, this is just a stupid idea in like every possible way. But what is a guy who lives in the Bahamas doing funding ballot initiatives in California to raise our taxes, thereby worsening the California fiscal situation? To fund his pet philanthropic projects? If you're worth 10 billion, just fund it on your own, you know, do it through your family foundation. I don't know why you need to raise the taxes on all of us.
SPEAKER_03: Yeah, that's very bizarre. Why is he giving? Well, the simple answer is because I think it helps curry favor with politicians that he needs for other things.
SPEAKER_01: That's why you would do it. That's why I would do it. This is currying negative favor because, first of all, every millionaire in California should be up in arms over this.
SPEAKER_00: But even I'd say, you know, liberal, I mean, I'd say even liberal politicians and interest groups in California like the like the Teachers Association don't want this because the money is not going to a cause they support.
SPEAKER_00: And it will probably it will almost certainly drive down the state's tax base. Right. Because people on the margins are going to leave. We already have the highest taxes in the nation. We're at what, like 13.3 percent for the top end. We have a hundred billion dollar surplus for a reason. All these IPOs, all of these venture capitalists, CEOs and rank and file tech workers are just paying massive amounts of tax here and they're leaving.
SPEAKER_00: Right. But that's highly lever to capital gains. Right. And so last year we had a boom market. We now know in hindsight that it was inflated. That was all driven by this liquidity bubble. So do you think that's going to be the case this year? I think we'll do for a huge budget shortfall next year because there's going to be no capital gains. They better hold on to that hundred billion for sure.
SPEAKER_03: The California tax base is highly leveraged to this boom bust cycle and driving the top earners out of the state is only going to worsen that impact.
SPEAKER_00: So, you know, but again, I question why is a guy in the Bahamas, it'd be one thing if it was just Dustin doing it, I guess. But I don't understand why Sam's taking the lead when he's not even a California taxpayer. Because I think he's a very sophisticated player in not just crypto, but frankly, regulated and unregulated finance.
SPEAKER_01: And look, he I think he spends a lot of money in D.C. as well. And I think that he has a very thoughtful game plan. And then, you know, when you look at who his parents are, his parents are really, really smart, thoughtful people as well. Two law professors at Stanford. So I suspect, not knowing and having spoken to him, that I think that there's a really specific strategy that these guys have around who they need to influence and what they care about. And then willing to, as a pass through, fund those things in order to create the influence that he needs for the things that he cares about. And I suspect that it's that kind of horse trading, which is I think it's pretty typical in U.S. politics. The question, though, is what will happen if FTX has to really talk about everything that's actually happening in crypto crypto? You know, I'm sure that FTX could do a lot to help understand a lot of this off chain activity. Some of the you know, especially the stuff that's really in the gray, especially the stuff that's going to come to light over the next few years. I mean, you have to understand, guys, like, you know, we've torched two trillion dollars and it's not of institutional capital. You know, this is overwhelmingly retail capital.
SPEAKER_03: All of this is going to inspire a lot of district attorneys and DOJ activity. The discovery is going to be bonkers and it's all going to be regulated to the point of in which it kills a lot of the opportunity. I think this is going to become the most regulated space. Well, I don't know. I mean, if the goal here was to curry favor, then I think Sam must think there's not going to be a red wave in November because I don't think Republican politicians are going to look very favorably on a guy who's using his money to raise taxes in a state he doesn't even live.
SPEAKER_00: All right. Well, let's move back to the crypto piece. Yeah, let's move back to the crypto piece here. That's the bigger thing, not a few million dollars above lobby.
SPEAKER_03: At this point with this many retail investors. Well, actually, let me let me start with this freeburg. Is there a real technology here? And how much of what we've just witnessed with this crypto collapse in the crypto boom bust cycle? How much is this based on what you would perceive as real technology that is going to advance the human species forward? And how much of this was hype if you were to put a percentage on it? You know, trillions of dollars in assets, you know, created and then wiped out. How much of this was actually real technology? How much of it was complete utter waste of fucking time? And a grift? I'm no crypto expert and I've not been an investor in crypto currencies. I read the original Bitcoin white paper.
SPEAKER_02: Makes sense. Bitcoin itself, to me, makes sense as a potential initially was kind of interesting as a potential alternative currency, but the transaction fees were very high. And so it never really seemed to make sense as a replacement for traditional financial networks until those transaction fees dropped below those of the traditional financial networks. And the biggest concern I've always had, which I've mentioned multiple times on the show, is that whenever anyone talks about a cryptocurrency, they talk about the price of it in dollars. And if it really is meant to be an alternative to the US dollar, why are you talking about it in the price of US dollars and it's up and it's down relative to dollars? And that implies ultimately that the intention would be to transact back to US dollars, which implies that the intent is not to be a replacement for the US dollar, which was a lot of the early prognostication of Bitcoin was it was going to be a replacement for the US dollar. It's going to be an alternative to traditional monetary systems. But ultimately, if you're just measuring this in dollars and it's up and it's down, everyone's freaking out every day about crypto's up, crypto's down. That means it really is more like a security, except securities definitionally are supposed to have a secured interest in some underlying set of assets. And there's no underlying asset. It's not actually a security because it doesn't provide you a security interest in anything. So it is effectively a bet on some systems of computers that are meant to facilitate some set of activities that ultimately people really only seem to value in US dollars. So I don't know. I mean, like, where does it all go? It seems like I mentioned that our predictions episode last year that all of these smaller things are going to get blown out. These quote unquote crypto currencies, even though many of them don't really act like a currency. And, you know, maybe Bitcoin itself persists. And it seems to me like that's always going to have good staying power as an observer. I'm not a participant. And, you know, anytime someone telling you something's in dollars and it's going up and it's going down and you're betting on whether it's going to go up or go down and your intention is to transact back to dollars. You know, and there's no one, these have been securities, the whole time. This is the problem I have with it. This has been, you know, a shadow securities stack that was created in parallel to the existing one with a lot of, you know, oversight.
SPEAKER_03: And what did we think would happen if you created a global casino with no rules? Other securities have an underlying interest in something. This has an underlying sure interest in some line on the blockchain of that particular network.
SPEAKER_02: That's exactly what it has.
SPEAKER_02: Yeah, it's a secured interest in a line of code on a distributed database.
SPEAKER_01: A Bitcoin has a legitimate non fungible entry in a blockchain that says it and only it represents that thing. And I think that that, you know, is I guess that the security interest, some may call it tenuous. But I mean, I tend to think at this point Bitcoin probably has to be regulated like a security, even if it is not. And it's more of a commodity only because of the volume and the sheer size of both the market and the
SPEAKER_01: The potential fallout is the way you're saying it, right? The potential fallout when things go off the rails is so great, you kind of need to have some rails.
SPEAKER_03: Yeah, I mean, like, again, as I've said, like, look, if you're a market participant trying to trade, you know, very sophisticated, you know, derivatives of any kind, for example, in the credit markets, we have to go and we create these things called ISDAs.
SPEAKER_01: They're called ISDAs, you know, and it's basically a kind of an account that allows us to go and, you know, take risk in some of these very esoteric markets. But the underlying principle around that is a common set of parameters, a clearinghouse, the ability to monitor risk. None of those things exist here. And I think that's really what folks have to solve for now. Secondarily is what were all these kind of like shadow activities, you know, it just it, you know, it seemed too good to be true when you would hear, wow, this DeFi protocol will yield you 24%. And you're just like, who was paying the 24%? It never made sense, really, but then none of us really questioned it. You know, I, you know, I had people on this week, I questioned it all the time, and they could never explain it to me. And then now the explanation was, well, we were giving you we were giving short term loans to other people who basically wanted a margin loan, you know, they want to, they don't want they want to hold all their Bitcoin.
SPEAKER_03: But that was only four or 5%. But they were also doing was giving you tokens in some other cryptocurrencies that they were basically originating. So they basically were like, we'll give you 4% on your Bitcoin loan, somebody else will pay that you'll pay that. But then the other 11% is coming from some tokens, we're giving you that actually, you know, you have to airline miles, we have to give you airline miles, we have to answer a really important question if you we've we, you know, look, the the market is
SPEAKER_01: Look, the the markets have incinerated many trillions of dollars, I just saw, like, for example, there was 1.7 trillion, you know, that was just torched in ETFs alone, just in the since the beginning of this year, right? We've done that or more in the crypto side. We've done that or more on public equities, right, we're probably going to do that or more in other markets, but every other market is regulated, and there's a full accounting of the P&Ls on the dollars that are won and the dollars that are lost. And here, some folks have just, you know, basically escaped with billions and billions and billions of dollars. And the bag holder is just, you know, a retail investor. So the real question is, are regulators going to actually care to try to do something because the level of grift that's happened in this market is extreme.
SPEAKER_01: And especially when especially when everybody was telling you, no, this time is different. This market is completely different. It's transparent. It's on chain, you can see every and it turns out, actually, most of it was not on chain, it was off chain.
SPEAKER_03: And they were using they were using this, hey, have fun being poor this like psy ops to get you to participate. Okay, boomer, you don't get it. Gensler was talking to Kramer on CNBC, here's the quote, some like Bitcoin, and that's the only one Jim I'm going to say, because I'm not going to talk about any of those these tokens that my predecessors and others have said are commodity. And then he said, many of these crypto financial assets have the key attributes of a security aside from Bitcoin. He believes, you know, like these things are securities. And that makes sense, because 99% of people buying them sacks, were buying them, because they wanted to see them appreciate they were never using these as utility tokens, they were buying them to, you know, I see them appreciate and to flip them. So what do you think sacks? Is there? Is there we look back on this whole mess in 10 years? Is it going to be like the dot com era? We're like, yeah, I got overheated. But Amazon and Google came out of it. Or are we going to look at it and go, well, that was tool up season? Well, I think there is a future technology platform here with crypto. But I mean, I've been saying this for the last year that just because there's a future technology platform doesn't tell you what the pricing should be. And the price action got decoupled from the level of progress in the space. You know, you should always be looking at what is the real usage, use cases, customers revenue, things like that. And people stop buying them.
SPEAKER_00: People stop doing that. And I think part of the reason why the narrative was so powerful, if you go back to last year, then the chart that Shema showed about the the increase in the price of Bitcoin, which is really the root of everything, right? Because, you know, first Bitcoin appreciates. And then if you think about it, like a theorem is a theory is market cap is like a derivative of the Bitcoin market cap, it's been roughly 40%. And then the all coins sort of get the market cap, the all coins are sort of derivative off Ethereum's market cap. So the whole thing kind of moved up in in sync. And the reason why Bitcoin moved up so much is that as the Fed kept printing more and more money, you had fans of Bitcoin saying, look, the Fed is debasing the US dollar, we're getting to need an alternative currency. That was a powerful narrative that the Fed seemed to be vindicating. And there was a positive feedback loop, which is the more the Fed debase the currency, the more that the price of Bitcoin went up, the more the currency was debasing. And so the price went up. Now, the reason the price went up was not because they were debasing the currency was because they were creating so much liquidity, that that they created a liquidity effect that then drove up the price that then so so consumers had money that they could buy Bitcoin because they were there was more money in the system. Yeah, you saw more buyers of Bitcoin exactly what happened.
SPEAKER_01: I mean, all of this idiotic narrative. Sorry, go ahead, sex. Yeah, you saw an increase in speculative investments across the board, including but not limited crypto. So again, you know, when the Fed prints too much money, it creates asset bubbles. But there's a powerful reinforcement because as the Fed was printing Bitcoin and supports a Bitcoin had a really great explanation for why Bitcoin was going up, which is they're destroying the US dollar, we're going to need an alternative soon. Now, I think in the very, very long term, could Bitcoin be a non-fearful
SPEAKER_00: fiat currency? Yes. I mean, I actually think the technology works, you could create a new kind of currency that's backed by math and by cryptography, as opposed to fiat government. But that could take a really long time. I mean, that could be decades in the future. And but what happened is the market started thinking, well, that's going to happen soon. And that's where it has got ahead of itself. That was the tulip part of it.
SPEAKER_01: Yeah, I think that they found all of these words, you know, written in these economic textbooks, that allowed them frankly, to justify what a lot of people were doing in a lot of other markets, which is just straight up speculation, because the money printer was going brr. And, you know, if you look at this 92% correlation to the equity markets, I suspect in Bitcoin, and crypto is probably closer to the even 100%. Because it really was the furthest out on the risk curve. And it just made the most sense when you thought money was, you know, effectively infinitely going to be available to just buy the riskiest risk assets. Think about the friction taken out of this, Jamath, you could buy these, you know, cryptocurrencies so easily, you could trade them so easily, you could create one so easily, people were popping up forks of these things. So in a way, what technology has done over the last 30 or 40 years, from cloud computing to software to open source, has made it very easy to pop up a startup, well, you could pop up a
SPEAKER_03: currency, and then you could get an incredible reward. And you get this incredible reward before you actually make a product for consumers. And, and absolutely zero rules and oversight. No oversight. Yeah. The feature that was touted was actually the first one to get thrown away, which was transparency. Yeah, when all of this activity was actually happening off chain. This is why you have this systemic risk issue. Now, when Sam is saying some of these
SPEAKER_01: exchanges are actually insolvent, what he's saying is, well, that exchange has one master wallet address. Every time you open an account and transact on such exchange, you're actually just transferring between a database entry inside of that company. And so it may look like it is fine, but it is actually not fine. That's what he's claiming. This is the problem with all of this. So all of this activity, you know, built on these principles of openness, and, you know, defensibility, and, you know, you can't inflate it and, you know, devalue it and debase it, turned out to not even matter, because the fundamental principle that would allow us to verify all of that was violated right from the get go, which was transparency. All of it is happening in the dark. Most of this stuff is happening off chain. And if you think that, you know, it's okay to torch a trillion dollars of equities, well, at least there's rules on the equity side. But to torch two and a half trillion dollars in crypto, where there are no rules, it'll be really, you know, it'll be a very telling sign to see if these folks get their act together. And but meaning regulators and politicians and do something. Well, then we made this crazy hybrid where we had the venture community. I'm not going to talk about any specific firm here. And to be clear, you know, nobody knows exactly what's happening. But you had coins, you can't know, by the way, you can't know because it was happening off chain. Exactly. So somebody would originate a coin, and I was, you know, offered these deals, and you would
SPEAKER_03: as a venture capitalist be buying some equity in a company, and then some amount of tokens would be created before the token was released to the public or before anybody had insights into this, these tokens were swapping around, everybody had different rights, some people could sell early, some people could never sell. And it was as if, you know, you took the process of going public, and you gave that to a seed stage or a series a company before they launched their product. So you're taking a company public, essentially, before they go, if you if you subpoena, they launch their product, if you subpoena the exchanges, all of this gets turned over. Yeah, because the exchanges are the honeypot of off chain activity. Yeah, so that's what's going to happen, I think, in all of this, and it's going to be really funky. This is and what's terrible about this is, this is why the accreditation laws exist is like only sophisticated people, top 6% of Americans are allowed to participate in private companies. And what did we do? We allowed 100% of people on the globe to participate
SPEAKER_03: that backed by pure math, back that less than 1000 people in the world actually understand that makes it go wrong, what could go wrong, you cannot buy a stock, but you can buy this cryptographically secure, you're not allowed to buy a share of LinkedIn or Uber or Airbnb, even though you stated in Airbnb, we're an Airbnb host, you're too stupid to buy Airbnb shares when it's private. But you can buy this cryptocurrency that doesn't even have a product in market. And here's this white paper that has, you know,
SPEAKER_01: university level pure math as the explanation of why it nothing can go wrong. And you try to turns out again, because nobody actually understood in the first place. This is going to be a decade of discovery. If you look at that price chart, what it really means is like, again, you know, we talked about this, if the equity markets have to rebase, and get all this QT or QE out of it, right. And then you have to rebase for earnings, if you believe you're in a recession, and then you have to rebase for margins, if you believe that there's rampant inflation.
SPEAKER_01: Those three things have to happen in the equity markets. We're in the midst of that. Yeah. But that also has to happen on the crypto markets in the crypto markets. And if you look at that chart, what it really tells you is that the baseline price of Bitcoin, where things seemed, you know, where rational supply and demand were meeting each other, before all these, you know, five 10,000 3500 to 5000. Yeah, I say about 5000. Oh, 75%. For me,
SPEAKER_01: yeah, it's 20,000. Now. So yeah, we got we got we could we have ways to go one thing that I thought was an interesting sign of potentially bouncing along the bottom. Zendesk has agreed to be acquired by an investor group in an all cash transaction that basically going private here for around 10.2 billion. If you don't know, Zendesk is a help desk software company. It's a SAS software company. They turned out a similar acquisition of 17 billion earlier this year, their market cap is 9.1 billion in the public markets. It's gone up, obviously, since this announced.
SPEAKER_03: This was announced. But they have a billion three in revenue, they're up 30% year over year. So this is a strong company. But the acquisition price is 7.7 times their 2021 multiple, sorry, did you say they're up? 30% of the year, every the revenues up 30% revenue is up 30% year over year, they have $1.5 billion in cash in securities that are you know, marketable security, so they're cash rich. Small loss 223 million for the year in 2021. So
SPEAKER_03: they have six years of runway if nothing were to change. Yeah, what do you make of the sacks is why would they do this? They don't have to. So and is this to you like the sign of a bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private. And to go maybe clean up their balance sheet and go public again in three years. What's going on here?
SPEAKER_00: Well, I mean, this isn't a horrible outcome. And by the way, I mean, I remember we shared when I was doing Yammer a decade ago, we shared a floor in our an office building at 410 Townsend with with zendesk. And they launched a tech crunch 50. Yeah, yeah, exactly. So we had I think 5000 square feet, and then the other 5000 square feet, and we were in a standoff, both of us were expanding. And we needed the other half of the floor. And it was like, who had moved first, basically. And anyway, they ended up moving, and we took over their space. But so I mean, look, this is a company that, you know, was worth 100 million bucks 10 years ago. So whatever it was, I mean, they were still, you know, they were very early stage. So this is still a great outcome. So they've taken the 17 billion shirt with 2020 hindsight, that would have been better. But look, you're seeing the valuations here being roughly reflected. The SAS index is now down to about five and a half
SPEAKER_00: times revenue, I think next 12 months revenue for them for the median SAS company. And the median SAS companies growing about 20%. If you're a high growth company, which starts at 40%, you're trading at about eight times next 12 months revenue. So doesn't Zeniska sorta in there. I mean, that is what they're trading for. And SAS founders, why go? Why would
SPEAKER_03: the founders the board, I'll tell you want to go private is the question on people's minds. Not it's not that they wanted to go private. I think that they
SPEAKER_01: wanted to stay public, and they wanted to build a large business. But this is where the law of large numbers catches up with every company. That's why it's so rare to have an Apple or a Google or a Microsoft or Facebook or Netflix where you can grow for 20 years at 25 plus percent because at some point,
SPEAKER_01: 25% growth over last year just becomes too hard of a mount a big knife. And so what Zen best suffered from is what most of the SAS companies not and I'm not trying to disparage them just calling it out, we'll have to go through which is the following. The easiest kind of SAS company to start, and the one that folks, you know, really talented investors like sacks will fund overwhelmingly over others are what's called bottoms up SAS, right, things that sell to the low end of the market, things that sell into, you know, as individuals can buy them in a
SPEAKER_03: corporation as opposed to the CIO. Yeah, the the unfortunate
SPEAKER_01: part of that growth curve is that it's pretty terminal within seven to 10 years. And after that, you're forced to go to the mid market, and then eventually you're forced to go enterprise. But when you go to the mid market, and you're selling to 500, you know, 1000 2000 person companies, and then eventually even enterprise, you're talking about massive investments of opex, people, engineers, product managers, salespeople, and all of that stuff costs money, and it's not clear that your product is any good. So in the Zen desk example, it's not to say their products were bad. But all of a sudden, they were going up and selling a CRM tool, Salesforce automation tool. And now you're going head to head against companies like Salesforce, who are going down market. And all of a sudden, Salesforce and Microsoft and all these companies can play very aggressive pricing games with their products, they can bundle all kinds of other things in for free, they can give you discounts. And it's very hard to compete as a single individual company. So your growth starts to stall. So I suspect what happened at Zen desk is they said we can make it. And we believe in ourselves. And they found that it was hard. Then instead of organically growing, that's when they turned down the $17 billion offer. They tried to grow inorganically, they looked at Survey Monkey, right, which our friend Zander runs and said, we're going to try to buy that for $4.1 billion. And the market said, No. And then the market basically contracts. And now they're like, well, if we go and now torch our EBITDA goals and tell the market, we're going to go and spend all that billion dollars we have to try to go up against Salesforce and Microsoft with a product that we don't know is going to work, our stocks going to be at $1. And so I think that that's sort of the parade of terribles that happened for them. But it's a little bit of a warning sign for how difficult it is to get big, like what Salesforce pulled off, right, and what Workday is starting to pull off what ServiceNow has pulled off. I mean, you can't underestimate the quality of I mean, Google, Apple, Facebook, I'm saying I'm saying specifically enterprise SaaS. Yes, those companies ServiceNow probably being the last one that's really did it. In credible, so difficult. Palo Alto Networks is probably the next closest one now Salesforce positions. Let's be clear, right? Salesforce doesn't matter. Organically and organically doesn't matter. The point is, it's very hard. Most CEOs fail. Nobody is this going? But okay, so my original
SPEAKER_03: question is, is this the bouncing along the bottom moment? Oh, because we have Peloton, Buzzfeed, we have so many of these companies. This is a warning sign. Okay. There's
SPEAKER_01: why yet the house? Well, this is a warning sign that says you cannot go into a massive investment cycle for all companies, unless you can prove that you can sustain margins, sustained growth, and minimize objects. But isn't this a very
SPEAKER_03: sophisticated buyer taking it private, they must have a thesis of how they're going to get their money back. Right. So that's my point is, Sax, do you think that this is like, if the company's already public, and somebody thinks, hey, you know, if I take this private, I can do better than if it's public, and I'll reintroduce it to the public markets to get liquidity later. Isn't that what's going to happen here? In all
SPEAKER_01: likelihood, you're making that statement in the absence of understanding how these things are financed? Well, it's got a
SPEAKER_03: billion five, and it's, and it's break even almost. So what about
SPEAKER_01: the what about the billions of dollars of debt, they're going to take out and slab off in this company? Right? What about the number of people they may be talking about post going
SPEAKER_03: private, at the end of the day, the private equity firms are not
SPEAKER_01: trying to make, you know, this $10 billion go to 25. They're trying to make the 2 billion of equity they put in go to three. And there's a lot of ways that you can go to three before 10 goes to 25. So they want a modest return. 50% return. It's
SPEAKER_01: a lot. It's making a billion dollars. It's hard. Yeah, but
SPEAKER_03: but compared to the management team in the board's view of being a public company and growing 20% a year, or it's actually in their case 30. Would that be a better opportunity for those shareholders? That's what doesn't add up here? Sachs, what do you think if I had to guess? I mean, I haven't talked to
SPEAKER_00: Michael about why they're doing it. I think that they're operating at a new stage of the business. I don't think it's as fun to be growing a company at call it 20 to 30% a year. And now all of a sudden, you have to generate cash flow and you're being valued on that. I mean, they're passing out a sure
SPEAKER_03: thesis. I don't know. I mean, it's it seems a potential thesis.
SPEAKER_00: I think that's basically why people sell good businesses. Like I actually don't think there's a problem in their business. I think that growing 30% a year with 1.3 billion in revenue, plenty of cash in the bank, I think they have a good product. I don't think there's anything wrong with the business. Yeah, I think that that I do think founders get burned out. And this is an exit. And I do think that the phase of their business they're in right now is not going to be as fun as the high growth phase. Look, when you're growing 100, 200% a year, and investors are willing to fund that growth, and they don't really care if you're profitable, that is just more fun than growing a business 20 to 30% a year and investors are breathing down your neck saying, when are you going to deliver cash flow. And what the private equity guys do is they're going to go in there and they're going to restructure the business to deliver cash flow. Now, I think ultimately, these types of
SPEAKER_00: businesses, they're great, the software business, they're great business to own because they're high gross margin. And, you know, they've got a subscription base that just keeps growing organically if they've got positive net dollar retention. So you've got a let's call it a $1.3 billion subscription base that will grow to 2 billion over the next whatever half dozen years. And quite frankly, I bet you the private equity guys are going to take out half the cost structure. There's no reason this thing could be generating 500 million a year and free cash flow. But the team would be unwilling to do that because it's kind of
SPEAKER_03: sucks to do that every day to come in and fire half the team that you hired and take that hard medicine. It just as a bummer for that personality type.
SPEAKER_00: I think it is a different kind of management challenge. And yeah, I don't think that's fun. And but look, the thesis behind software companies, the justification for them burning money was, look, we're gonna we're gonna spend every dollar in revenue that we make and then some because we're building a subscription revenue base that again has positive net dollar retention. So one day, okay, one day, we won't have to keep investing so much in sales and marketing, we won't have to keep investing so much in R&D, we'll still keep investing to some degree, we'll make the product better, but it's gonna be a little bit more maintenance mode, we will get to maturity, and then you can lay off a third of the staff and all of a
SPEAKER_00: sudden, and then and then all of a sudden, the company is gonna be super profitable. And the fact of the matter is, is that day never came because the markets never demanded it. Well, now that day is here.
SPEAKER_01: No, no, no, hold on. It never came because the markets kept demanding more growth. If you look at their long term operating margins, you know, when they first became when they first came out public, they'd like had like a negative 30% margin. Two years later, they had a negative 50% margin, and over the last seven years, so that was 2015. Up to now, they crawled their way back to negative 13%. So at some point, I think investors said, Oh, my gosh, this company has never made money. It needs to keep investing more in order to grow. And I think David, to your point, maybe the decision that he didn't want to make was to flip it to a cash cow.
SPEAKER_02: I don't think that's true. I looked at these guys have been generating cash. Their reported gap earnings are negative because of the stock based comp expense, meaning that they're issuing shares to employees. There's a big topic to discuss here. And I think that's actually worth highlighting, because this is an important one, because people have been talking about this considerably lately. So this company has been making money every quarter, they generate cash. But in the last quarter, they issued $60 million in stock to employees to compensate them for the work that they do. So that's 250 million, roughly, of dollars per year of stock based comp, which is two and a half percent of the total shares outstanding in the company are issued as employee comp every year. That number results in a dilutive effect to shareholders over time, even though the business is generating cash, your relative ownership as a shareholder in a business that's generating cash is going down by two and a half percent every year, because of all the new shares that are being issued to compensate employees for the work that they're doing. And I think that's part of the issue that a lot of folks kind of have taken for granted. This was well rooted in, I would say, probably Google who became very generous very early on with issuing RS use and stock in their publicly traded securities to employees as part of their compensation package. But Google has a 30 40% EBITDA margin in terms of incremental contribution of new new revenue. And they can afford to take a point or two of dilution. Google, by the way, is actually not dilutive, they they buy back shares with their extra cash. So as a shareholder, you actually benefit from this considerable cash generation. But a lot of software businesses and tech companies in general, have had to rely on issuing shares to compensate employees for the work that they do. So even though the core fundamental of the business is generating cash and cash is going up every year, the business doesn't know how to get out of this cycle of how do you pay these engineers $400,000 a year without diluting shareholders by issuing all these new shares every year. And you'd have to do that more likely as a private company to figure out how to consolidate earnings, how to trim headcount is not yet the thing to generate the cash it needs to generate.
SPEAKER_01: But freeburg isn't that a real like you're pretending like it's some fake costs.
SPEAKER_02: Yeah, it's not it's it's a real cost. It's a cost to shareholders for sure. But why the why the Asterix? Well, no,
SPEAKER_03: there's a specific reason because the business itself
SPEAKER_02: operates out of cash. It's not burning cash, the business is growing its cash balance. But in order to compensate employees for that cash balance, they're diluting you the shareholder, right?
SPEAKER_01: Look, when you own a share of a company, okay, let's say the way is another way of saying that the company is
SPEAKER_02: effectively issuing two and a half percent new stock every year to fund its operations. I mean, that's another way to think about it. Look, I'll give you the Warren Buffett school
SPEAKER_01: and you can tell me that it's stupid, but it kind of makes sense, which is you take the number of shares you own, you divide it by the total number of shares outstanding. You look at the total profits. And you say my look through earnings equals that percentage times the total profits. Yeah, your percentage
SPEAKER_02: is going down every year with stock based comp. That's the
SPEAKER_01: problem. And so the question is, it's also going down because you're buying real estate, you're hiring people, you're paying them more like it's going down for a whole host of reasons. That Asterix is an irrelevant Asterix in my opinion, like the end of the day, you spend money to grow. How you spend the money is not that important to me. Let me say two
SPEAKER_02: quick things on the topic. One is, yeah, I totally agree. It's an expense on enterprise software. And sex, you're the master of the art. But you know, as an observer, it seems to me that many of these companies once you have an enterprise account, you benefit from being able to cross sell new products into that account. And you can grow this net revenue retention number over time and ultimately generate cash. Many of the big enterprise software companies that we've talked about from Salesforce to Workday and others have succeeded in doing that. Autodesk is another good example. And Carl bass, I think on the board of Zendesk, they've done, they've done this successfully by bulking up their product categories. And they're they've done acquisitions or they've done build outs. And so over time, your incremental cost to sell a new product and generate incremental growth profit goes down, and the business performs better with scale. This seems to be one of those businesses where ultimately they couldn't bulk up through acquisition, and they couldn't organically try products. And they tried. And so the challenge is they're kind of a, I don't want to say one trick pony. But the portfolio of things that a business like this can sell into and ultimately increment gross profit is very limited. And that business becomes challenging to operate as a public company, because you really do have to show that momentum as a scaled enterprise software business, that you're actually generating real cash over time. I just want to say on stock based comp, and sorry, sex, let's come back to one sec. But Chamath and you guys, I don't know if you realize this, but the standard in Silicon Valley today, when a company goes public in an IPO, is to have what's called an Evergreen Stock Grant proposal. And Evergreen basically means that every year, the company is authorized the board automatically authorizes the issuance of some percentage of new shares per year. This is typically in the range of 4%. And ISS and other you know, kind of institutional shareholder advisory services actually vote against the shareholder proposals and push back against them. But most of the companies in Silicon Valley that go public automatically include evergreens as part of their, you know, kind of IPO prospectus. I mean, can we agree it's out of control? Like it's Yeah, we've got they can they can dilute shareholders by 4%. And you know, how the business operated that year,
SPEAKER_03: which is effectively the same as doing a 4% secondary cash
SPEAKER_02: offering every year, because it's this you're issuing those shares into the public market. And instead of getting cash, you're paying your employees with them. And so it avoids you having to use your own cash balance to pay your employees. So you're effectively raising money every year, and you're allowed to raise up to 4% dilutive effect to shareholders to do that every year. And it's become a real topic. And it seems to me that a lot of the big portfolio managers of big institutional funds are starting to pay really close attention to this quote unquote standard in Silicon Valley, that stock based comp expense has become so high and evergreens have become kind of a standard as almost like an ordinary course of business. And it's become, you know, a really contentious topic. And I don't think it would be too surprising. Number one to see cash salaries go up. And number two, as a result of that to see salaries become rationalized in Silicon Valley, where engineers may start to get challenged on the standard 400k per year that everyone's become used to, you know, in terms of, you know, high tier, you know, so for remote work, maybe there is a compromise that can be had.
SPEAKER_03: But this compensation, you have to remember, has been outrageous in some cases, especially for senior management. And so it makes the core business look broken. But what we actually have is maybe people who are on these boards are also in on this compensation. And it's just bad hygiene. And it's not related to the performance of the company, right? I don't think I don't
SPEAKER_02: think the board people are quote in on it. I think that's it's just it's you have to pay an engineer 400k a year to compete effectively in Silicon Valley today. Well, I was talking more about the management, the management
SPEAKER_03: stock comp, the management stock comp is different than the engineers, you would agree free party like there have been some enormous stock grants. Yeah,
SPEAKER_02: yeah, certainly. If you want to run the company as a high growth
SPEAKER_00: startup with employing these high paid engineers and executives, including stock compensation, that is a certain kind of way of running the business. But again, if you're trying to run the business for profitability, that's a different way of running the business. And just to add a layer to what happened here, that Zendesk was under intense pressure from an activist investor called Jana, who was basically trying to replace the board of directors, they're running a proxy battle against them. So Jana has been pressuring them to replace the board to make all these changes that to take the $17 billion offer, I guess, back in March, they didn't do it. Now they did a lower offer at 10 billion. Why? I think because the market has clarified we now it's clear that we're in this regime change. What the market is valuing is free cash flow, as opposed to profitless growth. And my guess is, again, without having talked to Michael, my guess is they probably just threw up their arm said, Listen, you know, like, it's not going to be fun to run the company this way. But you also have to, you have to ask the question, why are these highly sophisticated private equity firms buying it for 10 billion, I think they're going to make a lot of money. And the way they're going to make a lot of money, more than a billion, they are going to slash the hell out of the cost structure, they're going to run it to be highly profitable, they'll probably bring the growth down from 30% a year to 20%, or 15%. But the benefit, the offsetting benefit to reducing the growth a little bit will be, they could probably generate three, four or 500 million of free cash flow on that business, if it's doing 1.3 billion, and they stop investing in R&D, and they stop, and they bring down the sales and marketing, that could be a that could be a cash cow, like you said. So I think that's probably what's what's going on here is the just like, I just want you guys to know not to burst this
SPEAKER_01: bubble. But when people talk about free cash flow, they touted a lot tech companies touted a lot because you're allowed to add back in stock based comp as if it didn't exist. The problem is that stock based comp is non cash. So when when you're only source so if you see a company that has negative EBITDA, negative everything, all of a sudden, or like quote unquote, free cash flow positive, it's because they were able to add back in stock based comp, but that money is not real. So when the only source of free cash is stock based comp, that free cash flow doesn't reflect the company's true profitability. This is what I mean by people play these shell games with these numbers to allow you know, oh, let's multi you know, value something based on EBITDA actually no because you know, our stock based comp is off the charts. Let's actually go to something else. You know, we'll do a non gap EBITDA measure, you know, you know, adjusted EBITDA and then Oh, actually, wait, sorry, look at free cash flow because you can add back in this gargantuan amount of stock based comp. I mean, it's crazy. I'll just the quote from EBITDA we work. The quote from Warren Buffett summarizes the best. If compensation isn't an expense, what is it? And if real and recurring expenses don't belong in the calculation of earnings, where in the world do they belong? I think what we're seeing, right?
SPEAKER_00: My point is, is not that comp isn't an expense it is but rather that it's an expense that you can control by reducing the amount of staff. No, I guess is that I think these private equity guys are gonna basically whack the cost structure. I'm just saying you can distort free cash flow as well because
SPEAKER_01: you can sit back and stock based comp. It's a joke. It's a little bit of a shell game going on.
SPEAKER_03: It's like the dirty secret. Let me ask you a like an important investing accounting
SPEAKER_02: question. Let's say that a business like Zendesk is generating $100 million of free cash a year. No, no, what does that mean?
SPEAKER_01: Well, hold on. So every year their cash balance goes up by
SPEAKER_02: $100 million. They have a business it generates $100 million of incremental cash every year the cash balance goes up. So you as a shareholder own shares in a company that is creating $100 million of cap of incremental capital per year. However, your shares that you own are going down because they're getting diluted every year by roughly two and a half three percent and that's two and a half percent is Zendesk's actual number. So every year you're getting diluted by two and a half percent. Would you rather have a business that you are getting diluted by two and a half percent, but it's incrementing its overall balance by $100 million? Or would you rather own shares in a company that's burning cash each year? And I think that's where this ended up from a market perspective getting rationalized. Its shareholders said I want to have the safety and security of cash generation, and I'm willing to take on the dilution for it. And that's how this became, you know, as standard as it is. When I think about funding a new startup, and I look at the
SPEAKER_00: competitive landscape, when I see that the competitors have all been acquired by private equity companies, I generally think, okay, there's room for innovation here because I know that the first thing that PE firms are going to do when they acquire a company is like zero out R&D, or just put the product on maintenance mode. There's no innovation that happens with the product once the PE firms buy it. So the reality is, I think those are good targets for startups to do acquisitions,
SPEAKER_02: right, Sax? I mean, they'll find, they'll do roll ups, right?
SPEAKER_00: Because they will do financial innovation, they will innovate the structure of the wasteful spending and all the nonsense
SPEAKER_02: and lunches. Yeah, exactly. Chamonte once like cut out all the kind bars. Yeah, the kind bars are exposed brick walls,
SPEAKER_01: like all this nonsense. So who do you think is the Vegas trip?
SPEAKER_03: Yeah, the stock based compensation is gonna go away
SPEAKER_00: because they're gonna get rid of all the high price engineers, they're gonna get rid of the a lot of the high price executives, they're gonna probably they're gonna have to keep customer support, they're gonna increase cash salaries, probably. They'll bonus people, they'll just do bonuses for hitting targets, instead of giving people as much equity in the business. And they'll run it like a, you know, private equity
SPEAKER_00: type type play.
SPEAKER_00: It's not fun. It's not interesting to me. Right. Yeah,
SPEAKER_02: I mean, we're gonna see it's not really a product. I think, David, the other reason why it wouldn't be fun is like, it's a
SPEAKER_01: it's a level of financial engineering, which is highly sophisticated. I think for some people, it is fun. I think for us, it's less fun, because you're not necessarily creating a company per se, not innovating, not being a product
SPEAKER_02: person here. Yeah, but I would say that it is a highly
SPEAKER_01: sophisticated and the folks that do it at these places that these private equity firms are incredibly, they're very good at it, savvy at how they do it. And it's all the twists and turns of how you, you know, lever this up and use debt and blah, and you use a margin loan and pre fund the I mean, it's not the stuff that necessarily we want to be thinking about. But that's what
SPEAKER_01: you'd have to do as well. I totally agree with that. Look, I'm, I'm happy they exist in the
SPEAKER_00: ecosystem because we need firms, we need more exits, right. And we know that right now in Washington, the the regulatory regime is very difficult, very hard to get deals through. So at least you have private equity firms are providing some exits, and we need the ecosystem needs. And those exits are saying SACS
SPEAKER_03: don't trigger, like comp competitive concerns with Lina Khan and her group, right? Like, yeah, she's like, Oh, some private equity firm took this private, okay, Salesforce didn't buy it. So we don't need to get through regulators, you're going to see a lot of need exits in order to justify the risk
SPEAKER_00: capital that goes in at the earliest stages, which in most cases going to be a zero. And just to give you some other
SPEAKER_03: numbers out there, Manscaped, which is a company sells razors for guys. They had 315 million in net loss in 2021 with 310 million in stock based comp. By the way, that number can also be distorted. Just to be clear,
SPEAKER_02: if you give a one time big grant to an executive like a CEO, the way that the accounting works on stock based comp, it's not the kind of thing you can have a very simple kind of descriptor on but you can have these very significant short term costs associated with a big grant that could vest over a long period of time. Sure, with that has very high strike prices. I mean, when Elon got that massive grant at Tesla, the stock based comp expense was significant. But you know what the interesting way into it? It was that was there were 20 targets or something
SPEAKER_03: crazy like that. And all of them were based or a lot of them were based on the stock price and the delivery of cars. So that's one of the things that I think is broken. Yeah, yeah. So this is one of the things that's broken in Silicon Valley is that the comp in the stock based comp is not tied to performance. It's like just giving people guaranteed salaries. In fact, I was gonna say Jason, I could be wrong. Like there is more
SPEAKER_02: sophistication to be clear, in executive comp in public technology companies that should trickle down to the junior
SPEAKER_03: people to I think everybody should rise and fall with the company's performance. That's my personal feeling. I mean, this is the problem with entitlements, you know, and people being entitled to sorry to be like a red pill tier, but we should have like performance should be lauded and compensated for not just showing up and hanging out. There's gonna be a bunch of companies in this position. So look for this as a trend Peloton 964 million last quarter in revenue loss 757 million in the quarter. They have a $3.1 billion market cap. They've only got $879 million worth of cash. I'm just looking at these numbers. Hopefully they're they're tight. And they have a billion for an inventory that company is going to get taken out. BuzzFeed I don't know why that even went public. They're down 84%. They had 91 million media company and $91 million in q1 revenue. They lost 45 million, their market cap is down to 210 million. And they've only got 74 million in cash or so with some, you know, maybe 100 millions in accounts receivable. So there's a bunch of companies right now that are public that are about to hit in a couple of quarters running out of cash going into a recession. Are we going to see some big flame outs? Do you think and are you watching specific companies because the private equity folks must be salivating watching this? Well, I mean, look, you asked what the takeaway was
SPEAKER_00: around this. And I think the takeaway is there's been a regime change in the public markets, the way that investors look at these companies is changing. It's not about growth at all costs anymore. They're not just looking at revenues. It's also about margins and cash flow. And, you know, we talked about in the last pod, how I think a lot of founders understand intellectually that we're headed for a downturn, if not a recession, but they weren't taking the medicine of basically reducing their burn. Well, this is an indication of what investors are valuing. If the only way for Zendesk to create value as a public company is to sell to a private equity firm, who's going to have the staff is going to cut off or some huge number of staff to run it for free cash flow. That's just an indication of the regime change. So, you know, we need founders to start internalizing this information, so they can run their businesses more efficiently. You know what investors want right now? They still want growth, but they want it with low burn. High burn operations are going to get punished. I've transitioned most of my public markets time to
SPEAKER_01: focus on debt. And I've been looking at these companies because, yeah, because there's a lot of these really interesting tech companies with a lot of, because what David said, I think is 100,000% right, what Sax just said. There is a massive, massive regime change here. And yeah, and when shocking you if you don't take the medicine, you know, and what's funny is like, so many of these companies have been left for dead. But what is really juicy is the few companies that you think will
SPEAKER_01: survive. And specifically making sure you're protected in the capital structure, which means to own the debt because the debt is always senior to the equity. And there's some really, really interesting companies out there that are in that situation. And it's just like, it's a much better risk reward. In a moment where again, you know, we talked about this, but why would you give up your liquidity today? I don't know the answer. Why? Why? Yeah, I use this term, Jason before like skipping along the bottom. I just think it's like psychological wishful thinking as opposed to sort of like a rational summation of the actual Jerome Powell just said, I will take the economy in order to beat inflation. He just said it in the Wall Street Journal. But people believe inflation might
SPEAKER_03: be turning over. Do you buy that or not? No, as I've said, I
SPEAKER_01: think you're going to see eight and 9% inflation prints for at least the next three or four months minimum. I think that things could get marginally better after that. But I think the thing we don't know and again, it dis touches and I don't care what the fucking audience thinks touches Russia and Ukraine. So sorry to bring up politics, but now we've seen sir inexorably intertwined. And if people want to go and venture and gamble in the stock market, you might as well understand this because I think, you know, many of the scenarios will trade because of what's going to happen with Putin. Let me let me
SPEAKER_03: ask the question here. How many quarters will this recession be if we had to pick a range pick a two quarter range? I'm thinking three to five. What do you think? I have no idea. Okay.
SPEAKER_03: freeburg you gotta this is the second How many quarters plus or minus two, let's say, is this recession going to be so five plus or minus two, four plus or minus two plus or minus one? What are you thinking will be the bottom out point? I don't like the term I've told you guys I don't like the term,
SPEAKER_02: quote recession as if it's some absolute negative thing. I mean, negative GDP growth coming off of inflated GDP doesn't feel to me as systemically challenging to the economy. As you know, but some other circumstance where for example, there was a global financial crisis or 911 or some other kind of factor that that that drove things that that really affected the core economy. We're certainly we hadn't we had something that that affected the core economy and COVID then we had massive stimulus. So I don't I think there's this unfortunate general characterization of quote unquote recession being an absolute negative. And I think that there's relative growth. And if you're if your relative growth is negative off of an inflated number, but over okay, let me give you let me let me just finish but over a historic two or three year period, you're still growing the economy considerably, because jobs, jobs are growing and production is growing. It's not as negative as it's being made out to be so I'm not gonna Okay, I get you get into let me let me ask you this way then, how many more quarters
SPEAKER_03: will we have of stocks and real estate and assets declining in value or being flat? That's a financial markets question.
SPEAKER_02: Yes, that's a different one. And one thing I've realized is that financial markets in the short term, you know, the old Warren Buffett quote, or whomever it is that over the long term equities are weighing machine in the short term, they're voting machine. As we've seen with crypto, it was a voting machine that everyone voted on the hot thing that you're and now everyone's voting against it. So I don't know weighing it now. Yeah. Well, yeah, I mean, at some point, you hold a cryptocurrency long enough, you'll find out how much fundamental productive value it's creating. And the
SPEAKER_02: same is true for owning businesses or other real assets. You'll find out over the long run how much productive value they're creating. So you don't answer the question of when we
SPEAKER_03: hit a floor. Okay, sax, when do you think we hit? Are we are we hitting a floor now? We have a lot more to go down. I'll tell you one point of view. I am looking at buying high quality
SPEAKER_02: share businesses, buying shares of high quality businesses right now. Okay. I think that there are things that are that are cheaply priced that if I own them for a long enough period of time, the underlying productive value of that business will return my capital to me. And so you have one that
SPEAKER_03: you might want to mention here that you're looking at? I don't
SPEAKER_02: because you don't want to check tips at the summit with our friend Sonny who he's his trades are up. But like I told him, these are longer term trades. What do you think in terms of
SPEAKER_03: and then we'll go to some of the political stuff that affects markets after this? Well, I mean, I think it's all related.
SPEAKER_00: So there's three things going on here right now economically, or three underlying causes. One is rate expectations have changed massively, interest rates have gone up and rate expectations are going up even more fueled by inflation. And until we see where we're at on inflation, whether that gets controlled, that issue is not going away. The second big issue is economic slowdown, the recession. So the first one is Wall Street, this is Main Street. And these two things are related because companies are slamming on the brakes, because they're seeing that the capital availability is greatly getting reduced by this rerating this regime change in markets. So we're seeing an economic slowdown that threatens to turn into a recession. And consumer confidence is part of that, right? When your wages don't buy you as much because food and gas prices are through the roof, that reduces consumer confidence. And that also plays into that. So that's the second big issue. And I don't think we're going to know about recession, it's going to take you know, potentially through the rest of the year before we figure out what's happening there. And then the third part of this is the overhang of this war in Europe, the Ukraine war, which is now threatening to become a forever war. There was a pretty stunning article in the Washington Post this week, in which the administration officials were quoted as saying that they would effectively prefer or countenance was their word, a global recession and famine over letting Russia keep the Donbass region. So they are committed now to basically prying Russia out of the Donbass even if it means global recession, not to mention they say specifically the Donbass or specifically
SPEAKER_03: standing up to Putin. Well, that's kind of minimizing.
SPEAKER_00: We're not what we're talking about is the Donbass region. What's happened is look, the Russians lost the first few weeks of the war in which they tried to strike, they basically went for a knockout blow to take over Kiev, topple Zalinsky. I think we accomplished something in preventing that. But since then, they have achieved their objective of taking over this eastern portion of the country, this Donbass region, in which this is where most of the ethnic Russians live. And these Ukrainian separatists who are ethnically Russian, they've been fighting alongside the Russian troops. And the Russians have basically won that part of the war. And so the question is, what do we do now? And what you had is you had administration officials saying that they would not accept the status quo, that they are willing to fight on for years. You know, the same geniuses who gave us the forever wars of the Middle East are now giving us a forever war in Eastern Europe. And they are saying that they are willing to basically continue this fight even if it means global recession. Now, I don't think the American people ever voted for this, but this is what the administration is pursuing. And you know, you got to remember that there's always the risk that this war spins out of control, that we get a nuclear escalation. So I think that this is a huge overhang on markets. It's a third big problem that we have. So I don't see how we get out of this bear market until you get clarity and resolution of inflation and rates number one, slow down to recession number two, and basically this war in Europe number three. And it's reflexive because these next three months
SPEAKER_01: as I as I kind of indicated last week, I think we're going to see inflation prints that are really high in part because things like rents, which haven't, you know, which are on a lag will get folded back in. So we're going to be printing eight and nine percent. And then guess what, Jason, it's the fall. It starts to get colder. You know, Russia's depriving Europe of Nat gas. Where's the oil going to come from? OPEC is basically still stiff arming the United States with respect to expanded production capacity. Why? Because they didn't like the way that we were strong arming them and a whole bunch of other topics is in, you know, and so where do we stand? You could have $180 a barrel oil by November, December when it's cold, not just here, but in continental Europe. Now all of a sudden inflation gets kicks right back up again, it could be seven, eight, nine percent again. So I just think all of these things are now so inexorably intertwined. I think David's right, we need to put this war to bed. And the unfortunate consequence is that right now, if we want to fight a proxy war, there is no elegant off ramp that I see. So the
SPEAKER_03: prediction markets just so people know are predicting point eight point 9% additional inflation in June over and I think that's over last month and last month was 8.6. So we're
SPEAKER_01: going to be at nine and a half Jason, could you imagine what the markets do if we print a double digit inflation print 10 and a half percent 10.1 just the psychology of that? Well,
SPEAKER_03: consumer psychology is really low right now. No, not consumer
SPEAKER_01: psychology. I'm thinking market psychology. No market too. Yeah.
SPEAKER_03: So we put those two things together and then if this war is never ending, and the famine that and the impact on 40 million people or something like that, that freeburg predicted is actually going to happen in the next six months. This is going to feel quite chaotic to people around the world. So we do need to put this work to bed for sure. There's no
SPEAKER_00: deal on the table right now. But the deal that we've talked about on previous shows there was always the broad construct here even before the war began was there were three pieces to it. Number one was that that Ukraine had to remain a neutral state as opposed to being brought into NATO and having American troops, weapons and bases on Russia's border that was always a red line to them. And in exchange for neutrality, Ukraine would get security guarantees. Piece number two was that in the eastern region when you had these Russians, these Russian speakers, that their rights would be respected and that they would have some autonomy. And again, that was something that Ukraine agreed to under the Minsk accords, but it was never properly implemented. And the third piece was that Russia got to keep Crimea, which again was a fait accompli that happened in 2014. Smart observers of this conflict have been outlining that three-point plan for over a year. And that is what we're going to end up with. The only difference is that it's going to be implemented by force and Ukraine will be destroyed in the process. That is basically where we're at right now. Russia has, they've taken over the Donbas, they've taken over this eastern 20% of the country, they have Crimea, and Ukraine basically, the rest of it, will not be part of NATO. That is basically what the Russians have done is implement by force a plan that, frankly, we could have agreed to through negotiation a year ago and avoided all this death and destruction. My calculus, Jason, is maybe, I mean, we don't know
SPEAKER_03: Putin's intent, and that's the wild card here. He is a bit of a madman. I mean, he's pretty much of a wild card here. He's a dictator who invaded another country. My calculus is slightly
SPEAKER_01: different. I think I see two things in order to get us back to a state of relatively predictable growth and price stability. Number one is we need to reset supply and demand by taking $30 trillion out of global markets. And then the second is we need an off ramp to this Ukraine-Russia war so that there is predictable energy and food supply to the world so that folks can just get back to what they do best. And if those two things can happen, then the markets will have found the bottom. But until those two things happen, in my opinion, and by the way, the first thing doesn't actually have to happen entirely. You just need to see a path for it. And, you know, we're the only one that's doing quantitative tightening right now. The ECB hasn't even started taking all this crazy money out. You know, I don't know when the Bank of England is going to do it. When is, you know, the Bank of Japan going to do it? So this has to be a global coordinated effort before we find the bottom. And this war has to stop. Well, can I go back to this unpredictable madman narrative, Jason?
SPEAKER_00: Yeah. Putin the dictator, yes. If what you're trying to say here is that Putin bears moral culpability and moral responsibility, the blood is on his hands for this war, I agree with you on that. 100 percent. However, this idea- How could you not? I mean, he's the person who invaded. Right. But- Just logic there. Right. But the idea that this war was unpredictable or could not have been predicted is simply false because many experts did predict it. And they did tell us exactly what's going to happen. And the reason they knew it was going to happen is because Russia has been saying since at least 2008, when there was this Bucharest summit and NATO declared its intent to bring Ukraine into NATO, the Russians have been saying that is a red line. And Russia experts, Biden's own CIA director, a guy named Bill Burns, he was then our emissary to Russia, and he wrote a memo to then Secretary of State Condoleezza Rice. And what he said is that the idea of bringing expanding NATO to Ukraine was a red line for the entire Russian elite, not just Putin. So, and if you go back and look about what other Russian leaders said about NATO expansion, Gorbachev said it was a humiliation to Russia. Yeltsin was against it. They've all been against it. And so Bill Burns warned in 2008, this was a red line. And the Russians have been saying this since 2008. And they were saying it all of last year. If you go look at contemporaneous headlines describing the tensions between the US and Russia, this is the headlines of articles I can provide to Nick, we can put on the screen, they were saying this was an absolute red line for them. So the idea that this conflict was unpredictable, because Putin's a madman, listen, you can call him a dictator. We can also predict highly predictable. Yeah. Okay. And you
SPEAKER_03: know, it's also highly predictable, is that China considers, you know, Taiwan a renegade, you know, province, like, yes, dictators, you know, will tell us what they're going to do. The question is, does the free world want to stand up to dictators. And so, while, you know, it's messy to stand up to a dictator, the West, you know, kind of doesn't have a choice to stand up to dictators, or else they will roll into other countries. History has shown that so as messy as this is, and as terrible as it is for the economy. I do think that we have
SPEAKER_03: to stand up to dictate there are plenty of dictators where we work with by invading other countries, they're not invading
SPEAKER_03: other countries. And that's the difference here, sacks, you we could have avoided a bit of a pass here. He invaded the country. We must stand up to dictators who invade other countries. Well, look, we're just America. I mean, the free world. Yeah, well, look, look where you've got us then with
SPEAKER_00: this policy, you and the people we could have avoided. Yeah, because you are basically spouting this, this nonsense that, look, the question is, stand up to dictators who invade
SPEAKER_03: other countries. I think you would agree. That's a good idea. Jake, I'll let him talk. Let us discuss. Okay, free bird. Okay,
SPEAKER_00: listen, there's no question that Russia has been the aggressor. But the question is, why did they do this? You don't really have a theory on that, Jason, except that you believe that on February 24, Putin woke up and went nuts. That's basically your explanation. No, that's not what's happening in the world. No, it's a debated we know it's a debated region. We know that
SPEAKER_03: they've had this conflict for a long time. Okay, so we could just sit here on the pot many times every every president
SPEAKER_00: from Bill Clinton to Obama who has dealt with Putin has written largely the same account of him in their memoirs, which is look, they know that he's a thug. They know that he's a dictator. However, murder, he said, they always said he's very business like he's very direct. He told them what their issues were. Okay. Putin was very direct. He and Biden had a summit in June of last year. The Russians been very direct. Your attempt to bring Ukraine into NATO is a red line for us. Why it's a violation of our security interests. The idea of bringing a country into NATO, it has huge security externalities for them. By the way, we understand this in other contexts. We understood that in the context of Cuban Missile Crisis, we didn't say that Cuba had the right to join any military alliance that it chose to, because we wouldn't be able to sleep as well as at night if Cuba had nukes pointed at us with a first strike capability. We've had this conversation. Do
SPEAKER_03: you think? Should Sweden and Finland be invited into NATO? I
SPEAKER_00: would table that issue until the war is over. I don't know why we need to basically deal with that right now. But listen, we don't even have to go back to the Cuban Missile Crisis. Right now, okay, there's a country called the Solomon Islands about 3,000 miles off the Australian coast. They entered into a deal with China, a security deal, and the US have been up in arms about that. So, you know, and the reason is we don't want China extending its footprint in Asia. Okay, so we treat that deal as having a security externality for us. And yet we refused last year to recognize that there'd be any security externality for Russia if we brought Ukraine into NATO. The Russians were abundantly clear about what they needed. So my point is, is this my point is this, that this war was easily avoidable through the use of diplomacy. The administration chose you believe that you don't know that you believe that you don't know that you
SPEAKER_03: don't even know it. We never even tried it. You don't know
SPEAKER_00: that. Listen, it's worse than that, Jason, because here's
SPEAKER_00: what happened after the June 16th summit in Geneva between Putin and Biden last year. Okay. Putin tells Biden to his face. This is a red line as they've always said. So what does the administration do? Not only do they not negotiate with the Russians, they invite Zelensky to the White House on September 1st of last year. We talked about that. Hold on a second. Then on November 10th, they published a massive 10-year charter agreement. This was a huge finger in the eye to the Russians. And on the heels of that November 10th charter
SPEAKER_00: agreement, the Russians basically delivered an ultimatum to the US, demanding a written guarantee that Ukraine not join NATO. And then in January, Blinken was tasked with negotiating with Lavrov and Blinken said there has been no change. There will be no change. NATO's door is open and will remain open. This administration was incredibly stubborn. They were absolutely refused to use diplomacy to defuse the crisis. Now you say, well, we can't know what it would have done. Well, but the point is they never tried. Is the Ukraine a sovereign country? Yeah, they are. But do
SPEAKER_00: they get to pick what they do in their fate? Look, this idea
SPEAKER_00: that there's a doctor... Do they get to pick their fate as a sovereign
SPEAKER_03: country? I think you would agree, yes. Okay. Well, here's the
SPEAKER_00: question is you're what you're trying to do and is is create a doctrine. Okay. You're trying to create a new doctrine that a country gets to join whatever security alliance they want, whatever military alliance they want. That is not a doctrine we believe in when it comes to the Solomon Islands. It's not a doctrine we believe in with respect to Cuba and the Cuban Missile Crisis. And the fact of the matter is is that the nations of the world are engaged in a security competition. And the and if if a country like Ukraine joins a new military alliance that has huge externalities, and so we do not believe in that doctrine, Jason. This is a doctrine that did not exist until February. Wait, wait, we don't believe more
SPEAKER_03: people should be able to join NATO? While Sweden and Finland are being... No, we clearly believe that but this this doctrine that the
SPEAKER_00: countries of the world should be able to join whatever military alliance they want. That is not a that is not we do not practice that doctrine. That is not a doctrine we believe in. And your example is Cuba.
SPEAKER_00: Cuba and then more recently the Solomon Islands. Okay. Yeah. I
SPEAKER_03: mean, listen, I I'm not saying this war is not a mess. All wars tend to be a mess. I'm not saying we shouldn't try to resolve it with everything we have. I do think the people of the Ukraine, you know, get to pick their fate and I am in support of them picking their fate. I am in support of the of NATO being stronger and stronger and I'm in favor of isolating Putin, you know, and using diplomacy as the primary tactic to do that and making sure he doesn't run over countries because he won't stop at one. I think that's the the big question I think is will he stop at one? Do you think he'll stop at one country? History has proven he won't. At what point are you okay with stopping him? Listen, you you just said that you want to use
SPEAKER_00: diplomacy as the primary tactic. Of course. So we agree on that. The question is what you're willing to give up because the administration was not willing to engage on the key Russian concern, which is the admission. Let me ask you one question. Ukraine is a native. Do you think Russia will stop with
SPEAKER_03: Ukraine or or Do you think that's actually the stopping point for Putin? Listen, I think there's a few ways to come at
SPEAKER_00: that question. One is to ask what is the motivation which is very hard to know because it's inside Putin's head. Okay. So the second is one of their interests and the third is one of their capabilities. The capabilities question is pretty easy to answer. I mean they have had a very hard time winning this war. They've won this eastern region of the Don Bast because I think. Why is that? Why did they have a hard
SPEAKER_03: time? Well because their military capabilities are
SPEAKER_00: obviously not as great as people thought and and the
SPEAKER_03: Ukraine got a lot of weapons from the West from from NATO. Exactly. So this idea listen, I've said it before the EU's
SPEAKER_00: GDP is ten times greater than Russia's and you know economic strength is the foundation for military strength. Moreover, we've seen that these NATO weapons are incredible. The US is weaponry. I mean it's so you're in support of providing
SPEAKER_03: weapons to Ukraine NATO. The EU European countries. I'm not in favor of creating a forever war in Eastern Europe. That is what's
SPEAKER_00: in the cards. No, but the question is Jason you just said that we have to isolate Putin. We have to deprive him of any of any positive outcome from this war. No no no. I said we have to stop him from invading countries. That's what we stop
SPEAKER_03: him from invading more countries that are. He's not
SPEAKER_00: going to invade NATO countries because he's so outmatched. Well, not NATO, but I mean there's a lot of countries that
SPEAKER_03: are not in NATO. So I mean I think that's the thing, but I mean listen we discussed this a million times here. Well, I think we both agree. We want the word and I think we might just the question is what are you willing to do to end the
SPEAKER_00: war and you know my my point is this that the question is what
SPEAKER_03: is Putin willing to do in terms of starting wars and invading other countries and what does the West have to do to react to that? You know I think that's what we're talking about here. We didn't start this war. You know, but anyway, let's move on. I think well hold on a second. We we don't have started this
SPEAKER_00: war, but we failed to prevent it through the use of diplomacy. That's always been my point. Yeah. I think this war. I think this war was I think this war was easily preventable if we had listened and engaged in diplomacy easily. Yes. Okay. Yes. I'm I'm not sure that's what let me
SPEAKER_03: just tell you right now. The deal that would end this war is
SPEAKER_00: the same deal that was on the table last year was zero bloodshed, which is Ukraine remains a neutral state. There's autonomy for the Russian speakers in the Donbas and Crimea basically remains part of Russia. That was the deal that is the deal that will be the deal. The only question is does the whole country have to be destroyed. Alright. Well,
SPEAKER_03: we're going to find out in the coming months and does the
SPEAKER_00: world have to go through a global recession and famine. These are big questions. Yeah, it's not the sacrifice it takes
SPEAKER_03: to stand up to dictators is very significant. And especially ones with nuclear bombs, and it will be even worse with Taiwan. I mean, if we think that this is difficult, can you imagine this kind of escalation with a capable adversary if Russia is not super capable and their weapons turned out to not be a strong my god, what would Taiwan look like? Did you guys
SPEAKER_01: read this story where it was the deputy foreign minister got demoted? And there was all this speculation like, why did he get demoted? And one of the things that came out was that, you know, he was very, very pro Russia and, and she is not, and
SPEAKER_01: she is not and she was is much more hedged and moderate. And yeah, you know, wanted to have more optionality and felt that he was cornered because I think there was some, what was the quote? I mean, Nick, you can pull it, but it was something about like, you know, the the strength between basically China and Russia is infinite. But that was that was a quote that he said that was a little bit off the reservation, it seems and so it was defense. Yeah, yeah, yeah.
SPEAKER_03: No, it is an important story as well. I mean, and you know, it's one of the things that we can look at what's happening in these political situations. I think we probably have 50 60 70% of the information not even not even really quick. Tell us what's going on in Alpha fold world Sultan of science. There was a paper published about two weeks ago in the journal
SPEAKER_02: science. It's actually an important paper because it used Alpha fold to do some really important work. And the work is to actually create a 3d structure 3d model of the nuclear pore complex and that nuclear pore complex is really the scaffolding that makes up the nucleus of a cell. So all the karyotes, you know, all plants and animals have a nucleus in our cells, and the nucleus holds the DNA. And the big question freeburgs internet connection is getting bored.
SPEAKER_03: Just let him finish his sentence. You're fine. Keep going. No, your internet connection fell asleep because it was so boring. What you're talking about. Keep going. So what does this mean in terms of Well, hold on. So so what this
SPEAKER_02: really did and this is a the problem that's kind of been around for decades is we've never really understood what the physical structure of the nucleus in a cell looks like. And this is important because the physical structure regulates how molecules get into and out of the nucleus and how DNA is expressed and how the RNA that comes out of the DNA goes into the rest of the cell. And this regulates so much of human health. In fact, it's been shown and demonstrated that dysfunction in the nuclear pores or the nuclear pore complex in the cell can lead to things like viral infection, brain injury, cancers, cardiovascular disease, many diseases, their underlying driver may result from dysfunction in the transmission of molecules into and out of the nucleus of the cell. And so scientists have always tried to figure out what is that transport mechanism like? What does that infrastructure look like? And so for the first time and scientists have published theories on this and they've shown using X-ray imaging, you know, some theory around what these complexes look like. And what this team at Harvard did that they published two weeks ago is a really groundbreaking, extremely detailed view of the entire nuclear nuclear pore complex around the nucleus of the cell by combining both X-ray imaging and alpha fold. And so what they did is they took the predicted physical structure of those proteins from alpha fold and use that to construct a sample of what the, you know, the nuclear pore complex looks like. How do they know it's accurate? And so using this X-ray imaging, they've been able to kind of verify some of the assumptions that alpha fold yields and now they've created this 3D model and this 3D model now gives and by the way, just to think about this physically what it means like for a second. The nuclear pore complex, think about it as like a fence, like a spherical fence that sits around the nucleus and some parts of that fence open and close. Some parts are static and the way that certain things open and close and what can fit through them and how they fit through and how stuff gets stuck is really important to understand as a way to both understand the underlying cause of diseases like cancer, but also how we can create therapeutics and how we can target specific things that we can fix and how we can get molecules into the nucleus of the cell to regulate DNA expression and edit the DNA inside. That's mind blowing. So
SPEAKER_03: wait, if I were to translate this from nerd, you basically alpha fold predicted. No, I'm being sincere. There's a map here that we were not able to see through X-rays and through, you know, physics, but alpha fold predicted some of that and filled in the gaps. So now we have the map has been filled.
SPEAKER_02: That's a great, that's a great way to describe it. And so now we have this incredibly detailed 3D image and Nick can share the images on our YouTube stream here of what the nuclear pore complex looks like and how each of those pores work. How do they open and close? What's the structure of them? This isn't simply like a circle. This is like all these weird tentacles and little things sticking out and that can help us predict what molecules get stuck and how one error in one of those proteins can cause things to get stuck. Like a cancer or
SPEAKER_03: something like that. Yeah. How this can cause certain DNA to
SPEAKER_02: overexpressed or underexpressed causing things like cancer. So we're going to live forever. A whole new area of research in medicine, gene therapy, and new things that we can think about targeting to fix a lot of these underlying diseases. And so this was a groundbreaking paper. What's the name of the paper? Can we just get the name of the paper so people can
SPEAKER_03: Google it? We'll put it in the show notes as well. There's been an amazing episode. Yeah. So it's a team out of Harvard.
SPEAKER_02: We'll send the link in the in the show notes. Structure of cytoplasmic ring of nuclear pore complex by integrative cryo EM and Alpha fold. Terrible naming. Not for the general audience. No, no, it's okay. Sax is printing it out right
SPEAKER_03: now and he's going to use it for his kit, his new kittens. I just want to highlight, you know, because we talked about
SPEAKER_02: Alpha fold, I think last year or the year before and how it was going to open up all these new areas of research. Here we are a year later. This is an incredible example of how Alpha fold's been used to solve this really misunderstood or never really well understood aspect of biology that is at the root cause of so much of disease and creates all this opportunity for medicine and therapeutics research and discovery. All right. This is Ben. It's great to see this breakthrough.
SPEAKER_03: Sorry, we didn't get to January 6th or Roe v. Wade. We'll get to those the next episode and we'll see you on the next one. No, no, no. Listen, I think Roe v. Wade,
SPEAKER_01: I'm not sure there's much for us to do something about the reactions, but we did a pretty thorough episode. So folks really want us to double click. We double clicked with two of the most political constitutional experts in the space when it first got leaked. So please go and watch. Yeah. Or listen to that. All right. Which episode is that number? I don't know which one. We'll put it in the show notes. It'll be in
SPEAKER_03: the show notes for everybody and we'll see you all next time. Bye bye. Bye bye. Bye bye. Love you.
SPEAKER_00: Oh, man. Oh, man. We should all just get a room and just have one big huge because they're all just like this like sexual tension but they just need to release them.
