SPEAKER_01: Wait, that's not even a sweater. That's a sweatshirt. No, that's not even cashmere. It looks like polyester or
SPEAKER_00: something. Okay, quick freebruch. Come on the video
SPEAKER_01: where you're wearing the same thing as Jake out so we can make a quick joke. Morons. I mean, you guys are so predictably dumb. The two of you. It's so itchy. Do you have a rash?
SPEAKER_03: Jason made me buy this outfit and I put it on and I'm like itching. I'm about to take this thing off polyester wool
SPEAKER_00: polyurethane. What's that made out of?
SPEAKER_02: Okay, everybody, welcome back to the all in pod Episode 87. Here we go. Tons of news going on. Thanks for all the great feedback on Episode 86. We're going to start with emerging markets. Oh, and yeah, welcome to the program. David freebruch, Sultan of Science, the dictator himself from his palace in Sri Lanka, his new palace in Sri Lanka, he'll be taking over over there. We'll get into that. And sacks is in a in witness protection right now. Apparently, where are you sacks in this white nondescript room? Can you say where you are? This is my soundproof padded room. Yeah. Oh, is that what
SPEAKER_02: if that's what a Biden's done your Biden derangement. They put you in an asylum. What do you do? You rock back and forth and say inflation, Ukraine inflation, Ukraine? No, we just
SPEAKER_00: had the room soundproof for you know, better podcasting. Oh, look at you taking the taking the job seriously. It looks
SPEAKER_02: bad. It looks good. Yeah, you can put a little art behind you
SPEAKER_02: or something. Just put one of your monies behind you. You know, the ones you have in storage downstairs. Okay, emerging markets are facing some huge challenges right now. Quick mark, quick primer on three types of markets developed emerging and the frontier market if you don't know, developed markets are considered US Japan, Europe, their GDP growth is lower single digits typically in the emerging market. It's roughly defined as developing but not fully developed that includes countries like the BRICS, which is Brazil, Russia, India, China and recently added South Africa. Many other markets
SPEAKER_02: are included in that they were previously called the third world in the 80s. People didn't like that term. Investors will bet on them having higher GDP growth, typically two times or three times what the developed world has China for example, 2019 6% growth US in 2019 2.1% growth. And of course, there's frontier markets. These are viewed as small, unstable, liquid, generally risky. If you look at something like Kenya, Vietnam, those would fall into that category. Vietnam 7% GDP growth in 2019 to the US is 2%. Sometimes people like to make bets on them. Here's a nice little chart for y'all to look at and you can just see China versus Vietnam in the United States since the 80s. And so why is this all important? Well, the Wall Street Journal reported last week that EMs the emerging markets have been feeling massive pressure. We'll get to Sri Lanka in a moment. That's a frontier market to be clear. But three things. Well, we've got probably a half dozen things going on. Let me just highlight maybe the top five and then I'll hand it off to the besties. You have high bond and loan yields, the debts, debt rates are increasing in the emerging markets and frontier markets. Think what happens when you got a variable mortgage or you try to get a new market, a new mortgage in the developing markets. The developing market investors have stopped investing in emerging markets and frontier markets as you might suspect during a downturn. And they're even pulling money out. Then you have surging inflation. We all know about that and we're going to talk about inflation here in the US because we got the print this morning. And slowing growth. We've also talked about this for the last six months on the program. All these problems get exacerbated when economic growth slows and it's slowing globally. And then finally, we have the potential issue of contagion. We don't know exactly what's going to happen when various countries are facing these challenges. Although we did tell you here what would happen with the Ukraine. Shout out to sacks and free bird fertilizer, wheat oil, all that good stuff. And it's becoming very acute. Perhaps the Canary in the coal mine is Sri Lanka. Breaking news president Raja Paksha fled for the Maldives and it's a state of emergency. Curfews were declared. I think that's been cancelled as of the taping of this. We can get into the state of Sri Lanka. Your thoughts, Friedberg. I know you've been chomping at the bit to discuss this. Yeah, that was a good long
SPEAKER_04: intro. I think you know the high level for me, if you look kind of at debt markets around the world, there's about $300 trillion of global debt. And I put this chart in the chat here, Nick, you can put it on the video. And about $100 trillion of that debt globally is in emerging markets. And so these countries generally have much more kind of variable GDP growth, as well as challenges ultimately with their currencies. Most of this debt recently, and this has been a trend for a number of years lately, has been issued in their local currency, rather than in US dollars. And so as the currency devalues, it becomes more challenging for an investor to make a return if they're investing from a US dollar denominated base or some other dollar denominated base. So, look, the emerging markets are heavily saddled. I mean, some of these countries have over 300% or 250% debt to GDP. And what's really gone on recently is that many of them as net importers of energy and food are going to struggle to make the stuff they need to make at home or to feed their people at home because of the rising inflation that's been happening around the world from the producers of those goods and services of those goods. And so to import those goods is more expensive. That makes it more challenging for people to be able to afford food, to be able to afford energy. This is part of what we're seeing happening in Sri Lanka. What's compounding this is we have rising inflation in the US. So, as we've been talking about a lot, the Fed's been raising interest rates here in the US, which means that you can now buy treasuries that yield 3%. If you're an investor around the world, where else are you going to put your money except US treasuries in a market like this? You want to buy 3% yield in US dollars versus getting 10% yield in some currency denominated account, some currency denominated bond in a country you don't really know well or trust as much as the United States. And so as a result, a lot of dollars are moving out of emerging market debt into US debt and the price of that debt has collapsed. And so we've seen in the last couple of months a decline of emerging market debt of about 20%. This makes it harder for those countries to issue new debt to fund things and it's creating this really challenging spiral that may ultimately lead to defaults. Those defaults absolutely have a trickling effect because if one country starts to default and you're an investor in emerging market debt, you're going to say, hey, wait a second, I just took a huge loss in this position. You're going to start to sell off other emerging market debt. And then it becomes harder for those countries to raise more debt and fund themselves and it can cause a cataclysmic spiral. So, it's a really scary scenario we're wading into now. And I think we really hope that the US starts to taper interest rates and we find some stability in these markets over the next couple of months because it's not just a food and energy crisis. It's also a humanitarian crisis and ultimately could lead to a global financial crisis. And in fact, it's highly complex, but it's something that folks are tracking very closely here. What's happening also is the companies that were already at
SPEAKER_02: risk are going to start feeling this impact. We could jump into Sri Lanka if we want. Sri Lanka has, I think, a bunch of short
SPEAKER_01: term issues and a couple of very long term issues. Let me set the backdrop because I think this is really interesting. Let's take, let's study Sri Lanka through the lens of two other countries, Jamaica and Singapore. If you go all the way back to 1960, so, you know, roughly when Singapore became a nation, the Jamaican population in 1960 was 1.6 million people. The Singaporean population was 1.6 million people. Sri Lanka's population was 9.8 million. Jamaica's GDP was 700 million. Singapore's GDP was 700 million. Sri Lanka's was 1.4 billion. Now you fast forward to 2022, Jamaica's GDP is about 13 billion. Singapore's GDP has grown to about 360 billion. And Sri Lanka's GDP is 80 billion. So, like, what did Singapore do right? What did Jamaica kind of get right? Because one of the things that they kept in check was their population, even though their GDP didn't expand that much, so per capita income was still quite healthy. And then what did Sri Lanka get right and what did Sri Lanka get wrong? Well, some of the things when you look at Singapore is that they found a way to embrace, despite a very heterogeneous culture and sets of religions inside of that entity, inside that city-state, they found a way to promote multiculturalism, yet also promote English as the lingua franca. Why was that small thing so important? Because it allowed them to be a hub for the rest of the world in a way that many, many other countries couldn't do. The second thing that they had was a very low level of corruption because they had a leader, in that case, Lee Kuan Yew. And again, some people in the West will paint it as slightly authoritarian. You know, he would paint it as Asian values. But the net result of it was very low levels of corruption, a small but highly effective public service, and meaningful investments in education and health care to make that country grow over decades. And within a generation, that country completely changed the world. And that country completely, you know, exceeded all expectations. Sri Lanka struggled through a civil war. I was a byproduct of that civil war. It was partly religious, it was partly ethnic. And it was 20 plus years in the making and in the happening. And it took a very right wing, autocratic leader, the brother of the current deposed basically rooted out. Now in order to root it out, there were enormous amounts of war crimes and all kinds of things that I don't think anybody would support, except it brought some amount of stability. And so then you would have thought, okay, maybe this is the point at which you can now really start to grow. But these guys yet again, found a way to navel gaze and just infuse so much corruption and graft inside of how the government was run. By the way, it wasn't just the right, it was also the left. They spent two and a half times more on defense as of last year than they did when they were in wartime. Doesn't make much sense. The public service grew to the largest it ever did. In a moment where you know, you really should have prioritized private enterprise. So all of these things sort of created a situation where they fundamentally didn't know what they were doing. So the other two issues there, I think, and
SPEAKER_02: that's a great summary of like, really those frontier countries and what made them emerge. Singapore also has a great strategic location, which Sri Lanka kind of shares. They're both island countries strategically located for trade. And then I guess the policies, right, Singapore went on a very, very aggressive tax and business policy effort. Did Sri Lanka do that as well? And then maybe could speak to just how important those are as islands, you know, and their and their geography, because Jamaica doesn't obviously have that. I mean, Sri Lanka has this massive growing importance
SPEAKER_01: as China has emerged. The problem in these last few years is that they did everything possible to not just alienate China, but to alienate everybody on every dimension possible. You know, they alienated China. The coup de gras was that there was an enormous shipment of fertilizer, chemical fertilizer that was sent to the ports. And it was summarily rejected and turned around. Because somewhere along the way, the leadership in Sri Lanka decided that they were woke. And so they enforced every farmer to go organic. The problem with going organic and organic fertilizer was all of the small farms shut down. All of the large farms had 20 to 30% crop yield reductions. The prices of food went crazy. They reversed policies two or three times. And really what they found is that, you know, they tried to go woke instead they went broke. And all of a sudden, all these other countries who were there trying to help said, wait, what is going on here? So they offended China, they offended the Middle Easterners. They offended the Japanese by cutting a light rail project that Japan wanted to fund. I mean, in every step of the way they deindustrialized this country found a way they didn't deindustrialize they tried to follow this woke agenda. That is the industrialization. I mean, reversing from like the
SPEAKER_04: modern techniques of industrial production, like fertilizer and modern systems of farming is the industrialization. It's it's, um, you know, it's going to be a curse, ultimately, sacks to your point, we just discussed this last week with
SPEAKER_02: the farmers. You know, if you're in a frontier market, trying to adopt the regulations and the strategic goals for the environment of the emerging market is like two giant hops, it's it's probably insurmountable. Well, look,
SPEAKER_00: there's a strong analogy between the populist uprising that's happening in the Netherlands with the Dutch farmers and the populist uprising that's happening in Sri Lanka. Basically, they're implementing the same policies, this is that Sri Lanka is a further down the road, and it's a poorer country to begin with. So, you know, like Jamaat mentioned, in April of last year, the Sri Lankan government banned the importation of chemical fertilizers and pesticides using farming, they began with this idea, they thought they could encourage organic farming. So the result of that was that overall production, agricultural production fell by a third, and rice production fell by 43%. And rice is, you know, the biggest staple in the country. So now you got people there starving or going hungry, you've got massive food insecurity, as well as the whole economy, basically has been crippled. And the result of that is society has essentially collapsed. So, you know, now, the question is, why did the Sri Lankan government feel compelled to adopt these policies? A lot of it has to do with the fact they're getting these massive loans from the World Bank and the IMF, and the World Bank and so forth are imposing these ESG requirements. So Sri Lanka has something like a 98% ESG rating, even as their economy and society is collapsing. How is that possible? Well, they're doing a great job following the prescriptions of the global elites of Davos. I mean, this sort of global elite flies into Davos from Brussels and Washington on their private planes, they have panels on ESG, and then they prescribe these policies for countries like Sri Lanka. And this is the result. I mean, it's crazy. They've been telling us for years that somehow there's no trade off between their environmentalist policies and creating a healthy growing economy. And this is an example of that's not true. There are real trade offs here. And the crazy thing is that the elites expect poor people in Sri Lanka to make up for their environmental emissions. It's not really fair at all. Here's another example. In March of
SPEAKER_01: 2020, Sri Lanka enforced one of the world's strictest China esque COVID-19 lockdowns COVID-19 lockdowns, despite one of the lowest death rates and infection rates in the world. And so for nearly three months, it literally crippled the economy and the livelihood of citizens there. But here's where it gets crazy. Then they actually go against global best practice and they ban the burial of COVID-19 victims, claiming that it could lead to groundwater contamination. I don't even know how they came up with this. But you know what this did was it significantly undermined the small minority of the country that is Muslim, because a religious practice there, you know, is you bury your dead. And then that caused great pain to them. And then it as in turn, it hurt all these international relationships with all these Gulf nations. So then you come all the way around, and then you go back to those same Gulf nations a few months later, and you're like, Can I have subsidized oil? And they're like, No, not so much. And just
SPEAKER_02: to give paint a picture of what's happening there right now, as I mentioned before, it's pretty much a state of emergency, you can see various videos trending on social media. And you always take those with some caution, because sometimes people will take clips out of context or label them incorrectly or use clips from other moments in time. But what's really happening there right now, and you shared a video in our group chat is everything is now being doled out in very small amounts. So there are lines for basic goods, and inflation is crippling there. And as free Berg mentioned, they started to pin their exchange rate, and and their currency to, I guess the world's exchange rate. And now, everything is super expensive. And essential imports, like food and medicine and fuel, they don't have the money to pay for it. So this is going to be a complete societal collapse, it seems, and they're going to need to get bailed out. There was a bill that was introduced in the government
SPEAKER_01: that said the central bank would be forced to have a discipline on money printing sound familiar. In March of 2020, the Central Bank of Sri Lanka began printing money in order to finance a growing budget deficit, again, happens in many countries. And they did that in part to fulfill an election promise that they made that they would maintain single digit interest rates, again, sounds really familiar. So they've printed about 100 billion rupees in March. In the next two years, the central bank printed 1.65 trillion rupees, right? So 16 and a half times that first number. And then as a result, what they saw was the highest inflation in post independence history. So time after time, what you're actually seeing in Sri Lanka is not a microcosm of something that's endemic to whatever you want to call it, Jason, a developing country, a third world country, frontier, the frontier, frontier country, a Southeast Asian country. In fact, it actually resembles many of the policies that exist in so many countries all around the world. And what's really important here is that as goes Sri Lanka, so goes Ghana, so goes Pakistan, so goes a whole bunch of countries where you're already starting to see food riots, food insecurity, energy insecurity, rampant inflation, sovereign defaults. And you have to ask yourself, like, how are we going to really tourniquet this whole thing and prevent a much bigger contagion like freebird just talked about? I think it's a, we might be
SPEAKER_02: because you mentioned COVID. It turns out a lot of these frontier countries were already on debt relief and being given a moratorium on making their debt payments since they got so walloped during COVID. And then now the other shoe drops. And here we are, there's no relief you can give them if they're already not paying their loans in some cases. By the way,
SPEAKER_01: here's another thing that happens in a lot of these developing countries. So in the middle of all of this chaos, what do you think happened? The Parliament got together, they passed an amendment to the Constitution, and it enforced and it gave incremental power to one individual, the President. And typically, in most of these countries that run by a parliamentary system, the President is a figurehead, right? The person shows up, you know, shakes hand kisses babies, that's it, right? Maybe convenes a Senate, but that is it. Now all of a sudden, the person has control over defense, control over budget control over the central bank. And this person cannot be, you know, voted out in a no confidence vote the same way that a prime minister can. That happened here as well. So yet another example of if you start to see a bunch of autocrats in some of these developing markets feel like the answer is more power. It's been tried here, it didn't work. So I think that there's a there's a lot of lessons I am a little concerned and skeptical that many of these other developing countries that are teetering on insolvency will actually learn. Well, I mean, what they need to we are the
SPEAKER_02: definition of the developed world, reportedly, and we have a president who tried to stay in power still in election. So it, uh, it literally is happening here in the United States as well. The parallels are truly terrifying. All right, the CPI. I'm sorry, I actually said something was
SPEAKER_00: rolling my eyes. That's no noise from an eye roll. That's what
SPEAKER_02: it was. It sounded like a boulder going downhill. Wait,
SPEAKER_04: sorry, can I ask him off the question? Yeah. By the way, if
SPEAKER_02: people don't know, Chamath is of Sri Lankan descent, just to make that clear. If you didn't hear his little mention of what didn't you go there a couple years ago? I mean,
SPEAKER_01: here's another great example of in this case, this was the left who managed to fuck things up. So it's not just the right that screws things up in that country. It's the left as well. So in this example, um, I went there and I offered to bring Google Loon, myself and Google. We offered to bring internet access to the entire country, like guaranteed internet access. This was like five years ago. And we set up an entity and the government tried to do the right thing and grant some spectrum. And instead of sort of like, fast tracking this and allowing, you know, this project to become a reality. There was an enormous amount of infighting that essentially said that, you know, we were trying to steal the license, or we stole the license, or we were trying to monetize the license. And both me and Google were just like, forget this, this is not worth it. And we abandoned the project and walked away. Instead, Google ends up servicing a whole bunch of other countries. And the reason why Sri Lanka was part of it is because the balloons follow a certain orbit, and it would have it come, it would go over Sri Lanka, no matter what. So it's kind of like, we can light it up for free, all we need is spectrum in this country, Google's already doing that work. So, you know, I've gone there a few times. I found it very difficult to try to do the right thing. I think people, there's a level of infighting that I hope this crisis changes. I also think that it's an opportunity for people to reset writ large, the gerontocracy that runs many of these countries, including the United States, quite honestly. There is an opportunity, there are some, you know, of my friends who I think may emerge in the next few weeks, who are very well known people in that country who literally want to step one, remove most of the executive power from the presidency, make it a true, you know, parliamentary style system with an empowered prime minister and empowered elected officials and let the country run and fix itself, you know, deprioritize some defense spending, deprioritize the growth of the public sector, reprioritize the growth of the private sector. I hope they're successful. I would love to invest, if given the opportunity, under those kinds of market conditions, and I would love to go back at some point. But my history with the country has been very fraught because as I've gone to try to do the work, Friedberg, people are just haters. And they will cut their nose off despite the, you know, they'll just do the worst things possible.
SPEAKER_02: Chamath, I think you have a second swing at bat here. Only 50% or so of people in Sri Lanka have internet access. And maybe we could talk to our friend over at Starlink. And that could be an incredible mitzvah and changing thing there. If you get 100% of the country on internet, my God, that could change everything. And it seems completely doable.
SPEAKER_01: By the way, and this is the most literate country in the world. Do you have to understand, like the people in that country, the human potential in that country is incredible. Okay, there are not developing countries like this, that have this type of literacy, the kindness of the people. These are incredible, hardworking people. But the elected class is some of the most inward, navel-gazing, corrupt people. And this is the opportunity for the young people of that country to wipe the slate clean with all of them. And start over with some... I think, yeah, literacy rate is 92% or something crazy there.
SPEAKER_02: It's very high. It's a highly educated, literate group of people.
SPEAKER_01: The truth is the number of people living in extreme poverty
SPEAKER_02: has plummeted thanks to globalization. We went from almost 2 billion people living in extreme poverty. Now, that's going to end in our lifetimes. We have maybe 500, 600 million people living in extreme poverty. That's because of globalization. That's the great thing that's happened. Now, what's also happened at the same time is people have gotten out of sync. We have elites to Saks' point who think they know better, and they're trying to enforce on an emerging market or a frontier market, God forbid, the things that we have the luxury of doing in the developed world. We don't even do! Wait, hold on. We don't have a green...
SPEAKER_01: We haven't banned chemical fertilizers in the Western world. Well, we do have in Europe, has standards for gas mileage as
SPEAKER_02: but one example. We have emission standards. We have the accords that we've been working on. All of these things are starting in the developed world. And now exactly to what Dave was just saying is we're taking them from the developed world. We are imposing them and Sri Lanka apparently embraced it. I guess they get points when they're at Davos. Sri Lanka is not rich enough to resist. That's the issue. So
SPEAKER_00: the US has an ESG rating of 51%. Sri Lanka has 98%. Why is that? Because in our country, we're not going to impose these crazy mandates. There's enough resistance to it. But if you're in Sri Lanka and you have these massive loans and debt service, you have to do what the IMF and the World Bank and all these internationals... What your creditors tell you to do. Yes, exactly. They're the ones who imposed all this stuff. So great. So Sri Lanka ends up with a 98% near perfect ESG rating, even as the country is completely collapsing. Read the Shellenberger article here. He says, the underlying reason for the fall of Sri Lanka is as leaders fell under the spell of Western green elites peddling organic agriculture and ESG. And then he mentions that Sri Lanka has a near perfect score of 98, higher than Sweden, which is 96, US 51. What does having such a high ESG score mean? Short, it means that Sri Lanka's 2 million farmers were forced to stop using fertilizers and pesticides, laying waste to its critical agricultural sector. And then it goes on from there. So it was the imposition of... It's not that Sri Lanka's politicians implemented Sri Lankan ideas that caused the collapse of their country. They implemented Western ideas. They implemented the ideas... Well, they were also corrupt. So it was a combination.
SPEAKER_02: Sure enough. But they implemented the ideas they learned
SPEAKER_00: at Davos. It's almost perverse. You've got all these Western elites, again, like John Kerry and so forth. They fly in their private jets to Davos. They come up with these ESG rules. They coerce countries like Sri Lanka to obey them. And it's the people of Sri Lanka who end up paying the price. I mean, this doesn't make any sense. Yeah. What's your reaction to that, J. Cal? You're somehow going to blame this on Trump?
SPEAKER_02: No. I don't know how Trump has anything to do with this. You're the one who brought it up. Well, I mean, I'm just thinking about it from first principles. We should, as a species, humanity, should be trying to trend towards taking care of the planet and lowering emissions and being in renewables. And then how we go about doing it. Perhaps there was good intent here. But obviously, if the country is corrupt, and they're teetering already, and they don't have the bankroll to do it, forcing them to do it can lead to collapse. Nobody forced anybody. But what did the score give you? It's not
SPEAKER_01: as if it all of a sudden, by nature of you get your loans, if
SPEAKER_02: you do these ESG requirements, so that is forcing them de facto.
SPEAKER_01: Okay, fair enough. But I'm saying like, you know, now that you have this score, it's not as if you issued green bonds, and you could stave off this default. No, they do anything to
SPEAKER_02: what you said before is like, look at the Sri Sri Lanka should be looking at what Singapore did, and just copy the playbook, right? I mean, it's so obvious that, you know, a country, it
SPEAKER_01: requires a level of long term leadership, and a lack of, and a lack of corruption. And I think those those two things are very hard to come by. And I think a third, which is a very controversial statement to make is, it required Singapore to adopt English as a lingua franca. Now, in fairness to Singapore, they also embrace multiculturalism, right? So you had forced, you know, not forced, but you had bilingualism in the school. So Hindi, Malay, or sorry, Tamil, Malay, Chinese, right, you could you would learn all of those. And so, you know, you you kept an ethnocentricity to where you came from. But they they allowed you to understand a lingua franca that allowed you to merchandise your skills to the rest of the world.
SPEAKER_02: Are you saying they adopted the melting pot playbook, and they allowed everybody from around the world to have their culture but yet participate in a common goal? Oh, my God, literally, if you say melting pot to young people today, and everybody should try to adopt, you know, a new culture, but keep some of their own people find great offense to that. And that's what we were all taught the melting pot is what made this country great. I think Lee Kuan Yew just called it multiculturalism.
SPEAKER_01: But my point is that, you know, I think the English decision by Singapore was important. I think steady, predictable leadership by Lee Kuan Yew was really critical. Geography, policies, you know, the way in which they they promoted their public sector, meaning, you know, some of the best paying jobs in Singapore was a public sector job, right? Like you would aspire to work for the government of Singapore. And so as a result, you had policies and movements and the movement of capital and progress and rules that were just, it's an example for for so many countries. And you look where they are today for such a small population, they have the same GDP, by the way, you showed Vietnam, they have a larger GDP in the Vietnam, which is an incredible statement, you know, a testament to Singapore's ingenuity. So could that have been Sri Lanka? I think so knowing that the, you know, the
SPEAKER_01: levels of literacy and intelligence and, frankly, like, look, the religious stability that can come from Buddhism. Yet we're not there. We're where we are today, which is a shame.
SPEAKER_02: And this is the canary in the coal mine, I think we're going to see freeburg. I don't know what you think is going to happen over the next six months. But there's going to be other dominoes. Certainly, yes. I mean, I watch for Arab Spring
SPEAKER_04: type behavior, right? I mean, you saw the protests and people storming the presidential palace in Sri Lanka. You know, if I would imagine if we had a report from the intelligence advisors to the President of the United States, there's probably a long list and a growing list of these nations you want to keep an eye on right now, where there is food insecurity, energy insecurity, declining currency, you know, rising debt burden. And, you know, there's a breaking point for all of these. And as you start to hit that breaking point, you start to see more of what happened in Sri Lanka. Now, when destabilization like this happens, it's scary, because what happens is there's a new power that emerges. And those powers may or may not be aligned with the interests of the United States, with the interest of allies, with the interests of the world, with the interest of Western democracy. And so there are kind of scary moments that can emerge over the next couple of quarters and years, as these camel's back start to break, as one straw after another is put on the back of these camels. So, well, and who's the white
SPEAKER_02: knight who's going to come in and save? Yeah, and these frontier markets is going to be China, India, Russia, or the United States. We're plowing $40 billion into supporting the
SPEAKER_04: Ukraine conflict. You know, we're busy kind of protecting our energy interests and our interest with NATO as the United States. And as you point out, China will likely end up becoming the savior and supporter, particularly where they have infrastructure, investments and interests. I mean, I don't know if you guys have followed this. China has been building presidential palaces for African leaders throughout the continent. And these palaces, they're incredible. You guys should put photos of them on the video. Oh, sorry, wait, that's the wrong one. That's Saxe's house.
SPEAKER_02: Sorry. That's Saxe's other house. Sorry. Hold on. Next one. Believe it or not, they might put Saxe's house to shame
SPEAKER_04: some of these things, but they're really... Oh, look, they brought the Presidente Daugette. Oh, sorry. That's Chumat's.
SPEAKER_02: Next one. Anyway, but yeah, this is a moment to watch, because
SPEAKER_04: there's a very unfortunate confluence of circumstances that may lead to destabilization, that may lead to influence and power being gained by folks that aren't direct allies of the United States. And this is why you want to build up a great cash reserve and have a really
SPEAKER_02: stable economy so that when these moments do happen, the good actors of the world can take advantage of them as opposed to the bad ones. And the United States is not in a great position for this. Every society, as they say, is three missed meals away from chaos. There are now a record 19
SPEAKER_01: developing countries with sovereign debt trading at distress levels. 19. And two that have already defaulted. Yeah, just to start. Pakistan has nukes, right? I mean, if
SPEAKER_00: that's problematic. Well, and Pakistan, who's famous for
SPEAKER_02: enabling other countries, Iran, North Korea reportedly, they look at their nukes as an export, and they are more than willing to sell you. I just sent you guys a link from
SPEAKER_04: Forbes. There are currently, as of today, inflation protests going on across Sri Lanka, Albania, Argentina, Panama, Kenya, Ghana. And if you look at the videos and you look at the images of some of these protests, and again, there's like, in the African continent, there are very radical militant groups that will try and seize power if there's destabilization at the top. And there are risks in South America. I mean, all over the world, you know, these sorts of moments can catalyze a real shift in power and influence. And there's a lot of it going on. So you better believe that folks in the US State Department and the CIA are very busy right now. If you look at bond prices, the three
SPEAKER_01: countries that are the next closest to defaulting, so Russia has defaulted, but that was more a vagary of, you know, foreign currency controls that didn't allow them to pay, but Sri Lanka has officially defaulted, and the next three are El Salvador, Ghana, and Pakistan. Yeah. And by the way,
SPEAKER_04: Argentina, just so you guys know, the Argentinian print on inflation, last month was 61%. Yeah, yeah, yeah. If we think that our 9.1... Argentina, as you guys know, they had a structural default a few years ago, renegotiation. They've been back at the table over and over negotiating for years, and now they're facing this inflationary crisis yet again. It's a scary moment in Argentina. Yeah, this is exactly
SPEAKER_02: like the European crisis with Portugal, Italy, Greece, and Spain. We're going to see a lot of negotiations occurring. I really believe in this country, and I think the people are
SPEAKER_01: incredible. And I hope that whoever is the president basically takes as much power away from that role and puts it in the hand of the Prime Minister and gets out of the way. All right. We're hoping for the best. Okay, CPF,
SPEAKER_02: as everybody who listens to this show knows, is a basket of goods and services and how it changes over time. You can slice and dice the CPI based on food, energy, shelter, your house, etc. Last two months have been just extraordinary to watch, driven obviously by energy, which has been driven by the Russia-Ukrainian conflict, the Saks rant on Biden's administration. The core index doesn't include energy. And so if you were to look at the core index, you would see that the core index it and here's a chart 5.9% in June. And it peaked actually with 6.5% in March. So that's been trending down if you take energy out of it. We haven't
SPEAKER_00: experienced food I think are excluded from core. Yeah. And
SPEAKER_02: if we haven't, we haven't experienced core inflation like this since the 70s or 80s. Here's another chart just to show you exactly how jarring this has been for basically our generation. We haven't experienced this since if you were born in the 70s or so that's when it was higher than it is today. And we've had obviously goods and services plummet in our lifetime because of globalization and low interest rates. Energy hasn't seen inflation like this since the 70s. What is this chart? Is this CPI? What is that? That is the core. That's core inflation. That's core. So and then here's the energy one coming up next. So when you look at energy, obviously energy has been volatile in our lifetime because a lot of the oil in the world is controlled by dictators, Middle East, Russia, Venezuela, yada yada. But the 40% year-over-year increase in cost of gas and oil and energy has put us back to the mid 70s, 80s in terms of pain. That's this chart. So you see it's spiking all over the place. But generally it was under 20% and now we're back above 20%. It's all about the oil. Chamath, we were talking in the group chat before,
SPEAKER_02: you were kind of satisfied with 9.1. Do you think the 9.1 we're seeing in the inflation print today, which was higher than expectations, what is that going to lead to in terms of the interest rate hike? 75 basis points or you think they just go right to one? You know, we talked about this, that this
SPEAKER_01: was going to be a big print. I think we all expected this to be a big print. I actually also kind of put myself on a limb there and I said, I wouldn't be surprised if at some point we print a mid to high nines, maybe even a 10 handle at some point. And the reason is because rents are a little, they lag
SPEAKER_01: in how they're reported inside of CPI. So we have a couple more months to go of rents and rents aren't moving or budging a bit. That's number one. We do see a little bit of fall-off in energy prices, but I'm not so sure that it's enough, frankly, to move the needle. So I think that we could be in a sustained period for a while. The more interesting thing I thought today was that Canada surprised everybody and raised their benchmark interest rate by 100 basis points. Okay. So they just came to 100 bps and they just said, we're going for it. We need to tame this. We need to break the back of inflation. They ripped the bandaid off. Yeah. Yeah. And,
SPEAKER_01: uh, you know, and I think if you read the Fed minutes more carefully, I think Jerome Powell is basically ready to do the same thing. Yep. After this inflation print, the expectation for July went to 80 basis points from 75, which means a small percentage of people actually think is going to be 100. And September, I think moved to 75. Hmm. So the question is, is that enough? I just don't know. I, uh, I don't know. And to be clear, this is for June. The data we got on
SPEAKER_02: today, July 13th, is for June. What we did see in July, because we can track oil prices, that's down 20% month over month, and the CPI has been driven largely by oil. So speak to that, Shamath. What do you think it's going to be in July when we get it in August? No, but yes and no, because the, again, the
SPEAKER_01: owner equivalent rents are up so much that they may actually, you know, break even, right? Meaning rents go up by so much, oil goes down by so much, they cancel, and we're still at nine. Okay. So that's your prediction for July, which we'll get in
SPEAKER_02: August. You think nine? Yeah. I'm worried that we're in a
SPEAKER_01: sustained inflationary environment. I'm worried about that. I hope that we're not. Um, but then the question, Jason, secondarily is then what do the markets do? And what's so interesting today is like, the markets shook it all off. I mean, like, you could not have had a worse inflation print, everything was up. Well, 10. Meaning meaning like, it was beyond the number that was expected, every component of it was up, everything looked horrible. And people were like, man, is that because the market is future looking sacks? Yeah,
SPEAKER_02: market is basically pricing will get through this in six to 12 months. Is that what you're saying? The markets are down
SPEAKER_00: right now, to be clear, the the print was definitely worse than expected. They were expecting. Yeah, they were expecting 8.8%. It was 9.1. Last month's number was 8.6. I remember us talking about inflation a couple of months ago saying that we thought it had peaked, you know, maybe in April or May at the latest, simply because inflation is measured on a year over year basis. And we were starting to lap much bigger comps last year. Remember this conversation? Yes. Well, the lapping effect turned out not to be enough. And inflation is still rising. So we have not yet peaked on CPI, I understand that core, we have peaked, but deciding to exclude energy and food. I mean, that's a pretty arbitrary decision. Those are two really important variables that matter to the ordinary American for sure. So we solve this problem. And from Shama's point, we don't know when it's going to be when it's going to subside. And I think the big question now is, when does inflation finally peak and start going down back to where it should be? And then how much how severe recession do we have to have in order for the Fed to solve this problem? It feels
SPEAKER_02: like things are turning over in real estate. We talked about that last week, the number of homes being listed is skyrocketing. The number of mortgages being originated is plummeting while the rate goes up. So we're going to see mortgage rates probably go six 7% towards the end of the year. That's going to put a huge kibosh, the high end real estate is also starting to get hit massively. The number of listings is going up in the high end, and the number of cells is plummeting. So that was one of the cards we wanted to see turnover. And it looks like that's turning over just one
SPEAKER_01: small clarification is you know, we obsess over CPI right now because we're all kind of these fake macro wannabe traders. But I just want to remind you because the Fed has been pretty clear about this. They don't focus on CPI, they focus on something else instead called PCE, which is the personal consumption expenditure pricing. Yes. And I don't know what the flow through from CPI to PC API is exactly. But that is the broadest measure of goods and services, which does include food and energy. So it stands to reason that PCE may stay elevated for a while, which may give the Fed enough of the motivation they need to go 100 to go another hundred or maybe go 170. And then a 75. I think that David's point is right, like all this taming that we've been expecting to see we haven't seen it. So every month, it's like, oh, it's coming next month, every month has been happening next month. At some point, you may just have to say maybe we're in like a sustained period for a while. And I have to believe it's going up before I believe it's going to stay stable or go down. Well, we did
SPEAKER_02: see energy go down housing we are seeing now starting to contract the number of price cuts has been surging according to redfin. So I think we're starting and the layoffs obviously happened two months ago. So don't we think that we're starting to see the headwinds and then we were talking to a buddy of ours, who's big in the airline space. He said, God, and I think you were pointing out this statistic that he throw is now capping the number of people could fly because it's been so crazy. So overloaded with with
SPEAKER_01: traffic of passengers that they today came out and said we are capping the number of passengers to 100,000 a day. No more.
SPEAKER_02: And this is after the cost of those flights was skyrocketing, you know, six $7,000. I really go back to what sacks I really
SPEAKER_01: what's go back to what sack said before he this, the nugget for me of this entire summer was what he said about his takeaway from the co2 conference, right? Just to remind people, you know, that the person said something to the effect of, oh, well, look, all these other people will be saving money and cutting jobs I intend to hire and you know, nothing has changed for me. And the comment that I made in our group chat is, well, maybe that's the psychology of everybody. It's not just the CEO of a company. Yeah, just just to be clear, what what co2 did
SPEAKER_00: is they they polled all the founders in the audience. The poll results showed that on the one hand, everyone in the audience understood that we were headed for a big downturn, and economic conditions and fundraising are much tougher. On the other hand, all the founders are two thirds of them said they were going to use this downturn to accelerate their business, as opposed to cut my one on one conversation with the various founders basically are in line with that, which is, it's all not me, you know, I know everybody else is going to be impacted, it's gonna have to cut, but I'm going to be the one exception. And there will be exceptions, absolutely. But everybody can't be the exception. So I hear you're
SPEAKER_02: saying I'm going to still buy my car, I'm still going on my summer vacation, everybody else has to make cuts. Well, it
SPEAKER_01: doesn't matter what they say consumers are behaving that way. You know, American Airlines, basically put out what they where they thought they were going to be their stock was up 10%. You know, Heathrow says we have too much traffic, we're going to cap it at 100k. There was an article about, you know, US home prices and rents. And there were these two housing companies in the Wall Street Journal that were profiled. And both of them serve middle income neighborhoods in Houston and these other places. They're like, we've never done better business. And you know, there are fewer and fewer people buying homes because of mortgage rates. They all want to rent we you know, our complete have we have complete ball control. And so where is the stopping and the slowing down of spending? It just may be reflexively this thing where everybody feels like to be you know, to have the polite dinner conversation, they have to talk about how they're pulling back. It doesn't seem like anybody's pulling back. Asterity measures have not hit
SPEAKER_02: yet. Yeah. Well, I think I think they are in the process of
SPEAKER_00: working but it just takes a while. I mean, what I would say is like we are 100% going to solve this inflation problem. Why do I say that? Because price levels are fully within the
SPEAKER_00: power of the Fed, they just have to raise interest rates high enough. Paul Volcker proved that in the early 1980s, he had to raise interest rates as high as 20%. But he crushed the inflation 1970s. But that's what it took. So I have no doubt that the Fed can stop inflation. I think the question is, how much pain are they gonna have to inflict? How high do rates have to go? And how long do we live through this sort of stagflationary period? And that's the unsettling thing is where it is, it doesn't seem like we're anywhere near the end of this yet. I wrote this, I wrote this last week in a
SPEAKER_01: little note. But this is why if you look at the Taylor rate again, and you know, people have abandoned the Taylor rate, it's not what it used to be, I guess, but you know, it's still pretty directionally accurate, which is what is the true equilibrium interest rate that allows us to basically manage and meet supply and demand together so that we have a calm, stable economy. And that that stable equilibrium rate is approaching 5%. You know, our target, the collective wisdom of the of the market believes that 3% is enough to get the job done. We're right now at 1.5 to 1.75. So if there's any number between three and five, that is the true price. We have a lot of work to do to get there. Yeah, I think that's a
SPEAKER_00: really good point, because the 10 year T bill has been kind of floating around 3%. So that is the long term expectation of the interest rates that's required to have sort of normal inflation. But what if it's 4% or if it's 5%? If that ends up being the case, it'd be a huge downside surprise to the stock market. Well, how would you define that 10% pullback 20%
SPEAKER_02: pullback from here? Well, you have a bunch of things that we
SPEAKER_01: talked about this other issue before as well, which is, if you believe the stock market is fairly valid, you have to believe that prices are right. And that the earnings are right, right. So because it's effectually it all boils down to the price earnings ratio of the S&P 500. And I'm going to still maintain that the E is wrong. The earnings are wrong for most of these companies. So let's look why. Well, one is that when these companies start to report their quarterly earnings starting in the next few days, the year over year comparison is going to be to the numbers that they posted in Q2 of 2021, which by all accounts was a blowout number. Why? Because the number before that was 2020, where their business was zero, right. So you have these incredibly tough comps, in terms of growth percentages that you have to reach, which I don't think are achievable. Second, is everybody's costs of making and selling things is going up, which stands to reason that unless you raise prices quickly enough, your profits will go down. Third, if you actually do business outside of the United States, the US dollar has rallied so much, that you actually have less income that you're making in these other countries when you convert them and bring them back to the United States. Now, most people look through that last issue. But the point is, if you add this all up, there is a reasonable probability that the all the ease are wrong. In which case, we have to reassess what the right E should be, in which case, what is the right PE? Yes, and earnings are a
SPEAKER_02: function of what you spend and what you make. So that's why we see so many companies doing layoffs, cutting people, Microsoft, Google, everybody is now putting people on notice. They're not their form. They're firing white collar labor, but
SPEAKER_01: they're hiring, you know, blue collar labor faster. And so you know, we're actually going to see a downtick in productivity, right? You're replacing a person that, you know, may sit down at a desk and use a computer eight to 10 hours a day to do something, but you're hiring a lot of people that, you know, may get paid by the hour or make it paid a fixed salary if you do the right kind of work, but that qualifies as as more contractual blue collar labor. The difference in that is a productivity difference, ultimately. And just so
SPEAKER_02: everybody knows, for PEs price earning ratios over time, here's a quick chart for you currently. And this is for the S&P 500. We're currently at 20 or so and we have twice in our lifetime kind of hit that, you know, 13 1415 level. So we could have a 25% correction from here in the stock market. If you look at the highs, our recent high in December of 2020, we're at 38 price earnings ratio. So we've fallen from 38 down to 20. You know, almost in half, and we could still go down 25% from here. And that would basically not even set a new record that would just hit the last two crises we had the thing that the
SPEAKER_01: the thing that I think will work against this happening, Jason. So yeah, you're right, the maybe it goes to 3000 or 30,000. But if you look again today, you know, and what I mean by like the market has roughly shaken this off, like the fact that the markets right now, as we as we talk are, you know, are essentially down half a point, you know, the S&P is down, you know, 12 points. It means that they are looking for any and all reasons to say this is a solved problem, move on, nothing to see here. Now, that is a psychological reaction. Most of that, if you actually I called a friend today, and I said, Where are the flows? And he said, you know, retail right now is where all the flows are meaning it's retail that's buying there in the 30th 35th percentile of where they normally buy, which is a pretty healthy signal. Wait, explain what you mean?
SPEAKER_01: Who's by so the way the market works, basically, is your buyers and sellers. And, you know, to make it really, really simple, you have hedge funds as one class of buyer. Sure, you have ETFs, but they're, they're not really funds. Yeah, but they have fixed strategies. And so you know, they're hedging, they're moving, but whatever. And then you have retail. Okay, so it's retail and hedge funds, those are the two main pockets of, of where the flows come into the stock market from. And you can get a real sense of what's happening, what the psychology of the market is, if you see what those flows are. And right now, what we see is that hedge funds are largely on the sidelines. The way it means is they are, well, they've been so battered and bruised. In some ways, I think they're licking their wounds. But they're mostly waiting there. They do not find a compelling reason to buy. Right. But they have to buy at
SPEAKER_02: some point, right? Shemoth, this is their business. No, well, other opportunities, right? Their business is to make money
SPEAKER_01: relative to their index. And so if their index gets torched, they doing nothing makes them look like geniuses. So they don't necessarily have to buy at any point, they just need to make money at in the end. So right now, we're in a situation where the markets are looking for a direction. Retail seems to think that direction should be up. hedge funds don't have an opinion or saying, we're just going to wait this thing out. Okay. Meanwhile, the data at best is a question mark. And I think that's the that's attention we have right now in the stock market is the psychological desires for this thing to be over. Meaning I think people want to hear inflation is done. We're starting the recession. Give us three or four quarters, we'll be out. Here's a steady state interest rate. Let's go tech. People want to accept the
SPEAKER_02: reality freeburg. Does that mean that we're bouncing along the bottom for the next year? And then this is the time or the opportunity to buy? I don't want to give financial advice. But what are your thoughts if hedge funds in retail are kind of waiting in the wings? If the stock market is at a bottom?
SPEAKER_04: I are we bouncing along the bottom? Yes. Or what would you
SPEAKER_02: how would you describe the next year? If you were to look at it? What do you think? I'll tell you guys some stories. I went to a
SPEAKER_04: conference in March, with a lot of fund managers probably managed several trillion dollars in total. People were like in shock and awe at that conference because they had taken such significant write downs, and they were still getting written down. So all their investments were off. They were off 40% from the peak. They were freaking out, things were collapsing. No one was doing anything. They were all sitting on the sidelines, hanging out waiting. I went to a conference last week. And so the tone and the demeanor was just like morose. Last week, I went to a conference with a lot of managers, also probably managing trillions of dollars across the pool. And people were just kind of they had accepted this new reality. And they were kind of willing to look at new things. And, you know, they were no longer engaged in trying to shore up just their portfolio. And a lot of the stuff we talk about, which I think is tactical on the ground, how do we deal with our businesses, and our portfolio of investments that we actively work with in the private markets. They were much more interested in kind of starting to explore and think about new things. And I hadn't seen that three months ago. So that's a positive sign. From a market participant point of view, I think that folks have kind of call it accepted a new normal, an inflationary normal, a high volatility, normal, you know, a normal of uncertainty, a normal of kind of recession. And as people have started to kind of internalize that new normal, I think they're now starting to say, okay, what should my action plan be? And that action plan is I've got trillions of dollars of capital sitting on the sidelines, what should I start to do with it? So, you know, my very, very, very anecdotal experience has been that significant market participants, I think, are going to start to perk their head up this quarter, and start to think about doing new things. What that translates into in terms of, you know, stock price movements and indices, I don't know, I've always said that there's going to be a huge variation in outcome during this year. And some industries, some sectors, some types of businesses will outperform others. And so I don't want to create generalized statements about indices. But I do think that capital activity is going to start to come back this quarter, where people are going to start to think about what to do rather than pull everything out because of the massive shift that's happened in the past couple of quarters. Sax, what are you as a market participant thinking you're
SPEAKER_02: looking at series A's, maybe doing some opportunistic flat rounds? Are you looking at the startup market mid stage market and saying, Hey, this is an opportunity, maybe I should start looking to put some money to work in the next six to 12 months? Or are you we're still investing, you're still investing. Yes, as a
SPEAKER_00: market participant, you're investing, what are you investing, but we see that the pace of deal making is slowed
SPEAKER_00: way down because founders know that valuations have gone down, the fundraising environment is tougher. So last year, they're raising every nine months now they know they should probably be raising it once every two years. So the pace has slowed way down. That's a good thing. Yeah, I think it's healthier.
SPEAKER_00: It's more it's healthier. Yeah, it's more normalized. You know, last year, the companies that could raise did raise they have
SPEAKER_00: big war chest. So I think there's going to be a delay. It's definitely a slower period. We've done a couple of growth deals recently. I think the fact that tiger and the other kind of crossover investors the fact they've pulled back way back from venture markets gives smaller firms like us an opportunity to do growth deals. So how did you make the decision
SPEAKER_02: to invest in those companies? They're both companies we've known for a long time. I've wanted to ask for a while. So,
SPEAKER_00: you know, the the opportunity arose to invest and it was way less competitive than it would have been. So this is what you call opportunistic you you know, the firm you had high confidence
SPEAKER_02: in them and opportunistic money. Yeah, we basically done two deals in the last like four months. And then what was your
SPEAKER_00: pace? Let's say 18 months ago. It was a little faster than that
SPEAKER_02: for sure. There's more deal deals happening. So interesting
SPEAKER_00: if you want to think about tail risk where there's some
SPEAKER_04: event that can massively shift the market, you know, the indices South right make them go negative and everyone pulls money out of equities or out of bonds further. There are some of those events brewing right we've talked about the consumer Taiwan where as we talked, maybe Taiwan, maybe this emerging market crisis that may kind of be emerging. These are like little turtles putting their heads out, they may not come out but there's enough of these turtles now that they're enough of these turtles now, you know, kind of circling you that you know, there's still reason to be wary, whereas let alone a black swan event, which would be undefined, even black
SPEAKER_04: swans, these are just like significant known risks, known but significant risks, right? Yeah. And if any of them do kind of take off, you know, we're already in a very shaky kind of period right now where we're trying to manage inflation and recession. And you know, businesses are trying to raise capital. And again, this is why a lot of biotech companies are trading below cash, because the expectation is they're not gonna be able to raise capital. I mean, anyone will go out of business. So boom, you know, you start to see things go. So I think that's the reason people, investors, portfolio managers are not going to kind of rush back into putting more money into equities is just you know, sitting around waiting to see how a few of these things resolve. You know, before kind of taking, but there are companies that do not face the
SPEAKER_02: risk of ruin, they just are sitting on so much cash, they have so much revenue that there's no chance of that. Yeah, I've always said it doesn't matter if you find a
SPEAKER_04: great business, and you believe in that business over the very long run, you don't need to worry about timing the markets, you put money in that business, as long as you get a fair valuation for it today relative to what it should be priced at, based on what markets are telling you, 20 PE would be more
SPEAKER_02: than fair history, who knows, but like whatever that whatever
SPEAKER_04: that is, but if you find a great business that you think is going to compound value for you, over the very long run, market cycles don't matter. And long run, you mean a decade? Yeah, call it a
SPEAKER_04: decade. And you know, Sax's business, he's invested in these are tech companies that I don't think they're planning to go public next year, he's making an investment in a business that he considers to be a great business that can compound value, not compound valuation, but compound business value, meaning they can do something more valuable next year than they were doing this year, and continue to accrue an advantage in their business that allows them to accumulate earnings over time or accumulate revenue that ultimately translates into earnings over time. And there are many businesses that are public that that operate like that, that regardless of any of these turtles, popping their head out, those businesses will perform well over the next decade. And I think, you know, that's always a great place to invest. So we basically went
SPEAKER_02: from D day saving private Ryan and seen, you know, in the first quarter, to now people have accepted we're in wartime, and we're not shell shocked. And some people are looking for opportunities. Shemagh, you found an opportunity, maybe you could talk about the deal you did this week.
SPEAKER_01: You know, I tend to agree with Friedberg. I mean, you find these businesses that you like, and if they appeal to you, and you do your work, that's the most important thing. You shouldn't be afraid to write a check.
SPEAKER_02: Can you stop right there and just say, define what you mean by do the work? Because everybody hears you say that. What does that mean for an investor for somebody like yourself? What is doing the work mean?
SPEAKER_01: It really depends on the sector. So for example, when you know, when, when we were, when I was trying to underwrite Opendoor, what I really wanted to understand was, you know, what do take rates look like in all these various markets? How do I think take rates will evolve here? How do value added services work? What kind of margins can you sustain? What is the sensitivity of different parts of the real estate economy to interest rates? You know, that's an example of work. When I was underwriting SoFi, you know, what you're trying to understand is, you know, how do banks generate net net interest income, you know, NIM? How does that change over time? How does bank charters change that? You know, how do loss rates change in in, you know, times of economic expansion versus recessions? How do you price all of that into a fair, fair value of a business? It's just a lot of really detailed diligence to understand all the facets or as many of the facets as possible of a business that allow you to have a clear eye sense of what's possible. Then there are others, which are pure technology bets, where you try to understand either the biology or the technology. So in the case of the deal that I did, you know, today, or this past week, myself, a bunch of family offices around the world, led by a great chairman Pablo Lagerata, who started a phenomenal business called Royalty Pharma, which is public, Carlos Slim, a bunch of folks, we put in about half a billion dollars to to help advance into, you know, clinical trials, this business that's trying to provide a solution to chronic kidney disease. So in that example, it was a lot of scientific diligence on what are the existing solutions? How do they work? What is the mechanism of action inside the body? How is this the same or different? What is the early data say? How are the clinical trials structured? And then you come to an answer. In this case, I decided the bet was worth taking. And, you know, like free. So the name of the company, and what they do, the company is called pro kidney. And basically, the idea is that it uses your own body to help heal your kidneys. If you are on the verge of chronic kidney disease, or you are getting dialysis, etc. And essentially, how it works is it removes cells from your body from your kidney, actually. And then it does basically puts it into a centrifuge does some specific things to it grows and amplifies certain cell lines from your kidney and then re injects those back into your kidney and tries to improve what's called your egfr, which is your estimated glomular filtration rate, which is essentially a number that we can use to estimate how efficient your kidneys are. And essentially, when you are, you know, a type two diabetic, or you have chronic kidney disease or kidney failure, or you're on dialysis, it's because that filtration capability has failed. And so all these toxins are getting pushed back into your body. And so yeah, we took a, you know, half a billion dollar shot, I wrote $125 million check, I hope it works. That's amazing. Freeburg, we
SPEAKER_02: saw some satellite images this week, Biden, I guess announced them, they looked pretty trippy, explain to us what the downstream effect of what is I think the the most clear picture we're seeing of the cosmos ever created and what that could actually do for humanity. Well, this is short, and this has nothing to do with Biden, but okay, no, I just that Biden
SPEAKER_02: showed it on Monday. I just that's all it was he made it he they specifically had him share it, which I think maybe they were looking for a mini win or something good for him. Um, he
SPEAKER_04: has nothing to do with this program. I don't mean I just mean that like the scientists and the engineers that worked on this for many years deserve all the friggin credit. The James Webb telescope is a space telescope, just like the Hubble, right? Remember the Hubble Space Telescope, and this is a massive improvement over the hole. So imagine you're you're in a boat and you're trying to look at the bottom of the ocean, you take a bunch of binoculars, pair of binoculars, you look into the ocean, you try and see what's at the bottom of the ocean, how hard that would be right, there's all this murky stuff in the water, it's gonna be really hard to see it. The reason that we create a space telescope is because the same problem that we would have looking at a telescope through the Earth's atmosphere doesn't impact the light coming into the telescope. And so there's so much stuff in the atmosphere, right? There's miles of molecules and dirt and dust moving around. So by putting a telescope in space, we get rid of all that murkiness. And now we can really capture the light that is coming from far far away, concentrate that light onto really sensitive photo detectors. These are photo detectors that operate at nearly the coldest point in the universe, negative 263 Kelvin. And that photo detector makes
SPEAKER_04: it extremely sensitive. And using a 20 foot wide mirror, we can capture all the light that's coming in, concentrate onto the photo detector and read that light. And so why is this important? Why is this interesting? Well, people get really excited by and flip out over the cool imagery that they see these images, these colorful images of galaxies and stars far, far away. What we're really doing is we're not just looking far away, we're looking back in time. So these, these images come to us from galaxies that are 4.6 billion light years away. So it took 4.6 billion years for that light to reach our planet. And we're actually seeing what happened in the earlier part of the universe. And we're seeing how these galaxies formed, how they're moving, how they interact with one another, how the planets interact with one another, how the planets interact with one another. But what a lot of people miss that I think is the most important thing to highlight as an astrophysicist, when you're looking through telescopes and gathering telescope data, you're not looking for imagery like we looked at today. That's really good to sell the story and get Biden to do a press conference. What they're really looking at a spectrographs and a spectrograph is, you know, it shows for every wavelength of light across some spectrum, what the intensity is of that amount of light that that wavelength of light. And the James Webb telescope has incredible micro shutter arrays, and incredible sensitivity that allows us to go from near infrared to infrared and some visible light and look at that spectrograph. Why is that important? Because if you can capture the spectrograph in a very high resolution way for a sun or for a planet far away, it can tell you very specifically what the movement is and what the chemical composition is of that object. And from that we can start to do incredible research and infer very important things about how planets form, how stars form, how many places like Earth might be out there, how things are moving, how much mass or matter there is in the universe. And there are two very, very big question questionable phenomenons in astrophysics right now. One is called dark energy, one's called dark matter. Turns out the majority of matter in the universe is undetectable. And there also is this really weird energy force pushing on everything in the universe, causing the universe to accelerate its expansion. So the universe is expanding, everything's moving away from itself, but it's not just expanding and slowing down, it's expanding and speeding up. And so having this sort of instrument in space that allows us to capture in a very high resolution way, using spectroscopy and other tools that astrophysicists use, and better map out how this is happening in different parts of the universe starts to give us a better sense and allows us to kind of inquire and start to develop theories around what's really going on. And I want to say one more thing, because a lot of people think that this stuff is just so esoteric, and it's like super interesting. Why are we spending $10 billion on this? Most applied engineering and the technologies that we've developed as a species started out initially as pure research with no friggin clue where it was going to go to. Imaging DNA, penicillin, electronics, MRI machines, so many of these capabilities evolved from scientists just querying the universe and asking questions and gathering data. And all of a sudden, they came across something, developed a theory, built an application of that theory, and a technology emerged that changed the course of our history as a species. And that's the reason to do pure research. And that's the reason it's so important for us to put $10 billion into a program like this, we're going to discover amazing things with this tool. And it will ultimately, hopefully yield advances for humankind that we cannot even contemplate today. So I mean, energy, right? I mean,
SPEAKER_02: understanding dark matter, or dark energy, totally. And then
SPEAKER_04: maybe we changed everything in energy, right? Think about it one day, there might be a capability where we say there's a new class of matter and a new understanding of energy that we can then apply in some form of physics on Earth, that we can do something interesting with. And we have to be able to query and understand the universe to do that. Could we measure it?
SPEAKER_01: There we go. We measure the matter from Uranus. I knew it
SPEAKER_02: was coming. I mean, the Hubble telescope, actually, if correct me if I'm wrong here, it actually told us the universe. How much dark matter is in Uranus, a lot, a lot, you're full of it. But we now know that I mean, Hubble told us the rate of expansion of the universe. And it also told us the age of the universe. And we found all these other planets totally to freebergs point about, you know, looking here, you know, through the through the muddy water. Here's a great visualization on the left, you have Hubble on the right, you totally have lab beautiful. And if you slide this, you can just see like, just how crystal clear and these images are. And from my understanding, we found some number of universes already that we didn't know just from the first images. By the way, I
SPEAKER_04: want to just give everyone a heads up this imagery looks beautiful. And I'm going to print out a big one, I'll put it behind my friggin desk here because I think it's so fantastic. astrophotography is one of my kind of all time, you know, favorite forms of art. But remember, this is imagery that was actually captured in near infrared and infrared spectra. And then they converted it to visible light to make it look cool. So remember that these images, you know that these clouds, if you were actually there, don't actually look like that color. But it's a very cool way to visualize the density and the spectral changes. Where does this sit for you in terms of
SPEAKER_02: your excitement between the new season of Doctor Who, and the foundation series? Let me give you let me let me just give you
SPEAKER_04: guys one more kind of really interesting if you started our sun, and you look at the sun, it's super bright. If you go at the speed of light for four minutes, you reach the earth or a couple of minutes, you reach the earth, look backwards, six minutes or seven minutes, whatever it is, look back. And now the sun looks like it does in our sky. If you go for another couple of minutes, you end up looking back from Saturn and the sun starts to look like a star. I mean, that's how how dim it gets. Now imagine continuing to go the speed of light for another hour, you look back, you'll hardly be able to differentiate the sun from the rest of the universe. Now do that for 4.6 billion years, and you're shooting away for 4.6 billion years. Now look back, how friggin hard would it be to see anything? That's the technical capability we just put into space, we've built a 20 foot wide mirror to concentrate the light the photons that traveled for 4.6 billion years, lost all of their density, lost all of the completely dimmed out, completely diffused. And we're capturing a few of them run that concentrated way onto a detector for minutes at a time and generate this image. It's really profound how technically complex this is. And again, that technical complexity can ultimately yield other technological tools that we could use in all sorts of industry. So I just I just want to highlight that. I posted it for you guys. It's an incredible
SPEAKER_01: story. But basically, this program was riddled with delays and things that weren't working. And then they put this quiet, very assuming engineer in charge of it. And he completely turned the whole thing around. And it's one of the most incredible quotes. What's his name? Let's give him a shout
SPEAKER_04: out. His name is Greg Robinson. And he turned a 10 billion
SPEAKER_01: dollar debacle into a groundbreaking scientific mission. This is the quote from the Wall Street Journal. The quote from the NASA, the head of NASA's Science Mission Directorate, Thomas Zurbuchen says it all. There's a huge distance between success and failure and only a few actions that move you from one to the other. He said, Greg Robinson worked such wonders that his boss calls him, quote, the most effective leader of a mission I have ever seen in the history of NASA, unquote. Really incredible. This project. Yeah,
SPEAKER_02: the 11 billion dollars project. Big challenge, Greg Robinson. Yeah. And this has been going on for, I guess, 20 years now. This process of getting this built in 10 years of really intense building. What would the next, and then we'll switch over to politics for a quick second as we wrap up here. Freiberg, what's the next telescope? Because obviously, if we've gone Hubble to Webb, what would the next one conceivably look like? And what would the timeline for that? Is there another one that's going to come? And then what would that enable? Because it does feel like if we accelerate this, we're going to really get a deep understanding of the universe that it seems to be accelerating our understanding, correct? And our technology is obviously accelerating. So it feels like we could, you know, send another one of these out in the next 10 years that would dwarf this one's capabilities. Yeah, so a lot of telescopes operate at different wavelengths,
SPEAKER_04: and they're meant to kind of pursue different missions. So you know, there are there are some telescopes that are already operational and kind of the gamma ray spectra. But really, there's a, we I don't know if we ever talked about this on the show, but one of the really interesting areas of inquiry is is these gravitational wave detectors. And there are new, more advanced versions of those systems starting to come online. Those are not space based telescopes. They're and we can talk about that another time. But they're creating new methods of inquiry, where we're not capturing photons, light, coming from far away, we're actually capturing the waves of gravity coming from interactions of matter around the universe. And it's a new way to kind of observe the universe. Those telescopes represent a new class of inquiry that was just kind of, you know, discovered a few years ago, and proven out and now there's there's a lot of work going on into that area. And freeburg you had something you wanted to give a shout out
SPEAKER_02: to Yeah, I just sent you guys a photo of a new dog I adopted
SPEAKER_04: last week. Her name is Daisy. We flew her out from Virginia. Daisy is one of 4000 beagles that were rescued from a
SPEAKER_04: facility in Virginia that was shut down by the DOJ. This facility was investigated by PETA and the Humane Society. And they basically shut this facility down. This is in the United States, we only do animal testing on beagles. They're the only dogs that we do animal testing on, because they can put up with pain and they have a high tolerance and a high threshold for pain. It's a really awful fact. We need to change that in the United States. The FDA does not provide good guidance on this. So pharma companies, pesticide companies, makeup companies, very often test on beagles. So this company, you know, that was operating this beagle facility in Virginia was shut down for, you know, ethical issues at their facility. And the Humane Society took control. The company's called Envigo, their parent company is publicly traded. I think that the fact that we test on these beagles in this country is awful. We adopted Daisy. There are 4000 beagles like Daisy available for adoption. I'll put some links in the show notes here. People feel free to go and grab them. I'm sure this long list of the dog is absolutely incredible. I think that it's awful. We test on dogs in this country. And I think I urge anyone that has influence with the FDA to get them to provide better guidance. This is not the law. It's not required and they don't provide good guidance. And so a lot of companies de facto and default to testing on beagles when they really don't need to and shouldn't. So let me ask you, let me ask you a question. I
SPEAKER_01: think it's incredible that you adopted the dog. I hope all 4000 get adopted. How should we do testing? Totally. I
SPEAKER_04: look, I think that there's a there's really important ethical lines here and we can debate those. This is a good nuanced conversation. We use mouse models in biology to explore solutions for human disease. We we use primate models, right, which means we use primates. We use dogs. We use cats. We use mammals. There are there are certain things that are obviously not necessary. We don't need to take beagles and pour tons of Kim Kardashian's newest makeup line in their eyes to see what happens. It's not required by law and it's not about getting some pharmaceutical drug approved. This is in an area that I'm you know, I'm not going to get into the debate on on exploring and resolving kind of pharmaceutical solutions and things that can actually treat human disease. Where I'm particularly sensitive to is when it's not needed and when we're taking these animals and just doing awful things to them when there's no law that requires it. We're not putting stuff in our bodies and this isn't about you know, protecting humans. It's really about cover your ass behavior for makeup companies and pesticide companies that they don't need to be doing and that's really what I'm addressing. 3999 beagles to go. If you adopt one of these beagles, send
SPEAKER_02: us a photo and we'll share it at the end of next week's program. Thanks for letting me say that guys. It's really
SPEAKER_04: important to me. I think it's super important and how we
SPEAKER_02: treat dogs who are connected to humans in a very special way. I think speaks volumes to us as individuals. Sax, would you like to well on the Biden administration talk about 2022 or give us an update on Ukraine? I give you the choices.
SPEAKER_00: I mean it's like elder abuse at this point. I mean I know you're trying to. Oh my god. Can I ask you a question? Okay.
SPEAKER_02: I know you're trying to team me up here but like all I can say
SPEAKER_00: is 9.1%. I don't want to beat a dead horse at this point. Can I
SPEAKER_01: read you guys something and you can tell me there were these there's a there's a group called Committee to Unleash Prosperity but two researchers, Steven Moore and John Decker. This is in the Wall Street Journal article I posted in the group chat. The pair studied the resumes of 68 top executive branch officials whose work shapes the economy from President Biden and Treasury Secretary Janet Yellen to White House Special Assistance on Economic Policy. Quote, average business experience of Biden appointees is only 2.4 years. What? Any fresh-faced 25-year-old on Wall Street has clocked more private business hours, again I'm reading from the Journal article, than most of Washington's top officials. 62% have quote virtually no business experience unquote. And we could add Bloomberg. By contrast, the average Donald Trump cabinet official had 13 years of experience in the private economy, the others say. What a disaster. Well it's like 60 something
SPEAKER_02:
SPEAKER_00: percent of Democrats want to get rid of Biden. They don't want him to run again. I've never seen a president been defected on, been turned on by his own party so quickly into an administration. He needs to take back ownership of the
SPEAKER_01: Democratic Party, which means he has to pivot back to the center and he needs to have a wholesale replacement of the team that he works with on domestic policy. It's not working. And Chammat, that was his pitch. We're going to go
SPEAKER_02: back to normalcy. He was going to be, you know, more of a centrist and that's not what we've gotten. But of course he was handed the disastrous economy that Trump created. Why do you say he was handed a disastrous economy? Well,
SPEAKER_02: because of COVID and because of the massive stimulus that we spent those two things. That was like a setup. I mean, if Trump won a second, do you think it would be much different if Trump was running the economy with the setup was there? Trump probably would have spent more money, right? Trump wanted to spend more money. That's a really good question. Actually,
SPEAKER_01: I have to think through that. That's a really good question. Let's move on. What's the update on Ukraine? There's a
SPEAKER_00: really interesting chess game going on right now where the Russians are slowing the flow of gas. No, no, no. It's better
SPEAKER_01: than that. It's better than that. They shut down Nord Stream one for their annual maintenance. Bullshit. It's supposed to be back up by July 21st. And so the real question is what happens if Putin hand checks Europe and just takes an extra day or two to get that thing back up and going. It's a. Let me make a prediction. I think the Western Alliance is
SPEAKER_00: going to fracture come this winter. Yeah. Germany's going to
SPEAKER_02: be freezing. The Germans are not going to take this well when they can't put their heat on. Listen, a foreign policy based
SPEAKER_00: on virtue signaling is one thing when your economy is good and you're not worried about your energy security and you can heat your homes. It's another thing to have a foreign policy based on virtue signaling when your economy is in recession. You got runaway inflation and you're in winter and you can't heat your homes. Your morals change real quick,
SPEAKER_02: don't they? Yeah. Three or 4 months ago, the liberal
SPEAKER_00: interventionists were triumphant about this Ukraine war. There are three big predictions. One that Ukraine was going to win. It looked like Ukraine was winning the first couple of weeks, but now it looks like Russia has won this Donbass region. Number two, they predicted that we would collapse the Russian economy with all these sanctions. The opposite happened. We've collapsed our own economy and number three, they predicted this would strengthen the Western Alliance. That's the only card that hasn't you know basically turned yet and I think it will this this winter. I think you're going to see serious opposition to the way the Biden administration has led the Western response. I think it's well said that if Germany has
SPEAKER_02: the gas lines that Sri Lanka had you would see a definite fracturing of how people look at it just like they flipped last week and they made natural gas and nukes nuclear power a green energy. So yeah, their morals and ethics and their virtue signaling go as far as their wallets and their heat and meals go as we all know this has been another amazing episode of the all in podcast for the Baron of beagles the dictator himself and the rain man. Yeah, it's definitely Biden's fault. Now there is no chance for any of us to pass
SPEAKER_01: freeburg on the popularity. He's just he just sealed the deal with this **** legal thing. I know I know what do we do? I'm going to save a whale next week. I'm going to bring a dolphin that I kill myself. How about that? Oh, you're going to
SPEAKER_02: prepare dolphins. That's Jimmy. Okay. Great. That'll that'll cure your part as the most hated bestie. We'll see you all next time on episode Eighty-eight. Good luck. Eighty-eight Bye. of the all in podcast. Bye bye. Love you besties. Bye bye.
SPEAKER_03: My We should all just get a room and just have one big you George because they're all just like this like sexual tension but they just need to release them out.
