SPEAKER_04: Hey, everybody. Welcome to Episode 98 of the all in podcast with us again. The Sultan of Science, the queen of quinoa looks like he brought a trucker hat. What are you getting jealous of the Moncler hat or just not bathing? And I need to have her. I haven't had an airgun like six weeks. I'm
SPEAKER_02: getting my hair cut this afternoon. It's not gonna make a
SPEAKER_03: difference. I think what freeburg is trying to tell us is that he is the zodiac killer. All right, there is the unibar. All right, and Moncler, Sax is
SPEAKER_04: here with his $400 Moncler hat. And of course, the dictator himself. I asked Ron, I asked Ron to cut my hair so that the
SPEAKER_03: white patch is more prominent. I think he did a good job. Do you
SPEAKER_02: add the white patch with coloring or is it? No, it's
SPEAKER_03: natural. It's just there. It's just there. No, it looks so odd
SPEAKER_04: if you were doing it on purpose. It's super random. I like the way it looks. I like the way it looks. Jay Leno had a look like
SPEAKER_01: that. I'm about to go by the way, you know this in the fall
SPEAKER_03: in truffle season, I like to grow it so that it's more wavy white for white truffle season. Got it. I needed to have a reset cut. So then we could grow wavy for the fall for truffle season.
SPEAKER_01: Listen, to mouth the only thing less relevant to us and your cashmere sweaters is your haircut. Rain man David. All
SPEAKER_04: right, suck announced a hiring freeze and reorg at meta he also said meta will reduce headcount for the first time in its history. Metas headcount in 2023 will be smaller than it was this year he called it the end of an era of rapid growth. This on top of Apple reporting and Apple got walloped in the market for the first time in forever. Apple pullback iPhone production for the 14 after slower than anticipated demand. As I mentioned on previous episodes, they've kind of done a gentleman's layoff. Similar to I think meta in that Apple said you have to be back in the office three days a week a bunch of people quit. So you don't have to pay them I guess huge packages when they quit that way. Google CEO Sundar Pichai also called out employees in July as you guys all read. And he wrote there are real concerns that our productivity as a whole is not where it needs to be for the headcount we have Google of course, 174,000 employees. So I guess the question I have for you is, are these the last hours to fall tomorrow in this pullback that we've seen? These are companies that don't need to do the layoffs, they have tons of cash. So they're obviously doing that to maintain earnings, one would enter maybe send a signal to employees that they need to work harder, what's your read on these this past week's shoes to drop? Well, it definitely is the end of an era. I think it is sort of
SPEAKER_03: like the the end of this phase of big tech where you had this, you know, unfettered growth, where these business models were largely unassailable. And they, you know, we're really just fighting to grow into their valuation and just generate more revenue to justify where they where they traded at. And now it's this next phase where they have to operate more like a cash cow business. And so you know, it's an acknowledgement that the growth is tapering. It's an acknowledgement that they're going to trade on a pretty tight band in terms of multiple, which means that they have to manage expenses much more tightly, which means that they can't have a really broad based surface area in which to operate an experiment, you have to keep the experiment small, you have to manage your expenses, you can't have employees, basically, you know, run over the place management has to have a firm hand in in dictating strategy and what people work on. So I think all of that signals that I actually, Jason, I don't think this is the end, I actually think it's the beginning because these companies, Apple, Facebook, Google, maybe a little bit Microsoft, are the most sensitive to valuation because they are the most widely held. Right? These are the these are the, you know, the equivalent of US treasuries in the equity markets, the safest, most predictable, safe haven in times of stress, if you want to own big, chunky cash flow generating businesses that you know, are relatively unassailable, you couldn't pick for better businesses than those. And so the fact that they see enough in the horizon, to say that we need to batten down the hatches should be a warning to everybody else.
SPEAKER_04: Freeburg, is it as simple as this that the they're moving from top line growth to bottom line, and they're gonna need to look at the expenses? What's your read on this for Silicon Valley? Well, I just want to zoom out for a second peak has I
SPEAKER_02: remember I started working in Silicon Valley in 2001. You guys are a little older than me, I think but like we were right at the kind of your one of the.com implosion, and all the fallout that happened from all the funding that happened from 97 to 99 in 2000. And so from 01 to 03, it was super like
SPEAKER_02: deflationary. Everyone was cutting costs, and all the money that had been raised was kind of being pissed away or companies were liquidating and you know, so on. And then starting in 2004, which is actually when I joined Google, but there was also this big movement starting out three or four of like what people called web to then kind of new business models and new businesses started to emerge that seemed to have real traction and real legs. And it was a different story, and a much more rational story than what you saw leading up to kind of 2000 2001. And it was around that time when Google started offering these crazy benefits, right? It was like there's a gym and free food and all these amazing workplace. And suddenly, everyone had to do that to keep up, right? Facebook obviously mimicked it, all the other big companies mimicked it, and then it became mainstay. And they also raised compensation in the valley significantly, because Google had really cracked the nut on how to extract value from the internet. And it really changed everything in Silicon Valley and changed everything in tech, because suddenly every tech company, whether you are enterprise software, or hardware, or an internet ecommerce site, to be competitive and hire great talent, you have to have the same sort of environment, high wages, great salaries, really share the value with your employees, you know, gyms and free food and all this sort of stuff. So it's the first time I think, in a generation since like 2003 2004, that we're seeing things start to turn the other way, where instead of adding more benefits, you know, making things more attractive, giving more value to employees, we're really seeing the recession hit these kind of leading indicators of how things are going to be in the valley. And as a result, I think we should expect to see a similar impact on compensation, on benefits, on value share, and on kind of proclivity to hire an opportunity to kind of jump jobs and, you know, opportunities that we've all kind of taken for granted over the past 18 years. And this is going to be a real shock to a lot of people that work in tech. And a lot of people that have gotten used to the idea that every company offers great benefits, there's always another job to jump to you, they'll pay you more. And that that as that engine of growth that was really driven by these big companies by Google, Facebook, Apple starts to slow, no one needs to compete with them anymore as much and the compensation bands get tighter, and the option value gets tighter and the free stuff gets tighter. So it's the end of an era and I think it's a new world for tech and Silicon Valley. Sex, what are your thoughts here in terms of startups in relation
SPEAKER_04: to big tech, maybe having these austerity measures kick in and refocusing on profitability, the big takeaway here is just that nobody is safe. And it's
SPEAKER_01: not just types have to, you know, tighten their belts as these big companies too. And I think we're headed for a broad based recession. That's what it seems like. You saw Druckenmiller comments this week predicting a hard landing in 2023. No one's talking about soft landing anymore. In fact, I think we're all wondering who's flying the plane. So I think we're headed for a pretty big recession. And I just take it in a slightly different direction. I'm down here in LA, had dinner the other night with a friend who's a showrunner in Hollywood. And so a showrunner basically is like the head writer and they basically put together the writing team and the you know, the content for show and then they sell them to networks. He said that like, no one is buying anything anymore here that last year, you had there was tremendous, you know, activity. And you saw like the the Game of Thrones guys, you know, D&D, they got like a $300 million deal from Netflix and Shonda Rhimes. Yeah, they got like these, there were massive multi hundred million dollar deals being made last year. And that was just for like future writing deals. Like Netflix wasn't even buying libraries when they did those deals. They
SPEAKER_04: were locking down talent for the next year. Exactly. So all of
SPEAKER_01: that has stopped. And the reason is that Netflix's stock has been hammered, right? And only so they not have the capital to do those kinds of crazy deals anymore. But they know that Wall Street is watching them. And so fundamentally, they're questioning whether a business model even works if they have to spend that much money on content. So then all of Netflix's competitors basically have stopped. So this whole like frothy environment that you had for in Hollywood last year, that's just over the faucets been turned off. And it's not even turned off to a trickle, it's just stopped. So you think that this like massive asset bubble that we had last year was just in crypto and growth stocks. It's not I think it actually trickled down into the real economy because Netflix was one of those growth stocks, the money then flowed into writers in Hollywood, and then lots of other places. This is one small example, right that that this asset bubble wasn't purely just something that's gonna be localized to crypto, it affects real people in the real economy. And we are just beginning to see the unwind of that.
SPEAKER_04: Yeah, what's absolutely correct, I think is people were more risk taking, they had free capital, they wanted to place more bets. And sure, why wouldn't you bet on the Game of Thrones writers for the next decade. But looking at this is going to be fantastic for startups. I mean, the startups I've worked with over the last five years have been, they always come to me, oh, I got a developer, but this person's got three offers from, you know, Facebook, Google. And they're like, how do I land this person, they got $300,000 a year offering a million dollars in RS use. And basically, founders had to say, No, I can't get that person. And so they had to get creative. And they would hire people, Ukraine, Uruguay, everywhere in between, to try to find developer talent, and they had to get creative. Now, all of those people are not going to have four job offers are going to have no job offers, they may have gotten laid off. And those crazy, unrealistic out of school deals are going to be gone. And this means massive consolidation of talent. You look at the startups community right now, tons of companies are just going out of business, they're packing it in, those people are going to go work at the other startups that are stronger. So whoever makes it out of this as a startup, this is how the cycle restarts is talent then consolidates on the winners who would be like taking the NBA and getting rid of the bottom, you know, 10 teams and just telling the best players there, move up to the other teams, and everybody else, you're out of the league. So I think this is incredible setup for 2023 for startups to consolidate talent. So I'm actually excited. Yes,
SPEAKER_03: it's another data point that, again, I said it last week, I'll go out on a limb and predict my equivalent November fall predictions. Last fall, it was at the markets, we're going to poop the bed. My prediction now is that I think the markets are bottoming and consolidating. Yep, 100%. And this is the time I think, to start nibbling and start getting ready to really rip the money in. And I think there's enough signals every day that kind of like, tell me at least that on the margin. It's time because I think the markets do a reasonably good job of digesting news, and then pricing the forward reality, right? Like today's price is really everything we already know. And so the real guess is what's about to happen in the future. And from my perspective, I'm actually pretty starting to get a little constructive here. I think that when companies like Facebook really do this, and you know, like, if you think about it one way, the financial markets have always had this thing that we have called a Fed put, what does that mean? A put is essentially the right to sell something. And what market participants have always known for the last decade, is that if things got very hairy, if there was uncertainty in the market, the Federal Reserve would and they have consistently stepped in to create a buyer of last resort. And so it always eliminated that last part of true, you know, supply demand balance, because they would just come and say, don't worry, in many ways in tech, what the big tech companies were, were that, you know, you could never really find what the true market clearing price for an engineer was, or what the true amount of expenses you should spend on office space, or, you know, free services, because you always always had these companies, which was an escalating arms race, you know, if one company had a massage, the next company had gyms and massage and physical therapists, and the other company would have buses to take you to the gyms and massage and therapists and the next company would have protein shakes that were freshly made, you know, and it just kept escalating and escalating, because the costs didn't matter. And they wanted if nothing else, to get that marginal engineer, or product manager, or business person to work at their company, which eliminated the risk that they would actually start something to disrupt them.
SPEAKER_04: blocker strategy is very rare. You should have the blocker strategies is very real. So when you take this big tech put out
SPEAKER_03: of the market, you will get true price discovery. And you will find out what the real price should be. For this kind of an engineer, that kind of a product manager, you'll find out what are the real expenses you need to bear in order to build a real lasting business. And you'll be able to sort through all of that stuff out. So I think it's a really good moment. And again, it's yet another indication to me that I think broadly speaking, the markets are now starting to stabilize, all the irrational behavior is starting to exit the system, the parties in the last few hours, volumes going down, the alcohol is being taken away, people are hanging around with a little bit of lights are coming on, they're like, I've been here a little too long. And I think that that's a very healthy process for an economy. And I think that that's what's happening right now. So I'm constructive, I'm a little bullish, I'll go I'll go out on a limb, I think, you know, we could be three to 5% from the lows, but we're more near the lows than the highs. It certainly feels like the double bottoming out process was
SPEAKER_04: the bouncing along the bottom. And who knows how hard the landing is. But I think it's a great setup for startups and people who want to start companies. I don't know if you saw a girl he did a great interview that trended on the Twitter. And he's just saying this is the best time to start a company. And I have to agree with him, like you're going to have talent available. And who are you competing against for buying ads, like there's so many marketing opportunities, available, the first thing to go in a down market like this is advertising and marketing. So, and by the way, we will we will also relive what we have
SPEAKER_03: empirically known to be true. And it's been it's been pretty well proven, the investments that one makes in this period will probably be the best for many, many years to come, because they'll have the most asymmetric upside. And that was true in 2008, nine and 10. It was true in, you know, 2002, three and four, you I mean, you're talking incredible companies just in those two periods. Think about this Atlassian, Tesla, Uber, Google, Airbnb, Uber, Instagram, WhatsApp, incredible businesses that have created tremendous value. And so there are businesses that have been invested in for the first time in 2022, and will be invested in for the first time in 2023 and 24, which will be the leading winners of this next phase. And this next leg up and so the real opportunity is to find out who those companies are and get behind them. I think 100% as I always tell
SPEAKER_04: people fortunes are made in the down market, they're collected in the up market. Freiburg, what are your thoughts here in terms of the startup community or company builder, and talent, because that seems to be the piece that could be a silver lining on all of this maelstrom that we're going through? I mean, technology always marches forward. So there's always, you
SPEAKER_02: know, there's always progress to be to be had and to be made. That's one universal truth about it's weird that we call it an industry, because a lot of technology companies in Silicon Valley today don't sell technology to other companies, which is how Silicon Valley started. Nowadays, Silicon Valley is reinventing other industries by being technology led. And that is certainly still true, because there are so many I hate using the term but undisrupted industries to pursue efficiency gains across and technology built in Silicon Valley can can can drive that. Now, when I say Silicon Valley, I don't mean the physical location anymore. And that's the confounding factor here, which is that there does seem to be this distribution opportunity that's also emerged at the same time, where people are doing remote work and work from home, and distributed workforce models that seem to be highly effective. You guys talked about Atlassian, I don't think they ever had an office, right? I mean, don't most of the people work from home there. And I think that the success that's been seen in software companies that have operated that model also changes the calculus because not only are our wages lower, and therefore the cost of operating is lower, not needing a fancy expensive office in San Francisco is needed. But you can also access far more talent than you ever could before. You don't just need people to live in the Bay Area or New York or LA or wherever you're operating from. So from a software perspective, this is an amazing time. I'll tell you there's a flip side to this like in life sciences. Real estate is more expensive than it's ever been right now in the Bay Area. To get lab space. There's a total dearth of space. So there's certain segments that I think are physically needs large lab space like a specific
SPEAKER_04: specific designation. You know, I mean, there's a revolution in genomics that's totally transforming all of biology and
SPEAKER_02: human health and what I'm saying is like, do you need a certain type of location that's sanctioned for that? Yeah, yeah,
SPEAKER_04: lab space is a certain kind of build out. And it's not, you
SPEAKER_02: know, and so there's a certain amount of square footage, and it's being built out a lot around the Bay Area. But the thing about life sciences companies is you do have to operate physically because you're doing some, you're building something physical. And so that's a big part of the industry. And so that is an industry that continues to remain very well funded, and very competitive. And I think, you know, there's still tremendous value. And by the way, there's a lot of public companies to invest in, not on the primary basis, but that are tools companies that are benefiting greatly from the continued demand and growth in spending in that category.
SPEAKER_04: Sex, let's talk about competition, you know, a lot of talk, you know, of these large companies pursuing many different things. We talked about anti competitive stuff, Lena Khan, the bundling in the suite of products at Microsoft, other firms. Now you have all these being cut,
SPEAKER_03: death, death to the Roomba.
SPEAKER_04: Death to the room.
SPEAKER_03: By the way, did you see that Elizabeth Warren, of all the things she could send a letter to the FTC about? I guess she sent a letter about the Roomba.
SPEAKER_04: I mean, Senator Karen is just too much, man. I mean, there's a lot of other stuff going on. But you can let the room but just let it slide. That's not important. Oh, you know, all the things that are going on right now in 2022. It's the room but
SPEAKER_03: that gets on the that gets that's above the line. At this point. Oh, my point. So here is sleepwalking. Oh my gosh, walking what is going on?
SPEAKER_01: There's a there's a famous history of war one called the sleepwalkers because that's basically what it felt like is they just slept walk their way to World War One. Basically, what should have been a minor regional war, the third Balkans war that nobody should have cared about. Nobody should have cared about this Franz Ferdinand guy, except for you know, the Austrians. Yeah, exactly. But the whole world basically got themselves invested in this thing. And it feels and this is what we're worried about. We're worried about the Roomba when the administration is sleepwalking its way into the next World War. Well, I do not want Amazon Okay, to control my vacuum cleaner.
SPEAKER_03: I'm just gonna put that on the record. Okay. Because what happens is they know where the dirt is. They know which rooms are dirty. What happens if they get a hold of Roomba? I'll tell you what happens. The next thing is they're going to go after Dyson. Okay. And then once they do that, they're going to put chips in these things. And all of a sudden, they're going to know exactly what Jason said. What are you eating where your dust bunnies are? Yeah, all of this stuff. It's this must be stopped. Lena Connell.
SPEAKER_04: No, but it's to the point of competition, you you're seeing cuts to, you know, all the non core projects at these big companies. This is going to be great for startups, right? Like the idea that Facebook could focus on, you know, a fourth, fifth, sixth thing is going to go away. Yeah.
SPEAKER_01: Well, look, you're right that great companies are built during downturns. PayPal was built largely during the downturn, the startup I created Yammer was built largely during a downturn. So listen, there's going to be opportunities innovation doesn't stop just because we're in a recession or depression. But I gotta tell you, I unlike Jamaa, I'm having a hard time finding a silver lining right now. Part of it is the comments that Druckenmiller just made, which and he's been right about this stuff. We've been talking about his predictions for over a year on this podcast. And he famously
SPEAKER_04: shorted the pound for George Soros. That was when he was first getting started. But yeah, since then, he's one of the most
SPEAKER_01: successful macro traders in the world and you know, universally respected, I think, deservedly. So remember, he said that that this was in mid 2021. He said that the Fed was engaged in a radical monetary policy. Because even though we were starting to get inflation, it was around 5% then that they were still engaged in this bond buying program, they're still bought like 160 billion of bonds. And he is the first one waving the alarm bell saying, what are they doing? Now his predictions have come true. I mean, we're in an inflationary spiral. And his prediction now is his central outlook is that the Dow Jones will be in the same place where it is today in 10 years. And he made the point that yes, equity markets do go up in the long term. But how long term you're talking about from night from roughly 1966 1982, the stock market was sideways, Japan had a
SPEAKER_04: lost decade as well, like this is not unprecedented, right? After an asset bubble, right. And then from the Great
SPEAKER_01: Depression, it took until 1955 for the stock market to recover. So in the long run, the stock market will go up, but it could be you know, we could have a flat decade. This is his prediction, right? But he's very smart guy. And, and then on top of that, that's not to say that you can't be one of the ones who make money during that period, because lots of people do. But we're in for I think, a very tough economic period because of just this radical, expansionary fiscal monetary policy we've had, basically, the Fed, and the administration printed the last two administrations, but especially this one, printed 10 trillion dollars over the last couple of years, and the handover. I got a nice axe. Most of that was under Trump, but continue.
SPEAKER_01: No, it's not 100% I'll pull it up in a second. But anyway, keep
SPEAKER_04: going. We had Biden basically kept digging this hole, we had
SPEAKER_01: the $2 trillion of American rescue plan, which we didn't need. We just had another 2 trillion of the infrastructure bill, the inflation Reduction Act 500 billion for student
SPEAKER_03: debt. Yeah, exactly. So Jason, what are you talking about? And
SPEAKER_01: this was all after the emergency was over. But I think I think that you guys are debating the wrong
SPEAKER_03: thing. I think that what Druckenmiller I think, by the way, just to be clear, both Druckenmiller and I can be right, which is, he's commenting on the real world economy going into a recession. What I'm saying is that the stock market tends to be nine to 12 months ahead of where we are. Nick, throw up that chart, please, that I asked you guys to share, just to give you guys a sense of what I mean by this. By the way, while you're doing that, Jamath, Jason, look, I
SPEAKER_01: will agree with you that a lot of this point, I'm just pulling
SPEAKER_04: up, but he did 7.8 trillion. Listen, a lot of the stimulus. He's done more than Biden, but fine.
SPEAKER_01: A lot of the stimulus happened under Trump, you're right, because that's when basically COVID happened. Remember, in that Q2 of 2020 quarter, the economy shrank at a 30% annualized rate, everyone thought we're going to a great depression. And that's why they passed all the stimulus by huge bipartisan margins. Druckenmiller's best point is that this is all post vaccine,
SPEAKER_04: right? Yeah. Yeah. So look, and I think we can definitely go back and
SPEAKER_01: second guess what happened during the Trump administration. There's an old saying that many of the worst ideas are bipartisan. But then so you know, the spending that happened in 2020 was clearly bipartisan, and maybe it went way too far. But in the last two years, like Druck said, it was post vaccine post emergency. And they kept spending and it's not just the administration, it was the bond buying program of the Fed, where it was already fully back and they bought another 160 billion of bonds.
SPEAKER_03: Yeah, I think I think the thing is that, you know, I think Stan is a proven Republican. So maybe he is speaking a little bit of his book as well. I think it's fair to say that both Trump and Biden did not help. But overwhelmingly, I think where the where the problem stands is a central bank. That was the same through both of those administrations. And I think we should probably focus on them because you're right, what they did was excessive. And what they essentially said is that if there is volatility beyond a certain amount, and people cry uncle, we will not allow the markets to sort themselves out in an orderly way, we will step in. And that's what you know, again, what we just talked about the central bank put, in this case, the Fed interventions, and these interventions really pervert a market because you don't know what's going on. And that has huge ramifications in the real economy. So, Nick, if you just throw up this chart, the the thing that is really important here, and what this chart shows is essentially all of the hiking cycles that we've gone through since 1983. So, 83 87, 84 99, 04 15, and the current one. And here's what I just want to call out for you guys. What's incredible is that other than the one in 83, so this is sort of like, you know,
SPEAKER_03: that last big one. What we've seen is that the stock market has a tendency to immediately go to the conclusion very early on in a rate hiking cycle. And now why is that important for normal folks listening to this thing? Well, the reason why that's important is right now we're in month seven of a cycle, we obviously don't know how long it's going to be. But the odds are improving every day that we're near the end versus the beginning. And why that's important is again, if you're thinking about when to, you know, buy equities, for example, this is a really instructive guide, because what it tells you is the closer we get to the end, or more importantly, the closer we psychologically know that the end is coming, we start buying and that and that's just a broad based statement that has been true. So you know, what you see right now, I think is really interesting, which is that despite all the bad information, oh my gosh, the Nord Stream pipeline blew up, could it have been sabotage? Was it the CIA? Was it the Russians? Oh my gosh, big tech is slowing spending and firing people. China's in a coup.
SPEAKER_04: I don't know if you saw that rumor. Yeah. How about something
SPEAKER_03: more benign? You know, the the US, you know, us Yuan is really trading in a crazy way. The US euro is trading in a crazy way. The US pound is going crazy. Despite all of that, every time
SPEAKER_03: we trade down, the market consolidates very quickly. And we sort of like so I think we're forming a bottom. I do think that Stan is right. We are going to see a hard landing recession. Something will break in 2023. I hope it doesn't. I hope it doesn't affect a lot of normal people. But it's likely but at the same time define hard landing. So I'll tell you in a second. But at the same time, I think what's happening is in the equity and financial markets. We are consolidating a bottom
SPEAKER_03: because we're seeing through to that end state. And this is where cheap equity gets bought. So why is there a reason to sell now? I think a lot of the people that are selling the smart money sellers that I talked to are essentially right now selling to book in capital losses to offset other capital gains from this year, a term that's called tax loss harvesting. And so if you have gains through this year, which some of us do, this is the great moment to just sell the losers to book the loss to net it out so that you can minimize your taxes for next year. That's probably I think where we are at. And I think that's why they're still consolidated by. So what is the hard landing? Jason, if I had to predict, I think what David said is absolutely right. You're going to see unemployment get to an awkward and uncomfortable number. 5-6% I think could be something that we see. And I think you're going to see a lot more companies pull way back on their spend, because demand is going to really modulate. Oh, you know, I'll give you a crazy example. You know, what happens to all the people in the United States that are on arm mortgages, right? Adjustable rate mortgages, when those things reset, they're going to reset to 300 basis points higher, their monthly payments are going are going to go nuclear. It's already happened. I literally had a family member call me about this. And they
SPEAKER_04: were like, what do I do? So in the UK, yeah, in the UK, 40% of
SPEAKER_03: all mortgage dollars are interest only arms that will reset in January to around 4%. 40% Can you imagine how upside down the UK economy is going to be when people have to spend three and four times more to go and then people have to go to
SPEAKER_04: work. So people who have not been participating are going to have those bills come in and they're going to have to go to work. They're going to have to go to work. Yeah. So freebird what do you what do you think hard landing here? And then what do you think 2023 looks like in that regard?
SPEAKER_02: It's looking pretty bleak.
SPEAKER_04: Do you buy that we're bottoming out now as Jamaatas sort of hypothesizing?
SPEAKER_02: I mean, I'll tell you. I was running some back of the envelope math. You know how much debt there is in the world? Take a guess.
SPEAKER_04: 200 couple hundred trillion. 200 trillion, about 300 trillion.
SPEAKER_02: Yeah. That's debt owed by governments, businesses, and households. And if in response to the inflation, which is response to fiscal stimulus, which is a response to the entire economy of the world shutting down for a couple of months, we end up raising rates from zero to 5%. That's a 15 trillion dollars of annual debt service, which is like 18% of global GDP. Like that the debt service alone. But what does that mean? That means that for every dollar transacted, no, it
SPEAKER_03: means nothing. No, it means you have to. What does it mean?
SPEAKER_02: Like, so what? So I'm saying that there's a massive squeeze hat that's going to happen, right? And so what ends up happening ultimately is because you could run this across local governments.
SPEAKER_04: I think it means demand destruction. I mean, sovereign debt, households. Yeah. Think No, no, I'll tell you. I'll tell you about what it means. I'm sorry. But it means nothing. And I'll tell you why
SPEAKER_03: these people keep you can print more money, you print more money. I'm sorry to be the bearer of bad news. But like, it is not as if we have a law, a constitutional law, or it's not as if governments have collectively decided that you cannot have debt to GDP above a certain number. That doesn't happen, guys. We passed 100 under Obama, and we've just kept printing money. So whether we like it or not, and I'm not saying I'm a fan of this or it's right. We are kicking the can down the road. And what we're doing is we're extending the maturities. You know, you'll eventually have 100 year government bonds. Okay. Just like you have like now, you know, multi decade long corporate bonds, we missed the chance for that. We missed it. Because brilliant yellow and
SPEAKER_01: actually said no to that when when rates were like near zero, and we had the opportunity to refinance the US government debt with using long term rates, basically long term bonds. And actually was Trump who you know, crazy Trump who suggested let's basically shift the debt to 100 year bonds. And she said no, she does. So we value the dollar, right. So the problem is that we have all the short term debt. And look at what just happened in the UK when Liz trust tried to prop up the bond rates by basically intervening, she was basically an inflationary policy to fight inflation, the markets puked all over that. And that's when they're the pound hit, you know, exactly. There's, there's only so you have to have a buyer of the debt, right? I think the
SPEAKER_04: list trust thing is really actually a microcosm of how
SPEAKER_03: unfortunately Western governments are working. But I think there's a silver lining like she basically came in a day after she got elected and said, Okay, guess what, guys, at the same time, I'm going to massively cut taxes, and I'm going to give you fiscal stimulus, I'm going to cap your energy bills, and I'm going to have these huge transfer payments from the government into the hands of, of British citizens. I'm not going to comment on whether that's right or right, right or wrong. But the financial markets to your point, David absolutely hated it. And within a few months, within a few days, you basically saw the pound get crushed. But then what did you see? You saw the Bank of England decide that financial stability was more important than financial viability, meaning the things that she wanted to do were not viable. So you could have let the financial markets sort this out, which would have forced the Prime Minister to basically abandon the policy. But instead, the BoE said, now we're an unlimited buyer of UK gilts, the name of the UK bond, and everything snapped back. We're back to where we were before her speech and before the Chancellor of the Exchequer's speech. And so it's as if nothing happened. And that's what's so insane to me, which is that even though the Bank of England, by the way, in the next week or two are going to raise rates 140 basis points, 140 basis points, almost double what the Fed has done the last three times, they're doing both at the same time. They're both raising rates, and they're acting as a backstop for bad policy. And this is what's wrong right now in the world, we do not have a real check and balance. So my point to freeburg is just that I'm like emotionally on your side. But the problem is, with these folks keep getting bailed out, David, they're just going to keep doing this stuff. And there's no end in sight. Well, the the consumer doesn't get
SPEAKER_04: bailed out. So that if you look at it on a micro basis, instead of a macro basis, you're correct, these governments will just bail people out, even if they make bad decisions, as they're saying. But then the person who's variable interest mortgage just kicked in has $500 less a month in savings. So they're now not going to buy an iPhone 14, they're not going to upgrade their car every six years, they're going to do it every eight years. So the demand destruction that's happening is going to be quite severe. And that's going to reduce money, that's going to then monetary velocity. And then we restart mark my words, the Federal Reserve will intervene.
SPEAKER_03: This is why I think we're in a bottoming process. I think the leading edge of the smart financial actors are actually on Sax's side and freeburg side. But then they're taking that next intellectual leap and saying, okay, well, what happens when Apple basically says, hey, guys, I'm going to have to fire 15% of my employees. I think what happens is the Fed intervenes. And I'm just using Apple as an example. But there is a threshold of demand destruction, Jason, I think you're right, where we have the Fed put come back on the table, and the markets just go bonkers. So they instead of doing 75 basis points two or three times,
SPEAKER_04: they're just gonna be like, 50. No, no, no, no, no, no, no, no, they're gonna they're gonna get to four and a half very
SPEAKER_03: quickly. And then this something's gonna break like all these guys are saying, I think they're right. And then the Fed put comes back on the table. And we'll have this, we'll have the UK, you know, the UK thing happened in what six days. Ours will play out over six or nine months. But it's gonna play out the exact same way. And freeburg right, you know, we should have capped debt at, you know, 100% of GDP or less and sacks is right, we should have issued 100 year bonds at zero rates when we had the chance. We didn't do I so incompetent sacks. I mean, there was no need to have rates
SPEAKER_04: this low for that long. And maybe they could just keep them at some average number instead of going down to zero or that spiking back up and just steering, you know, spinning the steering wheel, you know, so violently, why don't we have some basic concept of maybe not having zero rates and keeping them at 2% or something reasonable. So you have some dry powder? Well, if you go back and listen to what the Fed said, and Druck
SPEAKER_01: makes this point, they were all worried that they got there was an inflation print a few years ago, whereas at 1.7%. And they all started panicking about not being at 2%. So for a point 3% move that they tried to engineer, they opened the flood gates, okay. And that's basically what happened. And that's why he's so critical of it. The other thing is the Fed member, the Fed said, we're going to be data driven. But then the data came in. Last summer, we got that surprise 5.1% print, and they dismissed it as transitory. So they said they're going to be data driven, but they weren't they they were dismissive. Now on what basis did they conclude transitory? Like what was the proof for that there was no proof. That was a political consideration. The administration and Yellen is big part of that immediately reacted to basically downplay the news. I mean, they PR did I mean, they didn't want to admit right there was a problem. They went from transitory to this is permanent to now
SPEAKER_04: six months, but during and now we're at hard landing like, right, these people are not competent. Are they just not
SPEAKER_03: competent? No, I think they're really I think they are competent. But I think that they're a little bit fighting with one hand tied behind their back. I think if you had to take the other side, sacks, you know, the problem is they have a very specific strain of data that they focus on. And that data has all these weird anomalies to it. Like, you know, they should look at rent data. But the way that the rent data works is that you know, you bleed it in one sixth a month over six months, just as an odd example, or like use card data only comes in a certain way. So I think they're driving in
SPEAKER_04: the rearview mirror. I think there is something to that. I think it's simpler than this, which is Listen, I think all
SPEAKER_01: politicians do this, which is when they get bad news, they want to spin it. And they're going to delay acknowledging the bad news as long as possible. So what happened last summer when this inflation started, they all dismissed it, it was all a talking point. I mean, every single one of them. And here's the crazy thing is Jay Powell. He's the only Trump official who got reappointed by Biden by a huge majority. How do you think that happened? And when did it happen? It happened at the end of May last summer. So just when this inflation print came out, and Yellen and the administration were saying it was transitory, that's when Powell was up for renomination. And he swept through the only Trump appointment to basically be renominated without even a question by Biden. Why? Because he got on board the talking points. He wasn't gonna basically buck them at that time. So he waited six months, he bought into the talking points. That was 100% political. I told you I read Paul, it's a
SPEAKER_03: very compelling argument. I read the fair. It's really compelling. It's really sad, but compelling. Saks, you should
SPEAKER_04: read the Paul Volcker bookkeeping at it. He basically says Reagan came to him off site where they knew they weren't being recorded and told them do not raise rates. So this idea that the Fed is independent, like history now has shown us it is not like the there is massive political pressure on them. I think especially at the time driving in the review mirror, clearly the data they have is not great. And then all this data is nuanced. You know, jobs and this massive amount of jobs we've had in this country is because of you. We have a new immigration policy. We don't let people into this country, we kick out PhDs that we trained, and then housing, we have I buyers buying this. So to your point, Jamal, I think a lot of the data has changed. And they're, they've got a bad data set, they have a bad dashboard, and they're driving with bad information. They don't know their direction. They don't know their speed perfectly. You want more fidelity on the data. You're right. If you went to a board of directors meeting for
SPEAKER_03: your company and said, how's the business doing? And the CEO says, Well, you know, well, we're gonna have data from six months ago. And it's like, okay, I got that. But what about like last week, you would fire that CEO to your point, Jason. And these things are knowable today. Like there are businesses, for example, that are selling billions of dollars worth of like IoT sensors here and there, energy sensors here, everything is connected to the internet, everything is automated, everything is running in code. You would think that the government would say there's a national level directive here to get this into some kind of a system that we can use because these decisions are becoming more and more important. I think that would be a wonderful idea and a project and what had huge value. A Manhattan project for
SPEAKER_04: understanding the economy on a very granular level, we you invested in a startup at one point, I remember I heard the pitch, where they had people around the world, taking pictures of food prices, Africa, India, the United States anywhere, and then putting them into a database normalizing them. So you could know the price of tomatoes or potatoes on a global basis, you know, and normalizing all that data, they don't seem to have this data there. They're talking about August data. And it's, you know, we're now in October.
SPEAKER_03: It's a really odd situation. I think, you know, our friend,
SPEAKER_01: Brad Gerson made this point, which was that look in this last FOMC meeting, the Fed raised their forecast for what the neutral interest rate would be from three and a half to 4.6%. So in two months, they raised their forecast by over 100 basis points. What is that based on? Like, is there a model? I assume there is a model, I assume there's data. So why don't they just open source that? Why don't they let the markets, like, see the model they're using, so we have a little more predictability. Of course, they always have the discretion to bucket or not follow it or whatever, or change it. But like, you know, wouldn't that be a better approach is to like, let us see the data and the models in real time as it's happening. And then the community, like, like an open source project could actually, like, fork the model and actually create like better ones. Well, to your point, to
SPEAKER_03: your point, like, there's the the Fed is actually known as the gold standard of transparency. So the IMF has kind of like a view on how all these central banks act. Last week, they actually excoriated, and this is good, this hurts me, to say Canada, because of their lack of transparency. Apparently Canada doesn't even put out minutes. And so they were like, hey, Canada, you, you guys like, yeah, and you know, look, Canadians are, I mean, the Canadian government, at least, like total moral virtue signalers, but they don't value transparency, apparently. But to your point, David, there is a lot of opacity in these things that really determine how the real world works and the impacts to individual people are going to go and get ratcheted way up. And nobody really knows what to expect, even though the data is there sitting in plain sight. I think two things can be true. I think
SPEAKER_02: the Fed, the process of setting central bank rates by the Federal Reserve should be reset. I also think that it could be true that the Fed is not responsible fully for a lot of the conditions we're now facing. We did have a bunch of policy decisions that the whole world got swept up in, and seemed to accept as appropriate at the time when we shut the global economy down. And there was some weird assumption or belief that fiscal policy would allow us to soft land or recover out of that. And at the end of the day, all that fiscal policy did, and I remember I was speaking with a smart person at the time, and he said, all the Fed's going to do is they're just going to inflate everything, and it's going to take a while and everything will inflate and that way everyone will feel good for a while. But you can't just stop the same thing. You can't just stop the spigot of capital moving, goods moving, and services moving for months on end, and assume that the repercussions will not actually be felt extremely harshly. And at some point, things are going to come home to roost. And that is what's happening. There was no winning solution for the Fed or for any central banker in light of the policy decisions that were made to shut the global economy down when COVID began. Not to argue whether or not that was appropriate, but that was simply a statement of fact. I said it before, and I don't understand if you were to take a first principles point of view on this today and say, hey, let's create a central bank and how should it operate? You would take all the data from Intuit, from PayPal, from Visa, from MasterCard, from the internet, you would take all of that data, you would let the algorithms or the AI or the software figure out what is most predictive of certain inflationary, recessionary, totally, and growth indicators. Totally. And you would basically say, look, X percent growth, X percent inflation, solve for what the central bank's interest rate should be. And it should vary at a hundredths of a percent or a basis point every day. And every day the rate is reset and the software resets it. And to have some degree of human logic or oversight seems appropriate, but to have a decision made in quarter percent increments once every couple of weeks seems kind of arcane. So I think both things are true. The Fed isn't necessarily fully responsible. We all want to point fingers. We can point fingers at the mania that swept over the entire world when we started our podcast and everyone was like, what the hell is going on? Why are we locking down the world? And this is nuts. And it felt nuts. And the response may or may not have been appropriate, but at the end of the day, there was a cost and the cost is going to be born for very likely a decade or more if we are able to get through it all. A lost decade is a possibility. And
SPEAKER_02: said central banks would be rewritten. So yeah. Well, I
SPEAKER_01: think there's actually two original sins of the economic crisis we're in. One is lockdowns. You're right. Like that was a fiasco. It didn't do anything to stop COVID. It was an economic disaster. And then we overreacted to lockdowns by them printing all of this money, both fiscally and through expansionist monetary policy. So Freeburg is right about that. But I think the other original sin here is the QE and the ZERP, right? The zero interest rate policy that began in 2008, 2009, we broke the glass in case of emergency. Yeah. And then it just became standard. Like it was on autopilot. Why did we keep printing? Why did the government keep buying bonds? It was a long tail event that became the meme.
SPEAKER_02: The problem is that every time government...
SPEAKER_01: ZERP is a bad idea. I mean, it's just... Yeah. Milton Freeman once said there's nothing quite so permanent as a temporary government program. How many times have we seen this? Every time the government's supposed to do something on a one-off emergency basis like ZERP, it ends up becoming institutionalized. We still have kids in schools in California wearing masks. I mean, it's the same crazy thing that people cannot get off these programs. The thing about ZERP, which if you look back, what really
SPEAKER_03: happened if you think about like how people live their lives every day, what has happened in our view of government and politicians? It's really eroded since 2007, 2008, right? There's huge amounts of rancor. Nobody gets along. Everything tends to happen on partisan lines. And the reason I think that that was allowed to happen or that accelerated is actually because of ZERP. Because if you think about it, if you had failed policy, right, and the economy was completely broken, politicians would actually have to get together and try to solve the problem themselves. And the last time they really did that was actually in the great financial crisis. If you look at TARP and if you look at how all of these smart people actually had to get together in a bipartisan way to figure out how do we bail out America and prevent a banking crisis, that was the last real effort that touched a lot of people. But then, David, as you said, on the heels of that, we broke the glass and we've been fighting ever since. And the peak of that fighting was basically Donald Trump getting elected. And so I think like what it shows is that if you have these irrational central bankers that are willing to constantly bail people out, you will never get a high functioning government because policy is irrelevant. Good policy doesn't matter. I think policy doesn't matter. If any of it goes wrong, the central banker will come in and bail us out. Well, and the second and third order impact of these is
SPEAKER_04: can become quite acute. And just for people who heard the word ZERP, like three times zero interest rate policy, basically keeping interest rates very low, very dangerous to do, because you get shit like this, like look at the number of unemployed people per job opening. And if you just look at this, like ratio, this is the number of jobs per unemployed person, it gets way out of whack. And then if you look at this other chart, just in terms of the total number of job openings, you know, we started we talked about this earlier in the pod, hitting 11 million to burn that off is crazy. Then what happens if you have too many jobs, you don't let immigration, you don't have a functioning immigration policy? Well, then you get this great, you know, people quitting their jobs, quiet quitting, and then the boomers saw their net worth go up so high because of their retirement accounts because of the stock market boom. And because of the housing boom, you had all these rich parents now who are bailing out their kids who refuse to go to work and labor participation goes from 70% down to 62%. These are the unintended consequences of ZERP that you know, now, how do you get a generation to go back to work if their parents have you know, a $2 million home and 3 million in stocks or a million dollar home economy? Yeah, that's what they're doing. Now they're like, we're gonna break this we're gonna we're gonna get Google and Apple who have unlimited cash to do a riff. Those companies don't need to do a riff. They're doing it
SPEAKER_04: because they have no choice now. Because they want to break the economy so hard. boomers have 71 trillion in assets over March. I mean, the wealth transfer that's going to occur between these two generations is crazy. Why would any us millennial with a boomer parent even go to work if they've got a million us
SPEAKER_02: boomers have $71 trillion in assets is how he said, Yeah, yeah, that's the number I have here. So an entire turn of
SPEAKER_03: global GDP in savings. That's about one seventh of the world's
SPEAKER_02: total assets. It's just a lot of locked up wealth. And this
SPEAKER_04: monetary policy was done by boomers 70 trillion, controlled
SPEAKER_03: by 76.4 million people. Yeah. So if you want to really talk about the, you know, the rich, in a global context, the rich are very specifically us boomers. Yeah, that's one seventh of the world's one seventh of the world's assets is controlled by 76 million people. How much of it is their homes? I mean, they were they were at Woodstock, they you know, they live the best life in the best times they enjoyed the most of the peace dividend in the 80s and the 90s and the 2000s. They are the ones that control everything. It's pretty
SPEAKER_04: crazy. It's I think it's less like Jeff Bezos and Gates and
SPEAKER_03: Musk. It's boomers that if you want to go and really zoom out and get it right, it is boomers. It's 1% of the global population that controls one seventh of the global wealth. And they're all in the US boomers hiding in plain sight US boomers. There you are. Well, once these housing prices
SPEAKER_02: decline and the stock market declines, that number is going to shift. And that really is what's fundamentally happening with the fiscal policy and the effects it's happening today. It's happening today, which is a redistribution of that value because we're basically deflating all those assets. Now we're deflating the average boomer was all that and we're going to deflate real estate assets. I mean, if you if you just do the math on that back of the envelope, these boomers are
SPEAKER_04: worth a billion a million dollars each. Like, think about that. Like every boomer is worth 900k a million something in that range 1.2 million. I mean, it's bonkers. That's the average. That's how much wealth they have bonkers you you you two are a
SPEAKER_02: boomer J. Cal. No, we're jax. We're Gen X. We had the worst we
SPEAKER_03: had the we had like we got really shafted. It's like we you know, we grew up with flannel. We we are old Jan Lanis Morris set the whole line. Smashing pumpkins. I mean, I know it's
SPEAKER_04: done. 93 was probably the best year smashing pumpkins ever did
SPEAKER_02: it for me. Billy Corgan's voice was always like, yeah, it's
SPEAKER_02: great. Really annoying rage against the machine. Can we do a quick shout out for Coolio sad to hear that he passed? We're
SPEAKER_04: here for you. Yeah, I mean, it was really sad. The guy was how
SPEAKER_02: old was he? Were you a big fan of Coolio's? I love it. It's
SPEAKER_03: coolio story from the pod when he said gangsters paradise. I
SPEAKER_02: feel you. Yeah. And then when I saw him at sax his birthday last year, I was like, dude, I love Coolio. I mean, I cannot tell you what a big fan I am. What was the line you said to me?
SPEAKER_04: You said I feel you. I said I appreciate you in his ear. I
SPEAKER_02: appreciate you. I appreciate you. We fly down for the
SPEAKER_02: birthday. They you know, they show you on the cars from the plane to the to the house. We get to the house and you know, we're all waiting. Of course, sax is late two and a half hours to his own party. We're all hanging out and starving. But then we go into the party and then they have like Coolio shows up. So we're like sitting down to dinner for course two. All of a sudden pop comes out of the the woodwork Coolio. I lose my ****. I run up on the dance floor. I grew up Coolio like it's like high school jams man. I mean, that's like in the car cruising and at this point I'm like seven tequila watermelon tequila is in so I'm like oh my god. You got a snack. No dance floor. You know, Janet at the Coolio. I think Coolio thought I was sex. You know, cuz he's like, yeah, he's like oh two South African Jews. You guys all look the same. Coolio comes up, starts high-fiving me and hugging me and I'm like what's up Coolio? Oh my god. This is like a dream come true. He's he's like hugging me. His face is right next to my face. I didn't know what to say and I like I'm I'm I've had a little bit of tequila and I and I whisper in Coolio's ear. I'm like, oh no. I appreciate I appreciate you. I didn't know what to say. Oh my god. Oh my god. I think I saw
SPEAKER_03:
SPEAKER_01: Freeburg throw his panties on stage 201. You are such a
SPEAKER_04: what a nerd. I didn't know what to say. I mean, what do you say when clearly you don't know what to say? Yeah, my team, my
SPEAKER_02: my team and a TPB, they had a they had a cameo made for me of that Coolio sent in. It was super heartfelt and awesome. Sax posted it on the internet. I think. Yeah, I retweeted it. Yeah, retweeted it and it was I don't know, man. It was he was a he was actually a super nice guy. Great guy and it was super sad. Yo, Dave. It's your friendly neighborhood Coolio,
SPEAKER_00: bro. I'm out here on the golf course thinking about you. I appreciate you, man. So, I want to wish you a very, very, very happy birthday, man. You feel me? I want you to drink good. I want you to smoke good. I want you to eat good. I want you to have some fun, bro. Go big. Do it right. Yo, Dave. Happy birthday, man from Coolio. Shaka Zulu, man. Well,
SPEAKER_04: all the stories are coming out now and not your experience was not unique. He touched everybody he met literally. He's genuine, very kind like yeah, he was a real one. Super
SPEAKER_02: friendly and like you know and and like wanted to ask about you. I mean, it's like a very like I could have been a politician if he didn't become a music superstar. He looked
SPEAKER_03: incredible. He looked like he was twenty-five. I mean he literally went to these college kids met him. He went to their
SPEAKER_04: like, you know, frat house. He cooked them dinner and then he got a guitar out with them and he sang gangster paradise with them and he like, August rated it with the crowd singing whatever he was. Then there was a video of him in Dublin on the bar singing. Can I just say something to I've given the
SPEAKER_03: message. Before Yeah, before but like, you know, take care of
SPEAKER_03: your health. Yeah. Take care of like there. There are these incredible drugs. I just wanna call out health as well. If
SPEAKER_03: Lipitor, for example, or Crestor or these statins are not working for you. There's this next generation kind of drug called the PCSK9 inhibitor, which essentially is effectively a gene therapy that's modeled after this very specific group of folks in the Nordics. I believe who actually have effectively immunity against heart disease and so it's taken 20 years to refine this drug, but this drug is a wonder drug and you know there are versions of it now that are injectable. You know once every 6 months or whatever so go and ask your doctor if you're not if statins don't work for you. Look at the PCSK9 inhibitor and then separately after you're 45 or so you should get a CT angiogram because these things are really important or you know a heart flow where they actually inject a dye. They characterize all your veins. They give you a calcium score. May not prevent this, but at least if it's if it's something cardiac related, you can get to the bottom of it and and it's a knowable thing nowadays. Yeah,
SPEAKER_04: rest in power to our friend and yeah, take care of yourselves your health and speaking of health shout out to Gwyneth Paltrow G pal who in her goop newsletter pointed out that she loves the all in pod and has to be honest. She's obsessed with the personalities a little bit. Anybody want to handicap that
SPEAKER_03: listen. Let's be honest. What don't you say not you if that's
SPEAKER_01: what you're trying to say. I've met her actually I've met
SPEAKER_03: doctors say she's a delightful if you want to if you want to live in health after a meal, the best thing to eat is a little dark chocolate. Do you get your dark chocolate from goop? Do you
SPEAKER_04: have goop dark chocolate? Jason? I was trying to make a
SPEAKER_03: story where I am the dark chocolate where I'm saying that I am her favorite personality you fucking moron. So you're
SPEAKER_04: handicapping that you're her favorite. She said she's obsessed with personalities plural. I'm gonna I'm gonna
SPEAKER_03: where does she rank her besties I need to know. I'm gonna rank
SPEAKER_03: as rebirth. Oh, really? You think that makes that sound?
SPEAKER_04: Yeah. Okay. Then me then you. Okay, I'll take it. The fact
SPEAKER_04: that Gwyneth Paltrow even understands like who we are is a win in my book. So I'll I'll be number four on her list. But G pal if you could rank the besties in your next newsletter that would be appreciated. And we'll we'll take rank your besties. G pal. All right, if Sax you want some red meat, you I saw you wrote a piece you want your red meat? Should we throw it to you? Yeah, yeah. All right. Well, I mean, I think we
SPEAKER_01: we need a Ukraine update because I mean, we're talking about all the reasons that there could be a silver lining or the markets bottomed out. I don't think you can know for sure the markets are gonna bottom out unless you know that there's gonna be a successful resolution of this Ukraine war, at least a non escalation of it. And all the things that have happened in the last couple weeks have been on the road towards escalation. Exactly. So in the last like just few days, you've had Zelensky saying that they wanna be admitted to NATO. You've got Putin basically annexing or saying he's gonna annex the Don Bass and somebody we don't know who but according to Radek Sikorski, who's the Polish foreign minister, he think the US somebody blew up the Nord pipeline. So what is the common denominator? Which Nord did they say was blown up? Was it one or
SPEAKER_04: two? Was this the Nord one? So it's the one that was actually
SPEAKER_01: like working. What is the common denominator of all these things? They're all eliminating key elements of what a peace deal would look like. So everyone understands that a peace deal would require Zelensky to give up on NATO. It would require Putin to make some compromises likely in the Don Bass and it would require the sanctions to be lifted and the energy flows to be turned back on. Well, so now those things basically have been removed from the table or at least potentially that's what's happening. So I don't see how you're gonna get a peace deal now and so if you remove all the off ramps, what's left escalation. Well, so it seems to me this thing is just gonna keep escalating. I thought you've
SPEAKER_04: heard a good piece in the American conservative should America go all in on Ukraine. If you haven't read it, it is 80% of rehash of what we've talked about here for the last year, but there's 20% new in it, I think. And I thought what was interesting in terms of new stuff you put in the piece and it's a good summary of you know, poker strategy versus what's going on here is that we've already proven you know, if you did want to prove that Russia is not a threat, with the exception of their nuclear, we now have proven that they're really not going to be able to do a domino and go into all these different countries with the exception of obviously the threat of nuclear power. So I thought that was a point. Yeah.
SPEAKER_01: Yeah. What I was really responding to in that piece is the assertion by the media that Putin is bluffing. How do they know that? You know, how do they know that? Like, you know, I think all of us understand poker pretty well and none of us ever would have the confidence to assert that we know exactly what cards our opponent holds in any given hand and how exactly they'll play them. What do we do? What is smart players do? We put our opponent on a range, a range of possible hands of possibilities and then we evaluate what did their previous actions tell us? What story are they telling through their previous actions? Well, what story has Putin been telling? This is not a guy who bluffs in my opinion, or at least that is not the story. There's a chance he would pop off a tactical
SPEAKER_04: attack. It's a non-zero chance. I think if that if his life is
SPEAKER_01: on the line, he is incentivized to use every weapon at his disposal to try and prevent his violent overthrow. His life isn't
SPEAKER_04: on the line here. He can he can back out. Yeah. But where's this
SPEAKER_01: thing headed if there's no compromise? I think they you
SPEAKER_04: know, I I'm going to stick with my original prediction that we wanted to ankle Putin. We wanted to prove he didn't have, you know, as much strength as he did and we wanted to exhaust him from sources so we could finally basically get him out of office at some point. So I do think regime change via exhausting him and I think it seems to have worked. We have exhausted the dangerous. You're agreeing with me. I agree that
SPEAKER_04: we have exhausted his I mean, he's proven he can't fight a ground war, right? I mean, that that's a pretty he's escalating
SPEAKER_01: now. He's escalating. You think he's just going to roll over? He's not going to roll. I think he but I think what we've
SPEAKER_04: learned from him, haven't we is that he can't fight a ground war effectively. He doesn't have the army. He doesn't have the weapons compared to the West. And he's been exhausted. You know, and I think his he spent now the only thing he has left is what you're talking about is the new option
SPEAKER_01: literally no, no, well, no, there's there's more intermediate options. First of all, he's just called for the mobilization of 300,000 more troops. So that's going for stuff. One country. Yeah, exactly. Look, there's gonna be a lot of people on the Russian side. Yeah, there's gonna be very high costs on the Russian side. I would not assume that means that there's something in it for us. So what I'm saying is
SPEAKER_04: that even with this, you know, the the conscription he's doing this draft, he's doing forced draft. I mean, he is kind of redundant. But this conscription or draft, whatever you want to call it, has proven that he doesn't even actually have the standing inside his own country. People are leaving. They're breaking, they're looking about to break their arms. Like it's it's pretty dark. I think you're making a
SPEAKER_01: difference there. Just like the media who are saying that he is definitely bluffing. What I'm saying is we cannot know that he's definitely bluffing. No, I agree with that. The United States of America is blessed with being the most safe and secure country in the world and really in human history and the history is full of humans constantly being at war with each other. So that is a really valuable thing that we have. Why are we so secure? We're surrounded by gigantic oceans. We have these gigantic moats. In addition, thanks to the wisdom of the Monroe Doctrine, for 200 years, we have prevented any great powers from getting a foothold in the Western Hemisphere. We are completely dominant here and no one could ever stage an invasion of the United States. We only have one vulnerability. Just one. ICBMs. That's really it. So what are we doing? We are basically engaging in a proxy war with the person in the world who has the most ICBMs and we are basically putting ourselves on an escalatory path with him. This is going to be like if Achilles had gone in front of the walls of Troy and basically taken off his armor and stuck his foot in the air and drawn a little bull's eye around his heel. That is what we're doing. Why in the world? Why would we do that? Why would we do that? Or if they are the last real threat and they are the
SPEAKER_04: Achilles heel, if we can... They're not the last threat.
SPEAKER_01: They're not the last threat. We're never going to be out of threats, okay? Well, we got two major ones with ICBMs, but
SPEAKER_04: anyway, it looks like we're in the end game now. What do you think happens here? We're not in the end game. We're on a path
SPEAKER_01: towards escalation because all the off-ramps have been removed. That's my point. And instead of saying, instead of trying to find a diplomatic solution, first of all, we keep removing off-ramps and then we we blindly disregard the threat to ourselves by saying he must be bluffing. This is incredibly stupid. The better question to ask is, hold on a second, the better question to ask is what's in it for us? What's in it for the United States of America? What is the vital interest that tells us to risk our security? There isn't one. This Donbass region, hold on, this Donbass region is the Franz Ferdinand of this situation. It is not historically important to us. We have invested in it all of this importance and we are potentially turning a regional war into a world war. We are sleepwalking towards this. Unless somebody finds an off-ramp, we are escalating our way into a much larger conflict. That is my point. And I don't see how anyone... I don't see
SPEAKER_01: anyone should re-enter the markets with this geopolitical risk hanging over our heads. Yeah, this is kind of like what
SPEAKER_02: I said a few weeks ago and JP Morgan put out an analyst report today saying that they were shifting from being, you know, call it roughly positive, sort of like Chamath's point earlier about being a little bit constructed in the markets right now and coming in and finding opportunities to buy, to realizing that the sum of the portfolio of tail risks right now, you know, outweighs the upside that may arise from finding these low priced opportunities in the market. And that seems to be the prevailing market sentiment right now is that there are too many of these moments that while each one of them is low probability, the impact is of such high severity that the aggregate value, expected value or expected loss of all of them is actually quite significant and that is heavily weighing on the market. And so to Chamath's point, I think, and to the question earlier about market conditions, one catalyst for upside in the market while there is fiscal strain and economic strain and growth strain, there is also this geopolitical strain in the market. If one or more of these things starts to resolve, I think that weight starts to come off the markets and you can see it move up. Oh yeah. Look, I can see the market taking off like a rocket if Ukraine gets
SPEAKER_01: resolved. And I do think you're right. It's all fat tail risk. That's about to get resolved. I think that can potentially be
SPEAKER_02: a political motivation here, which is that enough people like Chamath and you start making the calls to your representatives pointing out how strained the market is because of this tension in the region right now that maybe there is some path to resolution that becomes more active rather than passive. Because of that, this may be a little controversial so we can
SPEAKER_03: talk about it, but I think that the markets would have reacted much much more negatively to a nuclear incident 3 months ago than now and may not even react as much as we may think it would 3 months from now. But what do you mean by nuclear
SPEAKER_01: incident? You mean a nuke goes off or just a threat? You're
SPEAKER_02: saying if Putin blows up a nuke, the markets may not react that much? I think that the markets are basically ring
SPEAKER_03: fencing Russia Ukraine risk in terms of currency instability, but that's sort of now gone away. We've ring fenced the energy risk because it looks like energy reserves in Europe are actually going to be pretty meaningful. They're going to spend whatever it takes. So all of the second and third order effects, it would be a humanitarian crisis, which would be horrendous. Okay, but the markets don't, whether we like it or not, react to humanitarian crises. They react to the second and third order economic impacts of those things. And if you actually try to think about what the second and third order economic impacts are, you're seeing many of those things get solved. And so what it would be, it would be a highly isolating effect. It would be a humanitarian atrocity. He would be completely cornered from a worldwide perspective. The monetary and fiscal implications of that may not be as meaningfully disruptive today as they would have been three months ago. That's what I'm saying. Well, one thing I should clarify, I like
SPEAKER_01: Freeburg's analysis of the fat tail risk because I'm not saying it's likely that this conflict goes nuclear, but I don't need there to be a high likelihood in order for me to be very concerned about it because of how disastrous an outcome that would be. So if you're doing an expected value analysis, it's really hard to analyze the expected value or negative value of a low probability disastrous event, right? That's the classic fat tail risk. I do think that if the markets think they have priced in the effect of this war, then I think that's an argument for a lot of downside to this market because it seems to me that we're on a one way ratchet here. All the off ramps for a piece or a diplomatic solution have been systematically taken away and all that's left are potential escalations. So no, I hear you,
SPEAKER_03: but how did those translate those escalations to outside of those two countries and into economic terms for the rest of the world? Oh my gosh. Well, I mean if the war spreads here,
SPEAKER_01: I'll give you a couple of scenarios. I mean, well, here's one. I think we're just assuming that China is going to stay out of it. Imagine if you're China and you're watching what's happening and you're worried that actually Russia could lose this war so badly that it emboldens hawks in America who want to target China next, you know, who are basically on this global struggle against autocracy. You're going to look at that and go, wait a second. Is it really in our interest for Putin and Russia to be completely toppled by this global struggle against autocracy? It seems to me they could enter the Russian side, not militarily, but in terms of support. So they would have an incentive again not to lose an ally and then by the same token, I think the Russians could lash out. I don't think they're going to go nuclear right away, but I think they could pull a Grozny. I mean, don't you think that explain what that is? Well, when you know in the Chechen War when Russia was losing, they just doubled Grozny. I mean they basically leveled it to the ground. So I mean Putin hasn't done anything like that yet, but if he's facing defeat, isn't that something that would be on the escalatory ladder is to basically start leveling. Ukrainian cities destroying key infrastructure all the time. And then what is the response to the West? You know, I know I know because the West may say you know what that's unacceptable to us. I agree. No no no. I look
SPEAKER_03: I'm not debating how bad all of these things are. I'm just asking the question. What are the second and third order economic impacts because the market doesn't reflect human atrocities. We may want it to, but it just doesn't do a good job of that. It does do a reasonable job of reflecting a discounted set of events in the future related to economic events and impacts and all I'm saying is that you know the most obvious impacts of this war have been to currencies to commodities and to energy and the world has had six or seven months to reroute what they've needed to roughly solve a large percentage of those problems. It doesn't take the fact that this is a bad war and it should end. I'm not saying any of it.
SPEAKER_01: Right right now. Look you make you make a good point, which is that look the market discounts cash flows. So how do the cash flows get impacted? You may be right that valuation multiples have gotten close to correction, but I think the thing that we don't really know is what earnings and profits and revenues are going to look like next year and part of that is about the hard landing right like how inflated are all these companies revenues and earnings because of what
SPEAKER_03: happened. I hear you, but this is why that chart is so important every other time except in 1983 in modern history. So the modern history that we have all lived says that the stock market bottoms in the first third. Of a process and so if you think that this process ends in 24, that's a roughly 24 month process 21 month process. We're in month seven. We're in the power rally of what would map to the last six or seven patterns of behavior. Yeah. I
SPEAKER_01: mean II guess you may end up being right about this prediction. I guess what I'm saying is that I personally would not want to enter the market until some of these fat tail risks are taken off the table. Yeah. Well talking about
SPEAKER_03: nibbling in the market for a second. I'm not saying they're
SPEAKER_01: likely. I'm just saying that yeah, I understand obviously
SPEAKER_03: none of us want this to happen. I'm just asking a very specific question, which is and making an observation, which is I wonder how the markets would react and II don't see it being down a thousand points and that may be wrong, but by the way, it would certainly be shocking to to see that. Yeah,
SPEAKER_02: the diversity of views that you guys all share. I think it really represents the market. There is no what do you have you too? You have a view. Dude II. I'm like what the ****
SPEAKER_04: wow. I mean, no, but what is your hand? No, but what is your
SPEAKER_03: view? Here's your view that we're okay. We're about to just go through the toilet like what is your view from an equity market's point of view. Oh, just in general. Yeah like equity markets your temperature. How do you feel like how do you feel? Yeah. I'm worried about money not moving. What does it
SPEAKER_04: mean money not moving? I'm really anxious about invested
SPEAKER_02: dollars. Everyone seems I think I mentioned a while ago that dollars were kind of locked up in March and then I went to this conference and people are like yeah, we're loosening up and making a plan again in July because the market was kind of turning back up and now equity markets are turning down bond markets have turned down interest rates have spiked and there's a bunch of these currency problems. So I'm very nervous about the flow of capital, which I remember happening in 08. And I remember happening when we were all joking over text when COVID happened and we're like, hey, the market can only go down 10% a day for so many days in a row. And everyone was kind of like, you know, Jamal was talking about wearing jeans instead of he's like, I could just wear the same pair of jeans for the rest of my life. That's that's true demand destruction when he starts said that you're like out the jeans from like he was at Mayfield. Yeah, yeah. He's like, I don't need fancy clothes. I can just wear the same clothes I have to go in your storage locker to pull those clothes out. That was that was the old for tomorrow. piano on sale. Rent the rent. The CEO of
SPEAKER_03: L'Oreal piano did send me a note after that podcast. He's like, is everything okay? The rate of the GDP of the rate of crash.
SPEAKER_02: I will tell you guys the biggest indicator of economic health is the rate of rotation of Chima closet because that is it's like, you know what I can take this season off. I'll just
SPEAKER_04: wear last summer's season. I guess I would guess that the
SPEAKER_02: rate of rotation of Chima closet is probably predictive of IPO market. You know what I was I was there last week rotating in
SPEAKER_03: I'm rotating in so maybe that's a good sign the economy. I'm ready to take some companies public. No, no, I'm buying I'm
SPEAKER_04: buying stocks because I was at Chima last week and it was supposed to be black truffles and then he jumped the fence all of a sudden white truffles over my shoulder. I was like chef, chef, chef, chef, chef, chef, chef, chef, chef. All right, listen for the dictator. The prince of panic attacks the
SPEAKER_04: Sultan of Science the queen of keen wah him so see the Kevin
SPEAKER_03: Hart show if you're in San Francisco or San Francisco. He's
SPEAKER_04: hilarious. And for Moncler ambassador, David Sacks, the dictator himself. I am the world's greatest moderator and we'll see you on episode 99. Love you guys. Love you guys.
SPEAKER_01: Driveways. 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 out.
