All-In with Chamath, Jason, Sacks & Friedberg - E88: First principle politics, China chaos & outlook, state of private/public markets & more

Starting point is 00:00:00 two days ago, oh here we go, in the piazza I got into a fight, you got into a fight, I got into a fight, like a physical altercation, the physical altercation, really. This chick shows up wearing a white wife-beater, talking all kinds of shit, and I said, listen lady, you zip it, and she just kept jawing kept drawing and drawing and here she is again She's back for more and so I was like listen You know a one a one Z wife Peter look at that little sweetie Everybody that's the good stuff right there. I know I'm there. Hi everybody. I know I'm not a beagle I know I'm not a beagle, but I'm even better. I have my own thoughts. Saks what you're seeing here is called affection

Starting point is 00:00:52 Between a parent and a child. Let me know when it's over I don't need to watch Jamaat boost is curating by using his kids as props, okay? A free-brog, where's your puppy that you saved for being tortured with Kim Kardashian's lip gloss? We gotta get this guy in, because he hasn't been in the show in a while. There he is, there he is. Oh, Monty, oh, Jubilee while. There he is. There he is. Oh, man, gee. Oh, je belly rub. Get the props out of the shot.

Starting point is 00:01:27 Oh, man. Oh, man. You know what, your winner is right. Rainman David Saxton. Oh, I'm going to win. Oh, man. And I've said we open source it to the fans and they've just gone crazy with her.

Starting point is 00:01:40 Love you guys, nice. We know you can love going to the lead. Saxton, what's up with JD Vance in Ohio? Is he going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win.

Starting point is 00:01:51 I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win.

Starting point is 00:01:59 I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going to win. I'm going I think so and what about Blake masters. These are the two guys that T.O. Was backing should we start the show? What kind of did? Yeah, can I just ask you question? if any of us entered porn

Starting point is 00:02:15 Wouldn't one of our names be Blake masters like it's just wouldn't it be on the list like doesn't it sound like a great isn't it a great name for porn? It's a great name Blake masters. It's a great name, Blake Masters. It's a great name. And JD Steel, I'm sorry, Vance. Yeah, go ahead, explain what's going on with this mentoring candidate. JD, why would you accuse him of without any evidence? What would you say? I'm not accusing anybody of anything.

Starting point is 00:02:34 I'm just saying, tell us about your mentoring candidates. Go ahead. Okay. Well, so JD's already won the primaries, and I expect you will win. I mean, it's gonna be, I think, a red wave in November, and Ohio is a pretty red state these days. Blake's also won the primary in Arizona.

Starting point is 00:02:54 It's a little bit more of a toss up, but I think he'll do well. All right, well, I had a follow-up question, but I'm not allowed to mention the T-word, so let's just get started. Why is this such a big deal that, like, Peter supports candidates? You got all these, like, crazy left-wing radicals. I think it's interesting.

Starting point is 00:03:06 Soros gives unlimited amounts of money to you know, crazy progressives like Gasco and L.A. and Azzillion others. I mean, why is this such an obsession that we have to focus on who Peter supports? No, no, I just think it's fascinating that he... Peter's articulated his rationale for supporting these candidates and his objective for changing government in a way that he thinks would benefit the country. And Peter's been generally right.

Starting point is 00:03:29 What is the thesis, Rebrick? I think a part of, if you watch his speech from the RNC during the last Trump cycle, I think he did a good job kind of articulating that there's a lot of inefficiencies in government and there's a lot of, call it, accumulated fat. And we need someone to go in, and we need people to go in and really cut this up.

Starting point is 00:03:46 Because so much of politics is driven by what else I'm gonna give you, not about what I'm gonna fix that's already being spent in an efficient way. And as a result, we see debt climb, we see taxes climb, we see efficiency continue to decline of every dollar invested by the government. And I think that's a really important piece is to see someone actually try and execute against.

Starting point is 00:04:04 Because no one in the position, very few people are in the position that he's in, to actually be able to like make that sort of statement. Everyone wants something more from their government versus trying to fix the government. I think his views are more extreme in that. I think his views are more than orthodoxy is ruining in America.

Starting point is 00:04:20 And so you need forms of heterodoxy to basically reset totally for status quo. And I think that's what he believes more than what you just said. I think that you need a wholesale reset. And in order to have a wholesale reset, you need to have these very disruptive candidates that basically start to change the norms. I mean, if you think about what Trump did in one election cycle is he's completely sucked an entire cohort of people, Hispanics, and moderates, and now a lot of immigrants, towards the right because the Democrats have vacated all of that space in having this massive Trump

Starting point is 00:05:01 arrangement syndrome and tacking extremely to the left. And even if Peter we'll never know, believed in trump or didn't believe in trump, it didn't matter, but the process of him getting that candid elected over the long arc of history may actually serve to pull America back to the center. Pretty good outcome. Yeah, and look, the reason why I support JD and Blake for that matter is they are, they represent this more populous working class wing of the republican party and they're dragging the republican party in a more working class direction i think that's the future of the party i

Starting point is 00:05:32 think that's the opportunity for the party to chamas point the democrats have seated all the sort of this working class territory by becoming this elite progressive party and the face of the party right now, the Democratic party is Paul Pelosi. You know, let's talk about this. It's blatant and out in the open.

Starting point is 00:05:49 He's trading on ship stocks, like Nvidia and Intel and so forth. Like the week before, the house is gonna vote on a $52 billion subsidy for chip companies. No, no, no, no, be more precise. The week before his wife decides, then critical legislation goes to the floor of the house to be voted upon. So you have the speaker of the house who's the third most important person in government,

Starting point is 00:06:13 introducing legislation on her timetable, her husband trades in those specific equities, days, and maybe even the same day of that, they make three times her annual salary just in one day, and then she and her husband decide to then fly, not asked by the United States government or the State Department to Taiwan to then talk about God knows what, which would have created an international uproar. The Biden administration and Tony Blinken had to basically call her and say, stand down, you should not go, we are not asking you to go,

Starting point is 00:06:55 it is not on the United States agenda for you to go. And all that would have happened is an entire process and loop where she controls the legislative agenda. Her husband controls their private stock account and he traffic in the names. And then they go to Taiwan to whip up the furor, which would have actually positively impacted those same names even more. It's inexcusable that kind of behavior.

Starting point is 00:07:19 I mean, after three years, she just so passed the line and she doesn't realize it. And by the way, sorry, let me just wait. Hold on. And then on top of that, Jason, the mainstream media doesn't say shit. Now, by the way, I'm not a Trump supporter. I think he's a complete goofball. But if Trump had tried to pull this stuff in 2016 or 2017 or 2018, could you imagine how much media coverage there would be? And today, how much of that is covered by the mainstream media? Zero. Was it mentioned on MSNBC? Nope.

Starting point is 00:07:50 Was that so you said? It mentioned in any of the press. Nope. Let me just set the state so people don't know what we're talking about. So on Tuesday, the Senate advanced a slim down version of the original CHIPs bill. If you don't know what that is, it's basically a bill that's going to provide $52 billion in subsidies to move CHIP manufacturing here to the United States, something we really need to do.

Starting point is 00:08:09 It's a bipartisan bill. Everybody agrees on this. But this is being kind of stuck in committee for a little bit. It comes a year after the Senate first approved the $250 billion bill to reinforce your chipmaking to compete with China. The reason why this is strategically important is because we have a huge chip dependency on Taiwan, which is on the threat from China. So if chips are the new oil, Taiwan is the new Middle East, the new Persian Gulf,

Starting point is 00:08:36 and it is a very dangerous situation for us to be completely dependent on Taiwan. Well, not completely, but like for over half our chips. So on-shoring, advanced chip manufacturing makes sense, but I think this is an example of how you start with a legitimate objective in Washington, and very rapidly it turns into corporate welfare and graph my politicians. I mean, just because you need to answer manufacturing doesn't mean that you give intelligent and video giant handouts, and then you got Paul Pelosi making millions trading Nvidia options. And this is something that is happening.

Starting point is 00:09:11 And you've done sex to support on showing of semiconductor manufacturing. Who would you give the money to and how would it be kind of dulled out in what would the terms of it be? I don't know that you just give these companies money. I mean, I think maybe what you do is you give them tax breaks or various kinds of breaks, but I don't like that. I guess. They need capital to support that investment, because if you look at the kind of ROIC on these companies,

Starting point is 00:09:35 I would, I haven't looked, but I'm guessing they're in the high teams or something that's high teams. And they're not going to be able to invest in some new fangled, fab project that may or may not actually have customers at the end of the day. Their board would never approve that on an independent basis. They need capital. I see, freeberg.

Starting point is 00:09:51 Return on invested capital. So if you're a big industrial business, you know, one of the key metrics that your shareholders look at is the ultimate kind of profit of profits that are generated from a big investment you might make. And so, you know, you kind of look at that over time, you look at the invested money over time and the return over time, you come up with this metric. So, it's a key metric for particularly capital-intensive businesses. So, a business like Intel or Nvidia, I would imagine it's going to have a pretty tough time selling their board on some speculative, on-shoring fat project.

Starting point is 00:10:23 There really does need to be capital and acceleration capital. Fibrik, who feeds you this bullshit propaganda? Intel, in 2020, approved a share purchase plan where these guys had a hold of 110 billion dollars and have spent all of it except for 7.2 billion. They have 6 billion left on the balance sheet. I get it, but they're not going to put that money at risk, right? Like, like, Tim, I'll have to imagine you're on the board of Intel. And they're like,

Starting point is 00:10:49 can you be one of them? So the government, okay, so basically hold on. But that's the reason why this, yeah, this is where it all comes from, right? I make a ton of money. I have no better ideas of how to do it, including theoretically building a chip factory. So I'm going to go to the government for a handout. Meanwhile, I'm going to take all the money that I had, which I could have used to fund this thing,

Starting point is 00:11:08 and I'm gonna give it away to people who I don't know what they're gonna do with it. I would reframe it. I would say that the government wants to see our industry onshore semiconductor manufacturing. And they are going to the companies, not the companies going to the government, they're saying we want you to

Starting point is 00:11:23 onshore semiconductor manufacturing. Do that for us now. Like in World War II, we went to the companies, not the companies going to the government, they're saying, we want you to ensure semiconductor manufacturing. Do that for us now. Like in World War II, we went to the automobile manufacturers and said the government said, we want you to make airplanes. Here's a bunch of money make airplanes. And that's, so the question is, but who does that money go, who else would you give that money to besides the two best chip makers

Starting point is 00:11:39 in the world? David's right. If you just give us a cat-back subsidy, that's a one-time effect that helps you in a moment. It doesn't help your business. Any reasonable investor who can actually use a simple calculator sees through that nonsense. So what David's right is if you had given them sustained tax breaks for being able to build the business line that then supplies things for the duration, you know, tens of years, you're absolutely right.

Starting point is 00:12:07 Investors would laud it. It would make a ton of sense. They would be over earning over a long enough period of time where people would have to bake that into their cash flow estimates, where when you discounted it back, it would make the enterprise of Intel and Nvidia worth more, and then people would then want wanna own that stock more. Giving a CapEx subsidy is a meaningless way

Starting point is 00:12:29 in which you basically hand out good money to organizations who have otherwise misallocated the money that they've already had. Yeah, there's a much simpler solution, just to sax this point of like, how do you do this? And giving free money is not the way to do it. The best way to do it is to give it incredibly low interest rate loan, like a 30, 40, 50 year loan, that maybe has some warrants in it, just like a Silicon Valley bank or a

Starting point is 00:12:53 co-american might give an adventure debt loan, where the government actually could make money from this and then you incentive with something that is just too good not to take. A 50 year loan of $5 billion to build factories. You have to use it for that, so it's used it or lose it. Then you slowly pay the government back, and then maybe we get some warrants in Intel or whoever we give the money to. This is something that Obama did with Selendra, which didn't work out, but he also did it with Tesla and Tesla paid all that money back early.

Starting point is 00:13:21 These loans that the Department of Energy did really did, and you got to give Barack Obama a lot of credit for this, it really did help drive, even though it wasn't perfect. By the way, when did drive a lot of EV adoption? It did really help Tesla become the company of this today. Sorry, let me just respond because I don't know how much we've gone through the details of the bill, but there are several components to this bill, including, and I just want to highlight, if I'm on the board of Intel, I'm not going to make a $10 billion Fab investment because there may or may not be profits down the road to justify that size of an investment. So if the government comes along and says we will support, we will cover X percent of that investment, I can take on more risk and I am more willing to make that investment

Starting point is 00:14:10 and theoretically I can afford to pay people a higher wage or a higher salary because I now have more capital freed up to support to do that. And so there is an effect that arises by having the government come in, put some money into these projects, accelerate their outcomes, and it gives the business more freedom. But should it be free, Berg, free money, or in the form of a loan? So what should the financial device be, I think, is the question that you ask, sacks, if I'm interpreting correctly? Yeah, I'm not sure that the loan, because the loan doesn't resolve the fact that they're having to put up money, right?

Starting point is 00:14:39 And so they're not necessarily going to make this on-shoring investment. The rational capitalist decision is to off-shore manufacturing for Intel. It is irrational for them from a business perspective, from a board perspective, from fiduciary perspective to on-shore manufacturing. So the reason they're going to do it is not because they're getting a loan where the interest rate is low, that doesn't really solve the problem. It's the government saying, we're going to put a $10 billion facility. We want you to build it and manage it for us.

Starting point is 00:15:05 That's effectively what's happening. Now by building this $10 billion facility, we've created security for the rest of the US industry. It's worth it to the government to put that money up and create security for our economy. No, it won't. Why wouldn't it create security? If we have more ensuring of chips, or either way, it's more security. I'll say one more thing.

Starting point is 00:15:22 There's also an investment tax credit built into this bill, SACS, which does provide over time a bunch of incentives to continue to support and drive the on-chilling work that's proposed in the bill. If you want the United States... Point of personal privilege, can I request that you're off? I just want button to a short... Yeah. Is it true that you're asking for you?

Starting point is 00:15:42 You can't take your own idea. You can't block your own. First I had to watch Jason do the gun show. Now I got to watch Jamal, you know. Show us your guts. Come on, pull up that sleeve and show us what you've got. Let's move on. Let's move on.

Starting point is 00:15:58 I want to say one more thing about the Pelosi stuff. So here's the data. I don't know if you guys have looked at the full history of the Pelosi trading data. Here's the link. This is all the trading you guys have looked at the full history of the Pelosi trading data. Here's the link. This is all the trading that's happened over the last couple of years. So yeah. And over the past year, he has bought in video

Starting point is 00:16:12 four different times, each time in the same kind of volume range. So the timing certainly may appear suspect and it's certainly a terrible kind of thing to see. He's also bought Apple in the last month. Microsoft, sorry, he sold Apple. He bought Microsoft. He bought Alliance Bernstein early in the year. He's made a few trades this year, but in video,

Starting point is 00:16:31 he's actually bought on four different occasions over the past 12 months. For whatever that's worth, right? I'm not trying to defend it, but I think we should be intellectually honest about the fact that this guy, you know, does take points of view in certain companies. He trades at a couple of companies. Are we, are we only to be intellectually honest enough to think that a husband talks to his wife and vice versa? Yeah.

Starting point is 00:16:52 Or does that not happen anymore? Depends on the husband and wife, but yeah. I think this is blatant and out in the open. I mean, it looks really, at a minimum, the appearance is of graft and corruption. Yeah. The appearance of impropriety is impropriety. They shouldn't be allowed to trade. They should have to put their stuff into blind trusts

Starting point is 00:17:08 or they should maybe trade once a year and they should have to announce their trades before the trades happen. Hey, here's what I'm planning on doing. Just like a CEO is planning on doing this stuff. It's ridiculous that they can do this. And if I just want to- Why does the mainstream media cover this?

Starting point is 00:17:22 They have. Jason, Jason, do you think that if Trump, if this had happened during Trump, it would have a lot more coverage than this policy. You remember a lot of coverage on Trump. It really doesn't get covered. I mean, if you just search for it today, you'll see basically the only media outlets covering it are like Fox News and then Zero Hedge. You know, that's it. I mean, that's how I find out about it is like the Zero-head tweets about it. Me too.

Starting point is 00:17:46 So, Daily Beast, you know, headline. You can go to me, but. Seven hours ago, Dems quietly tried to jam Pelosi on stock trading ban. But if you're asking me, you asked me a question. Chimoff, is the media largely biased against Trump and gives a free pass to the Dems? Yes, I would say that is the trend, yes.

Starting point is 00:18:03 I think that is intellectually honest of you. Well, no, I mean I think the media's bankrupt. They're just going for clicks and I think you know, we've talked about this before They saw Trump as an existential risk and they just did whatever they took to get him out of office Even but in doing so they completely burned all of their credibility. They lost a lot of credibility And now the Dems are starting to become increasingly Detached and out of touch and maybe hated. But then the result is that the mainstream media is just no longer trusted.

Starting point is 00:18:30 The media and the Democratic Party both have the same problem, which is they suffer from what the Democratic political scientist Roy Choushier has called professional class of Germany. I mean, they are populated by college graduates with degrees who basically have this very elitist progressive agenda. And that is what is causing the Democratic, the working class to defect from the Democratic Party, their historical base, in droves. Look at Hispanics.

Starting point is 00:18:57 Well, first of all, if you go to the latest Biden polling numbers, he's down to 31% approval, 60% disapprove. Okay, so the trends is getting worse there. But you look at his spanics. It's down to 19% approval, 70% disapproval. It's an even more intense version of the same problem. You had Myra Flores get elected in that Texas seat. This is a district that went, it's basically a predominantly Mexican-American district. They went for Biden by 18 points just two years ago, and now they're voting for her by over 10 points. So, your Republicans

Starting point is 00:19:32 winning that seat for the first time. So, you have these huge defactions. Now, why is that happening? Because the Democrats are appealing to the donor class on issues like border, on issues like crime, and on issues like CRT and schools. I mean, you know, the working class people in this country, they don't want open borders, they want crime to be prosecuted and crack down on. And they do not want any logical education for their kids, okay? It's very simple, but that basically is why the NRC is losing votes. Now let me give you a couple of other examples of the Democrats cynically appealing to this sort

Starting point is 00:20:09 of donor class. So, recently, there's an article about the Democrats have spent $44 million this election cycle basically running ads in favor of the crazy MAGA candidate in primaries. There's been a bunch of reports of this where in competitive Republican primaries, the Democrats will actually spend money on behalf of the more perceived crazy, Republican, the MAGA candidate. The crazy Trump, the MAGA candidate.

Starting point is 00:20:37 The election denier and so forth. Because of the perception, they'll be easier to beat in the general. But I think this is a case of be careful what you wish for, because if we have a red wave in November, you're gonna end up with more of these candidates basically winning. So it's a very cynical strategy. The other example, I think of a very cynical strategy,

Starting point is 00:20:57 is you saw there was a vote in the House this past week on gay marriage. And the House voted to repeal Doma, the Defense of Marriage Act, and support basically codify Obershaffel, right? The Supreme Court's decision on gay marriage. Something like 60 Republicans voted for it. Look, I would have liked to have seen more Republicans vote for this. I think it should be like majority of the Republican Party should be voting for this. But the point is that is there any intention of the Democrats to bring this up in the Senate and pass it and codify Obershowl when they have a chance?

Starting point is 00:21:31 I think the answer is no. Why? Because the Democrats would rather fundraise off this issue. The same thing was true about row. The Democrats had supermajorities in the Senate under Obama. They could have codified row. They never took the chance. Why? Because they

Starting point is 00:21:45 would rather fundraise off this issue from progressive elites that don't our class in California and New York. So this is why they're not going to qualify. Absolutely. Obama said it on the record. Obama was asked, why will you not? He campaigned on codifying Roe v. Wade. And then very quickly into it, he was asked when he had the supermajority in both the House and the Senate, will you act on Roe v. Wade? He goes, no, it is not a priority anymore. That's a quote. It absolutely could have been codified. Just like a birch fell can be codified tomorrow. The Senate could be. Look, there are there are 10 Republican votes. There are 10 Republican votes at least for this in the Senate. You have a i fill us a proof super majority in the senate who would support this the same republicans

Starting point is 00:22:28 who supported the gun restriction bill that by and just signed and that supported the infrastructure bill you think they could codify borscht rights in this country right now if they want that that moment is passed that moment's past i'm not saying republicans would never give women the right no look there's not super-grady and senate anymore for uh... no, look, there's not super majority in the Senate anymore for a codifying row. There is a super majority right now for codifying a bourgeois file. They could do that right now.

Starting point is 00:22:51 And they're not. Tomahak, you've been a donor to the Democratic Party. Do you believe that? Do you believe that the abortion issue drove you and others to put more money in? And that maybe not because because the leadership of the Democratic Party focused on Trump in the last big cycle. It was all Trump, Trump, Trump, Trump. Do I think that more grassroots fundraising focuses on that or gun rights or what you're

Starting point is 00:23:21 saying is true that they actually held off on trying to codify Rose so that they could continue to support. Again, I'm just, I'm just going to give you the quote because it there's, there's no opinion needed. Okay. April 29th of 2009, President Barack Obama says on Wednesday, he favored abortion rights for women, but that passing a law guaranteeing these rights were not as top priority. I believe that women should have the right to choose. Obama told a new conference marking his first 100 days in office. Again, when he had super majorities in both the House of the Senate, but I think that the most important thing we can do to tamp down some of the anger surrounding this issue

Starting point is 00:23:55 is to focus on those areas. We can't agree on. So you make a promise. You get into the seat of power. You have the decision on what your legislative agenda should be, and he made that calculation. And David is right, sadly, that it was in a moment where we had a clear line of sight to codifying many of these rights. Yeah, but the question that freeberg is asking, he's saying, do you think that they specifically

Starting point is 00:24:24 did this to keep it as an open issue to raise money off it? I don't think that's believable. Oh, yeah, absolutely. No way. Absolutely. If you want to talk about cynicism, SACs, the truly cynical move was, you know, Trump saying, I am going to get this in evangelical vote

Starting point is 00:24:38 to win the primaries, to get those 20% who want to take away the right for women to have an abortion. And I'm going to stack the Supreme Court to actually. No, hold on a second, let me set a fine terms. Let all of this political stuff. Okay, let's define terms. You wanted a political. And so, hold on a second, hold a second,

Starting point is 00:24:54 let's define terms. So, you may be opposed to what Trump did, but that wasn't cynical. He stated what he was gonna do when he ran for office, and then he did it. He lived up to his promise. He made, he made, he made, he made to his promise. He did not believe in that. He did not believe in that.

Starting point is 00:25:07 He did it specifically to get those votes. We all know he didn't believe in it. We all know he believes in a woman's right to choose. Jason, he created a platform to get elected. Yes. That's what I'm saying. That's what he was elected. He executed on that platform.

Starting point is 00:25:20 I think what David Saks is saying is Obama had a platform to get him elected. And when Obama chose had to choice, he chose to not execute on the platform. I think what David Saks is saying is Obama had a platform to get him elected. And when Obama chose had to choice, he chose to not execute on the platform. And that is also true. And all I'm just saying is we owe it to ourselves to be intellectually honest about what happened. That is what happened. Okay. Both of these two guys made claims. Hold on one second. Both of these two guys made claims acting in your own self interest. Okay. I understand. But so what Trump is, I want this on the record. Both of these two guys have been clasping in your own self-interest. I understand, but so what Trump does? Please, I want this on the record. Both of these two guys made claims to become president. It turns out that Trump actually did execute on most of his claims

Starting point is 00:25:52 as a warrant as they were to some. Yeah. And Obama on some of the most important issues of our time did not. Look, what Trump did was just simple coalition politics. He thought it was important to win the religious right. He basically appealed to them. He said that if you vote for me, I will nominate these judges He has a job. He delivered he delivered He didn't even it himself right so that's right

Starting point is 00:26:13 Certain point doesn't matter. That's not People should have for sure at principles Okay, look You're never judging that he does have principles, but I matters to me that people have Okay, but Jason What does it mean to have the principle of saying that he's going to if he's going to pass and codify Roe v. Wade and not do it? What is that then? I think he, uh, well, listen, I, the quote you gave doesn't give why he didn't do it.

Starting point is 00:26:33 He didn't make it a priority. It could also hold on. Let me finish. It could also be that he believed that it would not get overturned. So he should spend his time on Obamacare and other things. I'm saying cynicism is when you believe one thing and then you do something to act in your own self interest. And that's what I think it's all I think it's all I think it's all I think.

Starting point is 00:26:50 Oh, second, we don't need to go back all the way to the Obama administration because the issue I'm talking about today is that in the past week they had a vote codifying Obershafell on gay marriage and repealing Doma, okay? So now listen, I actually think there was so many Republican votes in the house, even though I would have liked to see more. There were enough that this might shame Schumer into bringing up the vote because it's going

Starting point is 00:27:13 to be so obvious if he doesn't, that he is doing this for a reason, right? Because they have the votes. They can pass this, just like they passed the gun bill a few weeks ago, right? Just like they passed the infrastructure bill. So if Schumer doesn't bring this up, it's a very cynical move. You think it's strategically to have that issue to phrase funding? Of course. Of course.

Starting point is 00:27:35 And it's really proof. Listen, I think that. Do you think both sides are cynical? Of course. Of course, both sides in Asian politics, however, however, what I'm talking about is the typosinicism. in politics however, however, when I'm talking about as the typist in the system. So I think that there's a lot of issues on which the Democrats would rather appeal to the donor class basically that lives on the coast in New York, California, and be able to keep fundraising on that issue and basically scare them on, go on that issue.

Starting point is 00:27:58 Instead of just winning the issue, they can just win this issue right now. Tomah, do you have less interest in supporting the Democratic Party based on the principle you stated that in the past, there have been promises and capital raised against codifying row and then it not happening? Well, they never made those promises to me. So I never felt like they lied to me. I want to be very clear. I never asked for that to be a precondition of my donation.

Starting point is 00:28:26 Again, my capital was focused on one thing, which is I thought that President Trump was not the right person to lead this country. And I thought very clearly that the bright Democrat could do a much, much better job. And I am glad that Biden won. And I'm glad that the money that I put in may be in no in any small way, but hopefully in some reasonable, non-trivial way helped. And I'm glad that that money helped even out the Senate. I'm glad all of those things happened. And so I want to be clear, they've never made those kinds of promises to be, nor have I ever asked, I make a high-level decision

Starting point is 00:29:00 on who I think the best candidate should be and support the party that will get that best candidate affected. What I was just trying to make clear to you guys is that sometimes even a Democrat, it's important for us to be intellectually honest about what has happened. It's very easy to look at the other guy and find all the ways in which they screwed up or tried to screw you or, you know, is in a lack sympathy or lack sympathy, all of these things. It's much harder oftentimes to look at your own team and say, wait a minute, why didn't Dex YNZ happen? And the reason I'm bringing up what happened in 2009 is I think David is right. We have a moment in time where the leadership

Starting point is 00:29:40 of the Democratic Party can codify rights that should be codified. And they should have. In hindsight, they should have done it. And just to be clear, no, no, no, no, no, no, no, it is still open. We can do it. I'm talking about Roe v Wade. And yes, and for the issue we're talking about now, it should be codified. Absolutely. And just to be clear, I'm an independent. I would vote for a Republican who was socially progressive and fiscally conservative. As long as they're for gay marriage, as long as they're pro women's right to choose, and they were fiscally conservative,

Starting point is 00:30:08 I would vote for a Republican. I'm a moderate, independent. I wanna see less government and more efficient government, and I want the government out of people's personal lives. And I think that's where Saks and I are exactly the same. We both, I mean, Saks, do you want the government involved in people's personal lives? You're a classic Republican.

Starting point is 00:30:23 By the way, according to the mom and the poll from a few weeks ago, you represent 4% of the voting base. I do. Yeah, that's an extreme minor, the lowest self-identifying quadrant of fiscal conservative versus kind of fiscal liberal, social conservative, social liberal, is the fiscal conservative, social liberal.

Starting point is 00:30:45 What are we all here? I think we all fit this profile. Fiskely, we want the government to be run conservatively, you know, and with less government, and we want progressive social change, right? I mean, I think we all feel that way. Don't put me in a corner, government out of people's personal life. Oh, I don't know about that. I'm just asking, I'm asking you guys if we were all insane. I wouldn't define my cultural positions as progressive social change,

Starting point is 00:31:06 because the change that progressives are trying to do right now is radical. What I favor is social tolerance. I think we need to be a tolerant society. America is a very broad diverse country. We need to find ways to live together and find accommodation on issues that are very contentious. That includes tolerance for gay marriage.

Starting point is 00:31:24 So look, I'm on board with that, but this radical progressive agenda of social change, which includes upending the criminal justice system in favor of- Yeah, no, the new road should- The new road should- The new road should- What's happening in the schools, with CRT

Starting point is 00:31:39 and the sort of hyper-ideologized education? Look, they should just be teaching the basics, reading- Yeah, leave it up to parents to do the other stuff. That kind of stuff, yeah, exactly. They saw them down the line. Well, maybe progressive is the wrong term because that now has been co-opted. Less government involved in your personal life

Starting point is 00:31:54 and tolerance. I think we all agree on that. And I think we're all in a great way. Talon Greece is a great word. Everybody agrees with tolerance. It's a privileged position to want to have less government involved in your life, right? I mean, many people in the United States have been able to thrive and survive because of the role that government

Starting point is 00:32:10 has played in their lives. And there's obviously on one end of the spectrum extreme grift. And on the other end of the spectrum extreme need that is being met by the wealthiest government in the world. And it is a, you know And it is in that middle where all of that. Where do you stand, FreeBur? How would you describe your politics in these two dynamics, right? Are you also in this 4%? FreeBur? Yeah, yeah, no, I'm here.

Starting point is 00:32:42 I'm trying to be thoughtful about this because... Yeah, no, I think it's the idea, yeah, yeah, no, I'm here. I'm trying to be thoughtful about this because I think it's the idea. I think that the government's role is to support those in need, not those in want. And I think that the government should be held accountable for performing that role. And I think that those of us who can that are sitting in privileged positions and seats should enable the government to perform that role well. And we should be positive actors, meaning we should support, we should pay taxes, and we should help people and institutions in need, and that are, you know, kind of for the greater good. And then we should be holding ourselves, our government, and our politicians to account for inefficiencies.

Starting point is 00:33:26 And the biggest concern I have is less about are the people in need being met as much as, are we holding our government to account for the performance of its services and duties to the American people? And I don't think we are. I really like this want need concept here. Can you give an example of where the government,

Starting point is 00:33:43 like people need something, but then there's another group that wants something and maybe we're overstretching and, you know, giving into wants when we should be focused on needs and efficiency. Yeah, I'll give you a pretty, an example. I know reasonably well, which is the Farm Bill passes every four years. And the Farm Bill in order to get it passed in both the house and the Senate, it has components that serve both farmers and support the food stamp program. So the food stamp program obviously supports millions of Americans that are in need of food, can't afford food.

Starting point is 00:34:16 They get eBD cards, they get support and buying food, and there's a lot of programs and access that are enabled by that program. But that mostly services the needs of urban areas of cities. So that element of the bill is attractive and appealing to the representatives of cities found in the house. On the other side, in order to get it passed in the Senate, where the majority of senators come from rural states, which have significant farming populations, the farming subsidies are planted in that same bill.

Starting point is 00:34:45 And as a result, because everyone's getting something, that bill as a whole has now grown to a multi hundred billion dollar bill that gets passed every few years, because in order for the Senate to pass it, the House says, okay, we'll give you all these farm subsidies. In order for the House to pass it,

Starting point is 00:35:00 the Senate says, well, sorry, it's advice versus that, right? We'll give you all these food samples, but both of them now have incredible, what do they call it, pork or fat or whatever? Yeah. The amount of money that's wasted that isn't actually servicing the original intention and need of either of the parties that are represented by that bill is extraordinary. And I've spent a lot of time in the Farm Bill. I actually went with lobbyists years ago to DC and I I actually met with the Senate and House Ad Committees.

Starting point is 00:35:26 I've gone very deep into the bill and some of the programs in that bill. And it's just shocking to me in the same way that Palmer Lucky shared in our all-in-submit how shocking it is, how defense spending works in this country. It's shocking to me how some of the programs work in the farm bill, how much money and how much waste there is

Starting point is 00:35:41 and how much grift there is. And so yes, we are meeting the needs of populations in need in this country, but so much more of the bill now is about people wanting more in order to pass the bill, and it's bloated. And so that's- Are you going to come in and fix it? Because where's the incentive for anyone to come in and cut that bill up? Where's the incentive to fix it?

Starting point is 00:35:57 If both sides are barbelling the grift, then there's no incentive. They're in a dance to maximize the grift. So, Shama, where do you stand now if we were to sort of look at politics without the Biden and Trump to range, Mr. and without the tribalism, just in terms of first principles, I think what we're seeing here is we all want to see radical competence in the government,

Starting point is 00:36:18 social issues, and fiscally how we run the country. Where do you stand? How would you describe yourself now? And fiscally, how we run the country, where do you stand? How would you describe yourself now? Look, I mean, I think of things in terms of risk. Here's what I see. I see that there are a handful of issues that remain in terms of social policy that just need to get codified.

Starting point is 00:36:47 terms of social policy that just need to get codified. Game marriage is an example of one abortion rights as an example of the other. Then, and I think like those are like really, to my perspective, speak about human individual liberty, which I think should trump everything. So everybody should be allowed to kind of pursue the best version of themselves. How are that manifests in the person you marry to in the gender you express? Not these are like things where what you do to be happy you should be allowed to do, period end of story.

Starting point is 00:37:22 Then there are issues where I think are much thornier and as I get older I become increasingly ambivalent or confused actually is a better word. And gun control is a perfect example of that where I don't know what my right is to go and adjudicate a change to the constitution that's been there since the founding of this country. That's a much more complicated issue. And so I think we have to basically devolve that right to the states where individual states will have very different laws and part of how you choose to express where you live

Starting point is 00:37:57 will be defined by some of those rules. So that's the social side. Extreme tolerance is really how I would sum it up economically so but but I think the risk to America Imploding quote unquote because of an issue in that surface area in my opinion is extremely limited If I look on the economic lens, however, I think there are enormous risks to American leadership and exceptionalism. And we need a wholesale reset of how we create incentives, of how government should work,

Starting point is 00:38:35 of how regulatory capture should work, of how the capital markets work. These rules are way too perverted. And it's creating enormous stress in a system. And again, I go back to the example I used last episode. The thing that if you look for example like, you know, in that example of Sri Lanka, Singapore, Jamaica, and how there were these three completely different outcomes. Underneath the most successful outcome was an incredibly clear, transparent, and simple financial framework. You cannot spend more than you have.

Starting point is 00:39:15 You need to invest in long-term programs like education and healthcare. You need to make them broadly available. And then you need to have an absolute free market that gets the best ideas to the top of the funnel. And if you can just incorporate those things, the tax law could be four pages. The number of regulations could be 50 pages. The simple rule that says to the Federal Reserve, you can't just print free money at Hawk. So I'm much more concerned about the fiscal future of America. I think that there's so much movement and progress on the social side, including the

Starting point is 00:39:55 freedom of movement of people to different states. It is an important set of issues, but in terms of what drives the outcome and future success for our kids and our kids as kids, people should not sleep on the economy. Because if we get this wrong, that will be the tinder box that lights everything on fire. Sax, when you hear everybody sort of explain their basic belief system, how far apart do you think we all are on this podcast? Because I think that's been an issue we see. A lot of the fans discussing you and I discussing. It feels like like on most of these issues and I think that's people ask me how

Starting point is 00:40:29 I'm friends with you all the time and I'm sure you get that question as well. Yeah, and I love you. I love sex like a brother and anytime we talk about basic issues, we're very much in sync and then when we talk about politics, it feels like we're super, you know, opposed, you know, in opposition to each other. When you hear that we all have essentially the same stack of fundamental beliefs, how do you interpret this in terms of politics and America writ large and how do we get consensus in this country to be more effective in running the country for the citizens? I think the media drives a lot of polarization, right? Because they're feeding us a bunch of bogus narratives.

Starting point is 00:41:08 You look at the polling around the trust in the traditional media has absolutely plummeted through the floor. I mean, they basically have, instead of just reporting objectively the facts, they, I think the audience has recognized that they are activists. They are basically pushing an agenda, and they're pushing a bunch of bogus narratives, and I think it does drive the polarization. So that's part of it. To go back to, you know, what are the core issues that motivate me and like who I support?

Starting point is 00:41:35 Look, I think we could probably agree on a lot of stuff. I want us to pursue more of an internationally cautious, you know, agenda, less interventionist, because it really hasn't worked out for us very well over the last 20 years with all these wars that failed. I want us to be fiscally responsible and promote a healthy economy to what Jamal said. And then third, I'd like us to be socially tolerant. Now, why does that lead me in this current environment to support Republicans? Well, on international, on internet, on sort of foreign policy, not the party is really very good. Both parties are sort of pushing some version of Bush doctrine light, where we're basically over-envolving ourselves in all these countries all over the world. But the Republicans at least have a

Starting point is 00:42:16 faction that's in favor of realism and restraint. So I'm trying to help kind of push that direction within the party. The Democrats' test are still very much in this liberal intervention, this mode. On fiscal issues, both parties are guilty of overspending and creating this runus federal debt and deficits that we have. However, there's no way to avoid the fact that the Democrats are just worse. I mean, Biden wanted an extra four trillion of spending on this whole build back better on top of the four trillion yet. So listen, I know the Republicans don't have clean hands

Starting point is 00:42:51 on this issue, but the progressives are just worse. And as long as the progressives are calling the shots the Democratic Party, they're just worse on spending. And then you got social tolerance. Listen, on the issues, on these sort of key rights issues that have been the kind of the old social issues last 50 years, by and large, not on all these things, but by and large on with you guys, I'm in favor of sort of the socially tolerant position. But look at who is pushing social

Starting point is 00:43:15 intolerance today. I mean, the progressives are the most intolerant group in America. They're the ones pushing cancel culture. They're the ones trying to shove their positions down the throats of ordinary Americans. This is what's creating the backlash. You look at issues today like CRT, like the progressive approach on crime, on borders. The progressives are trying to promote, I think, a social policy that is fundamentally intolerant and doesn't accord any respect or room for traditional Americans to live their lives the way they want to. And you have to be tolerant of them as well. We're not going to have peace on our side without some tolerance of Trishless. Okay, let's wrap on this Shemaah and then move to Shana. I sent you guys a

Starting point is 00:43:55 this was a quote by Mike Salana a tweet from Mike Salana. The caption is I've been wondering how they were going to spin this and this builds exactly on David just said here when the Quinnipiac Quinnipiac pole came out and about approved disapprove about President Biden You know the big outlier was the Hispanic population 19% approved 70% disapprove and the article in the Washington Post, which tries to kind of sort of like clean this all up in whitewash, it says fake news speaks many languages,

Starting point is 00:44:32 but it's particularly fond of Spanish. Essentially saying that, you know, the fake news problem in the Spanish language has basically gotten so bad that this sort of explains why Hispanics have moved in droves. And it's like a whole race baiting, cheap shot article. But the point of all of this is just to show that the left, this is what really does kind of bum me out. They are probably more intolerant than they've ever been. They are so-

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Starting point is 00:45:19 They are. They are. They are. They are. They are. They are. They are. They are. They are. They are. pointing part about all this. Okay, so let's shift now. I think we just just want to say one final thing about this whole thing that we can move on is I think I think if you are sort of purple and centrist, I think the first two years of the Biden administration were really a missed opportunity because I think there's sort of this conventional wisdom

Starting point is 00:45:35 that the parties are so polarized they can't get anything done. I think we saw actually there's enough Republican votes or there were in the in the previous Congress, this current Congress, they got the infrastructure bill done, They got the gun bill done, you know with the red flag laws and so forth That we talked about they can get codification of gay marriage done if they want to they could have gone The electoral count act reform so if Biden hadn't gone all the way with his progressive voting rights agenda and just focused on reforming the electoral count act, then you could have prevented a situation like we had on January 6th that What was happening inside the capital not outside?

Starting point is 00:46:14 So there was a lot of stuff they could have passed and they didn't why because the in the in the first half of his administration Biden's been completely captive to the progressives. There's another thing as well. You could get a child tax credit passed. You could get Romney would basically be the floor leader on that in the Senate. They could pass a child tax credit. That's the most popular part of BBB. Why don't they peel that off and vote on it? Yeah, because they went to the whole thing. They went to the polls. The dresses are holding a hostage saying that we're not going to give that to you unless you do the whole enchilada. And of course, there's no votes for that. So I think there's a and and and so who ultimately is the culprit? For allowing the staff and will partly bind but also wrong claim the chief of staff. I mean they've made a

Starting point is 00:46:55 Instead of trying to lay into the center. They should have realized hey, we're a 50 50 president, right? I mean we have a 50 50 Senate. We should be triangulating. We should be building a Central's coalition. Wrong claims are great. As we're letting the government to destroy the train. Biden had a clear path to go right to the center, pull everybody in, pull the working class in. That's been his supporting base, who he is. Who is the working class?

Starting point is 00:47:16 And so he is. And he blew it by going too far to the left. If he wants to save this presidency, he should go straight to the middle and get all the working class behind him. It'd be reasonable. Why isn't this a guy that went to some elite, you know, East Coast liberal arts school

Starting point is 00:47:32 where he got a master's in fine arts and his 400,000 in debt? That's not Joe Biden, but he's let all these people run over the White House. And it's too late now because I think what's gonna happen is is that, well, there are Republicans are going to win the house at least. How much time did we spend talking about canceling student debt for who?

Starting point is 00:47:53 Yeah. No, for a bunch of elite people. Elite rich graduate degrees. Yeah, it's a elite. I mean, listen, there's characters on both sides. It's disgusting. And we need to get to a version of politics. That maybe is more like our conversations here,

Starting point is 00:48:06 but let's pivot to another society that we thought was gonna roll over ours, and that we were behind on in terms of competition. China's in chaos right now, apparently, in terms of slowing economic growth, bank protests, mortgage protests, exactly what I predicted last year when you guys were talking about China was gonna dunk on us, and I said, you know, mortgage protests, exactly what I predicted last year when you guys were talking about China was going to dunk on us and I said, you know, it's very hard to

Starting point is 00:48:28 run these authoritarian countries and the citizens like to protest when they get the short end of the stick. And here we go. Chinese economy is growing very slowly. They were going to do five and a half percent this year. They were only 0.4 percent in Q2. COVID has a lot to do with this. But there's been a series of bank protests

Starting point is 00:48:46 and the media has been trying to figure out exactly what's going on here to just set the stage here. Royal banks in China in a couple of provinces froze a bunch of peoples with draws in April. Okay, sounds like the crypto contagion in many ways. They had been offering unusually high interest rates, also sounding like the DeFi, a Griff going on here. No, I think it's more like 2008, Jason.

Starting point is 00:49:09 I think the financial, I think it's more like the financial crisis in 2008 that was driven by the real estate bubble. Yes, they've got their own real estate bubble which is collapsing there. Correct. And so there's multiple things going on at once. The authorities haven't said how much money is frozen,

Starting point is 00:49:22 protesters, climate, billions of one, but it's hundreds of millions in the US. months. The authorities haven't said how much money is frozen. Pro-tester's claim is billions of one, but it's hundreds of millions in the US. After weeks without a resolution, customers have been began protesting. Playing clothes, thugs have been hitting and kicking the protesters, and as of Wednesday, a video and viral of the CCP bringing in tanks to protect the banks, very evocative of TNM and Square. Take on. Have a question. So go ahead.

Starting point is 00:49:48 Yeah. So China has a very explicit zero tolerance policy on COVID. Why do you guys think they are so extreme in that policy? Like any ideas, like, have they explained why it has to be zero tolerance? They have not explained that. And if you believe that they're the origin of COVID, maybe they have some insider information about long haul COVID. And that was something I want to talk to Friedberg about.

Starting point is 00:50:15 If he thinks this, you know, long term COVID stuff is a really acute issue, but Friedberg, what do you think? Yeah, I don't, let me. I don't want to answer that. Can I answer that if you what do you think? Yeah, I don't, let me, I don't wanna get that question yet. Can I answer that if you don't want to? Yeah, go ahead. Listen, I think the answer is very so. But I do want to talk about the Chinese economy.

Starting point is 00:50:33 Oh, yeah, there's two long gone on there. There's a long gone on there. Yeah, this is a complex issue. There's a lot more going on there. So on zero COVID, I think this is coming directly from she, this is his policy. And I think that earlier in the pandemic, they were hailing their response,

Starting point is 00:50:48 which they saw as orderly and effective at controlling COVID. And they were contrasting that with the chaotic Western response. And so I think that the credibility of the CCP and GM self got tied up in this idea of stopping COVID entirely of zero COVID. And so I think this is coming directly from the top.

Starting point is 00:51:09 And it's having a huge impact on their economy. And I think this is one of the dangerous aspects of a autocratic system is you got one guy at the top making the decisions. And if he's wrong, there's not really a great feedback. And nobody can question him. Yeah. Yeah, exactly. So the God's not questioning the God King. Yeah. It sort of recalls a situation in China.

Starting point is 00:51:29 I think this is about 500 years ago, there was a Chinese emperor who banned shipbuilding and banning having a navy. And because of that, China shut itself off from global trade and it fell well behind the West, which then explored and captured the new world. There's this question about, the Chinese culture and civilization was much more advanced than the West, than Europe, a thousand years ago, but basically it fell behind, and a big reason is because this unilateral decision by one emperor to basically close themselves off from the rest of the world.

Starting point is 00:52:00 So you have to wonder, does this autocratic move by G basically doom their economy to a recession? It seems like they're not learning from our experience, these lockdowns didn't work. I mean, you can't stop the virus. It's eventually going to get out. Even I saw Biden got the virus this week. I mean, it's out, right? It's endemic now. Everybody's going to get it is basically what I'm just making a bunch of heavy-handed decisions like this. So you have, besides lockdownss, it was it's also the crackdowns. It's the crackdown on the tech industry. Yeah, the tech entrepreneur has plummeted and so has so LPs are no longer investing in funds there with the exception of Sequoias, which seems to be struggling, but is still

Starting point is 00:52:40 able to raise the money and then, founders can't raise money. And founders are questioning when they meet with VCs, if they can actually, if the VCs are just meeting with them theatrically, this story that came out this week in the FT, if they're just meeting with them theatrically because they want to still hold out hope that they'll be a venture capital industry, but there may not be a VCs industry in China anymore.

Starting point is 00:53:02 Let me just give you the housing stuff, and then Freeberg, I know you wanna chime in on this. So me just give you the housing stuff and then, Freberg, I know you want to chime in on this. There's also mortgage boycotts happening at the same time as this Fugaisi bank stuff happened. The bank stuff seems to be not the national banks. These are local banks that apparently could have been running some kind of a grift where people deposited the money and ran away. It looks a lot like the savings alone kind of behavior in the 90s in the US.

Starting point is 00:53:25 And these are regional banks to be clear. This isn't the national banks. And so at the same time, the mortgage boycotts are happening at 301 unfinished developments in 91 cities. Homeowners or accusing developers of failing to deliver the apartments they've already paid for. According to Bloomberg, 70% of house so wealth in China is tied up in property,

Starting point is 00:53:41 much harder than the US. This is downstream of the whole ever grand thing, right? You got ever grand, Evergrand basically defaulted and there were a whole bunch of people who pre-paid for their homes. And so they're already paying mortgage, but Evergrand never finished the homes. And now they're rising up because they're saying, why should we pay for a home that was never delivered?

Starting point is 00:53:57 Right. I just want to like take a zoom out because I think it's worth, you know, we can focus on any one of these particular things that are happening and try and diagnose them and dissect them. But if you zoom out a little bit, I think it paints a more interesting picture. Over the last 30 years, the Chinese economy grew from 318 billion to 1990 to 10.5 trillion

Starting point is 00:54:19 in 2020. Incredible growth. GDP per capita grew you know, grew kind of in a similar ratio, right? Now, from three to 18 bucks per person to $12,500 and 30 years, I mean, really unprecedented in the history of humanity. China now accounts for 20% of global GDP from less than 2% in 1990. Now, if you look at historically what drove that growth, we all talk about manufacturing, right? Manufacturing counts for about a third of the economy. And manufacturing as a sector was growing in China, 25% year over year in 2008.

Starting point is 00:54:54 And then only grew 6% in 2022. It's like basically, you know, kind of reaching an all-time low in recent years. So that's historically been the driver for growth of this economy. So much of the bargain between the people and the Chinese Communist Party has been keep giving us a better life, keep growing our economy, keep giving us more housing, more stuff, more food, more safety, more security, we'll support the CCP. And the challenge that the CCP is having is that a lot of that growth, the core growth engine is starting to slow. So manufacturing is slowing. Then real estate was growing.

Starting point is 00:55:27 And so real estate accounts for 7% of the Chinese economy. And I've got a good stat for you guys here in 2005, 250 million square meters of real estate was sold in China. In 2021, 1.5 billion was sold every year. It's been incrementing. So the amount of real estate that's being produced and sold was increasing like crazy. This year, it's collapsed.

Starting point is 00:55:50 So it's down like forecast to be about 1.25 billion now. So the first decline in real estate building and sales. So that part of the driver of the economy in China is now collapsing. And then the financial services sector accounts for 8% of the economy. And that's been growing because it's leveraged off manufacturing and real estate and all the capital that's flown in, all of which is slowing down and stopping. You know, this

Starting point is 00:56:12 $58 trillion of assets in China, generating about $700 billion of annual profits for the financial services industry, insurance, banking, lending, and so on. So a lot of the conflict and the things that are starting to fall apart, which may just be the tip of the iceberg, is a function of a fundamentally slowing economy and the forecast and the outlook for an economy that doesn't have the drivers it's had historically, and things are starting to come off. The wheels are starting to come off a bit. And so, you know, look, the advantage they have is central planning, long-term investments, being able to kind of be thoughtful about this. But in order to do that, there's certainly going to be a need for the CCP to keep people in line

Starting point is 00:56:50 as some of the long-term bets hopefully play out for them, as they would say. In order to do that, they're going to have lockdowns and other sorts of mechanisms of regulatory control over the people. But really, this could be the beginning of some of the unwinding and real concern about, is there a core economic growth engine in China that can save them and what will it be? I think all of this, if we look at what's happening in the economy writ large, Chimath, the global slowdown, plus inflation, is now causing a stress test on every country. Sri Lanka's stress test showed us what's happening with their farming issues and with corruption.

Starting point is 00:57:26 And here in China, the stress test, I think you would agree, is showing what's going on in terms of banking, mortgages, real estate, and obviously this surging middle class and what their expectations of life are. So what's your take on what's happening in China and are they, you know, how does this add up in terms of our rivalry with them as our contemporary? At a very macro level, China has one massive, massive, massive problem, which is one of population. It's hard to get an accurate count, but it is an aggressively aging population, which was the result of the one child policy for a very long time. China has sort of been on their heels trying to adapt that policy, but really the last data

Starting point is 00:58:19 I saw, I tweeted this out. It was a little while ago next, so maybe hard for you to find in my Twitter feed, but it was a projection of China's population population which essentially showed it contracting by almost 50% by 21's 100 so in the so it that's a really really bad situation now when you have a slowing population Then the economy has to morph Why is that when you have a young population? So for example take what China was 20 years ago when it entered the WTO or what India is today, when you have lots of lots of young people, you can unwrap them into economically productive activities like manufacturing.

Starting point is 00:58:58 The problem in those folks accumulate middle-class income and wealth is that they age out of those kinds of jobs, like they did in America. And what we seek are services and service-level jobs. And you spend more money, you spend it in a different way. So as population's age, your economy has to turn over unless you have a large bulwark of young people that is constantly growing to take up more of the slack, the economic slack, to pay for these folks who have different lifestyles, more savings, and different needs, specifically healthcare. That's China's enormously big problem. So when you see them talking about 6% GDP targets and you think, how does a country that big even grow at 6%? It's because they're reverse engineering for what they need to create economic vibrancy in that country. And so when you start to look at 2%, which in America you'd say 2% is great. We would like high

Starting point is 00:59:57 5% each other for 2%. That's not a sustainable level of growth for what's happening inside that country. It does not create enough of expansion economically to cover all these folks. That is a really, really big issue. So as that happens, I think what we need to do is figure out how to be competitive. Now this goes all the way back to our first conversation. Subsidies don't make us more competitive. Things that governments can do to make us more competitive are long-term, drawn-out, tax incentives that change the earnings capacity of companies.

Starting point is 01:00:34 Why? Because in the capital markets, reward those businesses. Jason, you just mentioned it. Why is the Chinese capital markets in difficulty? Nobody knows what the long-term earnings are. How do you forecast it? It's not simple anymore. It's not a model, it's not an interest rate,

Starting point is 01:00:51 it's not a discounted set of cash flows, right? And so that's how they need to refactor themselves. They need to have a much larger population. If you don't have that, you have to figure out how to do it with immigration. If you don't have that, you have to figure out how to do it with immigration. If you don't have that, what China has done is they've tried to go to Southeast Asia and to Africa and they've tried to create that synthetic form of a growing pyramid. Right? Now, that can work as long as the balance sheet of the country supports that because ultimately,

Starting point is 01:01:22 you're still talking about moving money off shore. Okay. So I think there are a little bit of a, they're in a pretty difficult spot. The most difficult spot is the one that she put them in. If you get rid of entrepreneurship, if you get rid of high growth companies that create the opportunity on a global scale and then you, you know, take DD off the public markets, you don't let education companies become public or you basically get rid of their little co-opting of capitalism and venture capital.

Starting point is 01:01:50 Their whole society is going to become slow growth and slow growth in a country that doesn't have safety nets is really dangerous. Sacks your thoughts in terms of competition versus America. Okay, let me get to the the competition of second, just a bill on which Moss said the the birth rate or the fertility rate in China slipped to just 1.15 in 2021. So last year it takes 2.1 just to maintain your population or placement level. So and this is lower than even Japan, which is also shrinking as a good Japan said, but 1.3 the US and Australia are 1.6, but we get above 2.1 because of immigration and China doesn't have that. So they've got a huge demographic problem, which is a mouse point.

Starting point is 01:02:31 It's going to be something like, well, the population is shrinking by 40% with every generation. That's what these numbers imply. The numbers are, it's going to be under 600 million by the year 2100, but I would, I don't understand how it wouldn't even be less than that if it keeps going at this rate. So they're in the, the, the commentator, Peter Zihon has, or I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way,

Starting point is 01:02:56 I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't know if that's the right way, I don't decade or so. On top of that, like you're saying, Jason, you've got G emphasizing Maoist

Starting point is 01:03:06 economics. He basically says he thinks that the Chinese economy, again, he stresses the need for socialist characteristics. And he seems to be bringing back that sort of communist ideology to their economy. And they've basically really cracked down on entrepreneurship and venture capital. It's really a cell phone. I mean, they've moved away from the policies that have made them so successful economically over the last 40 years. And then on top of that, you got this debt crisis and this housing crisis. So it really looks like the debt is stacked against all of them.

Starting point is 01:03:36 And you're asking, what does this mean for us? Well, I think it depends on whether you look at it economically or geopolitically. I think if you look at it economically, you'd say that it's bad for us because our two economies are economically linked. There's a lot of dependency. They've evolved together for a long period of time. And if China has a collapse, then they're so big now that that's going to have, I think, global repercussions.

Starting point is 01:04:01 There's going to be contagion. But the truth is, if you look at it geopolitically, and geopolitics is more of a zero, the balance of powers is zero-sum game. Economics can be a positive sum game, but the balance of power is definitely not a positive sum game. You'd have to say it's good for us, because the reason why China has become such a threat is because of its growing economy over the last 40 years. Yep. And look, I mean, what they've done and what they've been doing over the last decade or so is translating their economic might

Starting point is 01:04:29 into military might. And that has given them the capability to now threaten their neighbors to become more belligerent to basically rally the saber against Taiwan. And if their growth, if their impressive economic growth continues for the next couple of decades as it has until now, there's no question that they will, they will

Starting point is 01:04:51 basically try to assert their had Germany over East Asia. And Taiwan will be a huge flash point, but there's also flash points in the East China Sea with Japan over the. But they're going to need a bankroll to do that. So if they don't, if their economyisseurs not growing they don't have the bankroll to do it they're going to have to look inward and say hey we got to fix these domestic problems we got to get people stop protesting these streets we need to this middle class is demanding of jobs the great news for what's happened in China and i think this is why the people there are very happy is the number of people living in poverty has plummeted you know when they start tracking this data in the eighties you know high 90 percent of people were living in extreme poverty or poverty 99 percent of people were in poverty on the on the global definition of it and now you know it's just plummeted to you know couple a hundred million people so a couple of charts for you here but just and the data is obviously it's very hard to understand what's going in China China because a lot of it is opaque, but just the number of people on a percentage base is living in poverty has gone, and now the number of people who are in the middle class

Starting point is 01:05:52 has surged, that creates another dynamic. Those people want to have a great life. They want better jobs. They don't want to work in factories. They want to have a more information-based economy and a better job than 60 hours a week in a factory, that's why they're moving their factories to Africa and other places. I don't know if that's absolutely true. I think that China's manufacturing sector is aiming to evolve. So China has about 3 million factories, or manufacturing facilities throughout the country, employing about 112 million people. The US has about 300,000

Starting point is 01:06:27 factories employing about 12 and a half million people. The output of our factories is about 70% of the output of China's factories in aggregate, sorry, the total production output of all the factories. So we have very high value outputs coming out of our factories and high leverage. China is observing and obviously recognizes that there's an opportunity probably to evolve their manufacturing capacity to be higher leverage, higher value output. And so there is going to be, you know, from the long range perspective, planning and investment in technology that allows those factories to become much more sophisticated

Starting point is 01:07:11 and create much more higher value products moving up from what is effectively just cheap labor, putting things together in an assembly plant to being things like additive manufacturing, 3G printing, automated manufacturing, bio manufacturing, et cetera. And I think this is particularly gonna be realized because China announced that they're building

Starting point is 01:07:31 400 nuclear power plants. That drops the cost of electricity to under 5 cents a kilowatt hour. In the US, manufacturing electricity typically cost around 11 cents per kilowatt hour, 12 cents per kilowatt hour in 12 cents per kilowatt hour, in that range. So if factories become much more automated, they start to become a function of the price

Starting point is 01:07:50 of electricity in terms of what they can output. China is going to have a huge advantage as these nuclear power plants come online over the next couple of decades, and these facilities get upgraded. So there is a plan, right? Remember this is a challenge. They do have a plan in the... There isn't that plan. And there is, there is a question of,

Starting point is 01:08:06 do they get there fast enough to drive economic growth that actually supports all these other industries like real estate and finance that they've become critically dependent on? Because those industries only work if there's a core economic driver, a core economic engine that's working here.

Starting point is 01:08:20 So this energy infrastructure, this new manufacturing infrastructure, these are things that, by the way, they can do really effectively because they're not working on four-year and six-year political cycles, they can take a five, 10, and 30-year outlook and make a plan and invest against it, what they did from night to night. So I wouldn't count them out, but there's certainly a lot of challenges they're facing right now. It's a big question, Mark, right now what's gonna happen? Well, and to your point, factories in China are, you know,

Starting point is 01:08:48 factory workers are getting paid over six bucks an hour now in Vietnam, three in India, even less. And that's why you're seeing a lot of folks, I don't know if you're seeing it in your portfolios, but we've seen a lot of folks looking at India, Vietnam, and moving factories there, and obviously Japan has been incentivizing China is not going to just lose their manufacturing edge.

Starting point is 01:09:07 They're not just going to say, hey, we give up. Let everyone go to the end. Mom, they're going to try and upgrade the capability of those factories and say, hey, instead of just putting together parts with $6 an hour of human labor, let's start to do the more sophisticated things. So then free-brow. The next card that turns is, well, what happens

Starting point is 01:09:22 to those factory or workers if they've been automated out? What do you do with hundreds of millions of people working in factories who now have been turned into robots? And then if they're going to be in the answer is information economy, if it's going to be an information economy, you need venture capital and you need new companies to create those jobs and they just killed that. So I don't know what strategy she is pursuing here, but it seems like a bad one. We could talk about this one at length, but we were going to bring this up, but generally speaking, technology drives productivity gains, but it's deflationary in the short term. Explain that that means in a practical sense, maybe the technology is flaky.

Starting point is 01:09:59 Let's say that you have to examine it. A bunch of people to make a t-shirt, and then a machine is built that makes the t-shirt. The cost of the t-shirt goes down, because one machine can just print out 100 t-shirts an hour, whereas it would take five people, you know, 10 hours to make those 100 t-shirts or whatever it is, right? So a technology of kind of emerges, and those people are now theoretically out of jobs. But what ends up happening is those people transition into new jobs that didn't exist before and we end up seeing higher order work take place. Think about the world 200 years ago. Do you think we would have had any concept of people being Uber drivers or

Starting point is 01:10:36 people creating crafts and selling them on Etsy or YouTube or people being yoga teachers or yoga or yeah yoga creators. People being yoga teachers, or yoga teachers, or psychotherapists. Only kids. Okay, well, there you go, drop, only fans, or dog walkers, or all of these service businesses, or industries that simply did not exist before. And so the labor that those,

Starting point is 01:11:00 that that percentage of the population was involved in, historically has gone away because it's been automated. As that automation has happened, it's allowed higher order services jobs to emerge, and that will be the progression of humanity forever. I will tell you guys, I was gonna mention this, have you guys played with Dolly too?

Starting point is 01:11:18 Yeah, the other day? Yeah, sure. I got the log in, my brother-in-law was visiting, we were playing with Dolly too, and making funny kind of fun with it. So Dolly too is developed by OpenAI. We all know Sam Altman. He's been leading that organization to great effect over the last couple of years. And what they're doing is they've basically scanned the web for images, tagged them, and then applied machine learning to basically allow natural language creation of images from scratch. So the AI can generate an image.

Starting point is 01:11:51 And you can go to the internet and look at a bunch of these. But the image is incredible. I mean, the creative output, what feels like creative output from the system, where you just say, hey, make me an image of four guys going a podcast on Zoom in the style of Van Gogh. And it creates this image that is unique, has never been created or seen on Earth before, and is a function of the learning that's been done

Starting point is 01:12:15 in these neural networks to develop this AI that can create not novel stuff. It's really amazing. And I started to think about, like, what are the implications for this over time? Think about, you know, the original movie Ben Hur in today's dollars would have cost a billion dollars to make. They had thousands of people, like tens of thousands of people on that set. It took years to make. They built giant sets. They could only, you know, make one film. It was an incredible feat and an effort. That's what movie making is, you know,

Starting point is 01:12:44 still today. There's teams of people. Now, what if you could speak to the AI and say, make photo-realistic Jason and Chimoff having a battle on a field in the middle of nowhere and now an airplane flies over and you can instruct the AI and the AI can generate photo-realistic visuals, audio. The AI can even generate scripts and narrative for you. It really starts to change the role of the creator, the AI can even generate scripts and narrative for you.

Starting point is 01:13:05 It really starts to change the role of the creator, the director. The director is no longer doing this thing, where they have to get it just right, make the perfect 90 minutes, and then line up all the money and all the people to do that work on that plan on that program. They can be much more iterative, and they can be much more creative on the fly. They can create a two-hour movie by speaking to the AI, and then edit the movie by speaking to the AI, change the actors, change the color, change the voices, change the music, just speaking to AI to

Starting point is 01:13:30 generate creative output. And people will consume that output. And I think it's amazing to think about what creators warned of doing 10 years from now as AI and these tools proliferate. And you see version 12 of this, which is version 2, and what version 12 might enable. And so the role, the number of people that can do that job goes from Steven Spielberg and Bob Zemeckis and a few other people to suddenly,

Starting point is 01:13:52 thousands or tens of thousands of people around the world making incredible movies. That's just one. Here's Dali's image, it was pulled up of four guys doing a podcast. So we have a ways to go, but yeah, that is four guys doing a podcast. That's awesome. Yeah, that's awesome. I mean, and to your point, like, you know, that is for guys doing a podcast. That's awesome.

Starting point is 01:14:05 Yeah, it's awesome. And to your point, this is going to, we're on for you to do this. So a lot of people are like, oh, is this going to wipe out graphic designers? Is it going to wipe out the creative industry? But the reality is the roles that those people are in today will absolutely be gone, but they will emerge and evolve into new roles that we never even thought imaginable. They'll really transform that industry and society. And this is going to be true across everywhere that AI touches. Yeah.

Starting point is 01:14:28 And I think you'll see this in China. Great. China's steps up their technology in manufacturing. You'll see those new markets evolve. Sorry. The designers will have less leverage to ask for all the stupid snacks and offices of startups. Well, I mean, you need only look at the designers of the worst.

Starting point is 01:14:44 My God. They're the best. Anyway, in the 1940s, I mean, you need only look at the designers of the worst. My God. They're the best. I love them. But anyway, in the 1940s, I mean, there were literally hundreds of thousands of telephone operators. It was totally, and they're all gone now. And not only that, have you ever met a designer that didn't take themselves incredibly seriously, that didn't have like, you know, T that they would steal the bad ones? You know, good ones, T that they were right there. It's like they'd have like steel straws. Video game designer, they're a little different.

Starting point is 01:15:10 I'm sorry, what did you say about the steel straws? That was a, that was a, that was a, that was a, that was a, I have, I have, I have, I have, I'm eliminating waste in my life. I mentioned to you guys last year, this video game I played over Christmas by Anna Perna Pictures and the guy that runs the studio sent me a DM. He loves the pod.

Starting point is 01:15:29 Oh, it's nice. And they just launched a new video game, which I started playing a couple nights ago called Stray. And you literally, you play the game as a cat, lost in some crazy world. You're literally a cat. That's awesome. The image of me on this thing is unbelievable. That's actually my favorite game right now,

Starting point is 01:15:48 sexes. I play a cat at a best-rate cat, and it's really amazing. You know, it's like, you should go play the game. You should go play the game. Yeah, I'm going to take a hard pass on that. I like to play the game where I'm a stray dog, and I meet another dog, and then we eat a bowl of pasta. But this long string of pasta we each come closer and closer and then we eat a bowl of pasta. But there's long string of pasta.

Starting point is 01:16:05 We each come closer and closer than we end up kissing. Let's move on to, we want to go black rock has lost 1.7 trillion dollars in six months. VC funding is down or Amazon acquires one medical for 3.9 billion. Which one do we want to go to next? Anybody have a favorite here, Sacks? You've been a little quiet. You got one you want to go to? We can talk about the BlackRock thing.

Starting point is 01:16:31 This is the largest amount of money lost by a single firm over a six month period in history. BlackRock is the world's largest asset manager and it was the first firm to break $10 trillion in AUM assets under management. Right now they're at 8.4 trillion. 2022 ranks as the worst start in 50 years for both stocks and bonds, Chairman and Chief Executive Officer Larry Fink said on his earnings call at the end of June,

Starting point is 01:16:54 only about a quarter of its assets were actively managed to beat a benchmark rather than track it seamlessly as passive strategies are designed to do. Firms passive, equity holdings are now 10 times larger than it's active holdings, although it does operate some active multi asset and alternative strategies that narrow the gap. Claps in bond markets this year has shaken money out of active fixed income funds. Listen, I think there's less than meets the eye here with this.

Starting point is 01:17:19 I think this was a headline that was trying to grab attention by saying biggest loss to ever. Look, the reason why it was the biggest loss ever is because BlackRock is so big. I mean, and what is BlackRock? It's basically at this point, they're index funds, they're ETFs, they're index funds. They just represent market indices. So, you know, the reason why it went down 1.7 trillion is because it started with 10 trillion. So, the average index is down 17%.

Starting point is 01:17:44 That's all it means. We know this, the S&P 500 is down 20%, 22% for the year, the Dow Jones down 15-ish, the NASDAQ is down like 30. So this is just reflecting what we already know, which is that the stock market is down this year. Do you think it's another data point to support the idea that active managers generally speaking and maybe holistically speaking

Starting point is 01:18:06 over time cannot beat the, you know, the market cannot beat indices. I mean, do you have a point, if you want that as an investor, SACs? Well, I think, you know, you're talking about public market investors. I think it's very hard to beat, I think it's very hard to beat the public markets

Starting point is 01:18:24 over a long period of time consistently. I just think it is now. The contradiction, though, is that if you have no active managers, then the indices won't be efficient anymore. So you need the participation of the active managers to help drive the indices and make corrections to it. So, and the fewer active strategies you have, the more inefficient the markets will become there by inviting active strategies. So, you know, I think it's a good question. I think there are some managers who can probably do it,

Starting point is 01:18:56 but I think it's a very tough thing to do. Timoff, what do you think? You're a public investor, active selector of investments. You're sort of, I've been thinking a lot about this. public investor, active selector of investors. Here's what I've been thinking a lot about this. I think that I have disproportionately benefited from being at the right place at the right time backed by enormous amounts of central bank money.

Starting point is 01:19:20 And so I think we all have been. I think it is very difficult to be a public market individual stock picker in a world where the central banks are constantly meddling. Because when they do, the best thing that you can do is belong the market beta. And the more concentrated you are, the better returns you would have delivered since 2008 when the central bank started to get very aggressively involved.

Starting point is 01:19:53 When individual stockpickers rained, the universe was when central banks were largely on the sidelines. And so there was all kinds of dispersion, right? Dispersion, meaning good outcomes, bad outcomes, lots of alpha, right, meaning your performance was independent of the market. But since 2008, it's largely been beta that's driven the market. And the folks that have done exceedingly well were those in tech because we delivered the best beta. And every time we

Starting point is 01:20:25 confuse alpha and beta, we get over our ski tips and there's always some big out, you know, blow up. So I think my general takeaway is that if the central banks stay on the sidelines, individual stock picking rains, and active management can win. If they continue to be involved and do quantitative easing and all of this other stuff, index funds that are long concentrated market beta will always upperform in the long run. I was watching Warren Buffett answer some questions and one of the questions, and this goes to the law of big numbers like BlackRock. He was saying, listen, the reason I did better

Starting point is 01:21:09 earlier in my career, then later in my career, on a percentage basis is because I was placing, I had a smaller amount of capital and I was placing it on smaller bets, smaller ideas and themes. And then as I had a bigger chipsack, I had to find bigger ideas to put more money to work and therefore more people were looking at those. And so those assets were not undervalued. And so I found that very like in sightful in terms of when you participate in the market, if you're trying to pick between very large bets like Cotu and TPG and Tiger were doing in the growth space, SACs.

Starting point is 01:21:47 Like now everybody knows that these companies, everybody knows Stripes of Winner, everybody knew Airbnb and Uber were winners, you know, in the late stage of the private, everybody knew Facebook was a winner and a late stage private market. If you're battling that out, you know, Yuri Milner is gonna come over the top

Starting point is 01:22:01 and pay two billion more than you or Masayoshi-san's gonna pay five or ten billion dollars more than you. Where is the alpha there? You know, where is the gain? Alpha's in the feast. Okay, there you go. And so they were playing a different game. And that's, you know, I started trading this past two weeks because I've never traded public stocks and I wanted to add it as a skill set. So I put a couple million bucks into an account, and I'm just trying to actively figure out how does value work there. And I'm just starting to make trades that I want to hold for 10 or 20 years, and we'll

Starting point is 01:22:33 see if I can beat the market. That's the other thing is what do you want to spend your life doing? If the index, if you can put money in a passive index and not do any work, well, that's attractive as well. So, Saks, what do you think in terms of active management you know in these public markets and the size of the bets that have to be i think i said i think it's very hard to beat the market consistently i think it's a very tough profession i i'm sure there are people who can do it but i don't know if it's easy to predict who

Starting point is 01:23:00 those people are so look i you know i I think it's something that can be done, but I just think it's a tough game. I mean, what we do as private investors is a little different, right? Because not everybody is in a position to buy shares, right? Yeah, you're not available to you. You don't even know the company. Access is limited and information is limited.

Starting point is 01:23:21 And in exchange for that sort of preferential access that we get, we have to have to do work. So when you're a public investor in a company, Disney or whatever, you don't do any work, you're not involved at all. We do a lot of work for the companies and that's why they choose us.

Starting point is 01:23:37 And so it's not, you know, it's you're not competing against the whole world. I think the public market sort of is so competitive. Are you tempted though, looking at these prices, because I was looking at a company that was trading at 50 times revenue last year. They're racing again, they double their revenue. So now they're at 20, 25 times revenue. They're racing at last year's valuation. And then I looked at the public market comps and they're trading at six times. So now I'm like, wait a second. Obviously, the growth rate different. You know, look at the growth rate. You gotta look at the growth rate. So, the growth rate, the growth rate in this example

Starting point is 01:24:06 was three times greater than the public market comp. So how would you assess that then? Well, what we're seeing right now is that pretty good SaaS companies that are growing, maybe on a trailing basis they grew 3X and you know, prospectively they're growing call it two and a half X. They're trading right now, not trading,

Starting point is 01:24:23 but basically deals are getting done at 20 times ARR. Which ARR this year's current run rate? Yeah, the current ARR. You're not getting that like bonus, like here's your projected next year, we're going to give it based on that. This is current. No, no current ARR is about 20, 22, 23 times ARR. Maybe. Down from what last year, 100? Oh, was like a hundred times was the rule of thumb. So now there are some where their deals are getting done in the high 20s, I'd say, or even 30, if you believe that by the end of the year, it'll be more like 20. But I think the new levels are landing at 20-20-something times ARR.

Starting point is 01:25:02 Now, why does that make sense relative toated to the public SaaS company as well, like you said, the SaaS index is trading at roughly six times, but that's only 20% average growth. Right. And so, you know, if you're growing through X-Tune, 10 times the growths, right? Right, and the high growth SaaS companies are trading it like seven times. That's for like a 40% grower.

Starting point is 01:25:24 We've talked about this before. So, listen, if you're tripling year over year and you pay 20 times, that's for like a 40% grower. We've talked about this before. So listen, if you're tripling year over year and you pay 20 times, that'll be a seven times next year. But if you're growing two to and a half, three acts next year, that's way faster. So I think there's actually an arbitrage there. I mean, this is why we like doing private, SaaS investing right now.

Starting point is 01:25:40 Deals are getting done. I will say that the people who I'm seeing who are really struggling freeberg are the people who didn't turn on, I'm talking about in the very early stage, they didn't turn on revenue, they were making progress in team building and culture and features, but they just weren't focused on the revenue side. And my lord, people got a lot of credit,

Starting point is 01:26:01 I mean, $50 million, $100 million evaluations without the revenue turned on. And that now they're faced with not being able to raise money full stop. What are you seeing on your side for your burger in terms of deal flow in the private markets? Yeah, it's and raising money. Yeah, because you have to raise money for your company. It's not easy.

Starting point is 01:26:21 Okay, unpack it. What's not easy? Well, what are the conversations like? Give us the anecdotal information. It's not easy. I'm packing. What's not easy? What are the conversations like? Give us the anecdotal information. I've seen a number of term sheets get pulled. I think we've heard a lot about companies that during the Q1, early Q2, time frame, had term sheets, weren't closing, got the laid out.

Starting point is 01:26:45 And there's a number of examples of repricing where the investors come back, markets have changed, let's repriced the thing, or hey, we're not gonna do this deal anymore, we're gonna sit on the sidelines and wait till the market settles, or RLP's actually aren't gonna let us fund new stuff. Yeah. So there's a lot of those are potentially.

Starting point is 01:27:07 Impact that last one for people. What does that mean? Investors have LPs. They have investors themselves and their LPs are coming to them and saying, do not put more money out right now. We are telling you, we are not going to wire our money to you. We need you to wait until the next settles. Even though they're contractually obligated to, they're telling you.

Starting point is 01:27:24 You're going to be, they may not be contractually obligated to, but obviously these are long-term partnerships. And so when an LP, you know, or a group of LP says, guys, we're not comfortable with you deploying money right now, you know, you're on a 10-year partnership, 15-year partnership with them, you're gonna, as an investor, as a fund,

Starting point is 01:27:40 you're gonna say, okay, I'm gonna kind of listen to that right now. Now, the bigger issues in series BC and D, where companies have some traction, have some performance, have raised a bunch of capital, have done a bunch of work, and investors don't know what they're worth. They're like, hey, is this thing worth 25 million, or 125 million, or 500 million? Last year, you could have raised money at 500 million. I mean, look at what happened with one of those crypto things. Those crypto trading platforms, they raised $500 million last July and they just sold the business for a reported $25 million

Starting point is 01:28:12 after being valued at $5 billion a year ago. Yeah. And the truth might have been more like $275 million. Just a few news out. Some news out, got left. Yeah, and so, but series A, people seem to be pretty active again. And so active again, but the price is now for seed loans. But it's a lot easier happening.

Starting point is 01:28:29 But six to 15 series A is happening, 15 to 25. It's a lot easier to get a deal done in a series A because people say, hey, look, I'm gonna give you this. You say, okay, I'll take it, I need the money. Series B, C, and D is where there's this whole fight because there's existing investors, existing shareholders who are saying, I don't wanna take a 50% right down, a 70% right down, a 30% right down over the last round,

Starting point is 01:28:49 and fighting and then doing inside rounds and bridge notes and all sorts of other shenanigans to not have to take a negative mark on their book. Yeah. One thing, what the interesting here is that, you think about like where the opportunity is in the market right now. And I think one of the things that happened in the boom

Starting point is 01:29:06 is that everyone got pushed to go earlier and earlier because deals were so competitive. And so in the SaaS business, normally one million of ARR was considered the rule of thumb for getting a series, for basically graduating to a series A, that you're ready to go from C to C, when you had a million of ARR.

Starting point is 01:29:22 As we know, during the boom last year, that number kept going down, you know, 500,000. 300,000. And then you would see crazy deals get done that were pre-revenue with price at 100 plus. We never did any of those kinds of deals, we just thought that was too crazy,

Starting point is 01:29:37 but they definitely happened. Well, think about the dynamic now, which is, let's say that that SaaS startup that has a million of ARR, they can do a series A at 50, or we can just wait until they get to 5 million of ARR and then pay 20 times and do it at 100 free, which of those is the better risk adjust to return? Let me tell you, there's a lot of risk in going from 1 million ARR to 5 million ARR. That's hard.

Starting point is 01:30:00 It's hard. There's a lot of things that go up the rails. You're just not doing it through the founders. Yeah, you need to start scaling a team. You need a real sales capacity, but also a lot of startups that could sort of hack together and cobble together one million of ARR based on non-scable techniques that various startup incubators teach like you don't do that don't scale. I'll pull that out of it. Right, so it's a pity to do that from zero to one, but not one to 10. Right, well, or it's not that it's not okay

Starting point is 01:30:30 it's that it doesn't work, right? Like you're not gonna be able to cobble together five million of ARR. You can cobble together one million of ARR, you can use the cheat code to get there. So what I'm saying is there's a lot of risk in going from one to five. You find out whether the product's really scalable.

Starting point is 01:30:42 So what is the better deal? Wait till 100. Wait till it's priced at 100 or 120 million, free or doing the deal at 40 to 50. Now, if you love the company, you want to get in as early as possible. But I think you're going to start seeing a dynamic where in the same way that last year, everyone earlier and earlier, you're going to see VC start to sit back and go a little later and later.

Starting point is 01:31:04 Prove it to us, a dead man's own. Nobody should be putting money into deals right now. What is it? Why? What does it do? Unless you're in the business of running a fee generating machine, if you're really trying to generate alpha, you have to have a sense of what's actually happening in the world right now. If you're just trying to deliver the market beta and run an index,

Starting point is 01:31:28 then yeah, you're right. You should ignore this idea that there could be more price adjustments. But if you look at the public markets, which is again the ultimate terminal buyer, they have more cash than they ever had since 2008, which means that there is no reason to buy. You're talking about private companies. It all ultimately ends up in the public markets. And so if the public markets are saying there is no reason to buy this stuff, it trickles down. So then the crossover investor who has a public private business says, you know what?

Starting point is 01:32:01 On the public side, I'm completely de-risked and in cash. And so on the private side, I'll just be a little bit more circumspect and wait. As David said, I'll just wait six months and put even more money in later. I'll actually have a better IRR and I'll make the same profit dollars. So then the series B and C firm who used to feed those deals to the crossover folks are like, oh, well, if you're waiting, I don't want to have to write a check to support these folks. My whole point was to have you mark up the deals so I could raise

Starting point is 01:32:31 a new fund. They slow down. And then that goes back to the series A person who's like, well, wait a minute, you know, the reason I paid it at 50 pre was because I thought you'd step in and buy it at 100. And I was, then they slow down. So all I'm saying is I think and buy it at 100. And I would, they slow down. So all I'm saying is I think that we are at the point of the cycle where constipation is setting it.

Starting point is 01:32:52 And this is why you're seeing such a down-tick and deal velocity and dollars put to work. This is great advice I want everybody to take. I'm gonna take the opposite advice and I'm gonna do twice as many deals in the seed stage as everybody else, but I encourage every venture capitalist and seed fund to take Tremott's advice. I'm doing the opposite because a five-person company,

Starting point is 01:33:11 this is an advice, this is just a market observation. I'm just talking about the real time. I hope everybody takes that as the truth because what I'm seeing is the founders who are raising and who have real businesses are so sharp right now and so focused on costs and profits and what matters and they have eliminated all the shit that doesn't. There's a whole contingent, I don't know if you're seeing it, Sacks.

Starting point is 01:33:33 I'd say it's one out of five, one out of four that are like, I understand what's happening here and I'm going to take advantage of this moment of time and I'm going to just drive revenue and profits. But what happens to the $250 billion that's been put to work in the last two years that need to get up-grounds? Yeah, it doesn't matter to me. All I care about is meeting young companies that are growing with revenue.

Starting point is 01:33:51 But I think they're, I'm just trying to have a conversation if you want to. Yeah, no, I'm just, that's a lot of indigestion. Yeah, they're going to have to cut their staffs by half and get to profitability. Ultimately, the way that valuations matter or price levels matter is there's an entry price and an to profitability. Ultimately, the way that valuations matter or price levels matter is there's an entry price and an exit price.

Starting point is 01:34:08 And ideally, if you can time it right, you wanna invest when valuation levels are low and you wanna exit when valuation levels are high. If you were a VC last year, you should have been realizing as much as you can because valuation levels are really high. There was a good tweet by one of Breggers and his colleagues at Altimeter basically saying she was talking to LPs and asking what they care about.

Starting point is 01:34:31 What she reported LPs is saying is that if you're a fund that's more than five years old and you didn't distribute during the best window ever, which was 2018 to 2021, it's a hard no. We're not going to be re-upping with you. I'll say it even more. If you're a venture investor who took a longitudinal view on public market stocks and then has now seen 60 to 70% write downs of those same stocks that you could have distributed, you should still have something to answer to.

Starting point is 01:34:59 That makes no sense. It turns out that the skill of private market investing and the skill of public market investing are different. Even if all you're doing is delivering the market beta, it's still different than all that. We had a discussion last year. Remember I was saying, should I distribute the shares of Robin Hood? Should I hold them? What should I be doing? We told you to distribute.

Starting point is 01:35:18 And I distributed it. I distributed everything. And in terms of secondary, I feel particularly smart. You feel like a genius now because your LPs should say, thank you, Jason. No, I'm sending you something. I'm saying that. What I feel smart about, I'll be honest, is we had, and I think, let's just say, I'm making up a number here,

Starting point is 01:35:32 four out of five times, we were offered the opportunity to trim our positions in secondary with our winners from people who wanted to buy secondary shares. I did it probably four out of five times, and I'm just kicking myself out into it fifth, or I didn't ask if they would take more. Because my God, we were able to clear some positions at very high valuations that are now lower than that in the private markets and then cash to our LPs and get over our hurdles

Starting point is 01:35:57 and our first two funds. Which I feel smart about. I think that you should feel so, so good about that. That is really hard what you did. And I think people underestimate how hard it is. It is really hard to actually return more money than you have taken it. Yeah, I mean, that's a simple statement.

Starting point is 01:36:15 Just that simple statement. And by the way, it was hard in the last 10 years where we've had basically a massive upmarket and the four of us Frankly benefited from the extraordinary luck of being in tech. Yeah, no, it's super lucky I think the big thing that's gonna happen right now I'm seeing it all over the place is M&A. I think it's gonna start ticking up just today Amazon acquired one medical for 3.9 billion one medical operates in network of clinics if you don't know

Starting point is 01:36:41 $3.9 billion dollar enterprise value for 182 franchises, which is 21 million of franchise. Look at what happened to their stock price. No, I know I went from 60 in the peak in February of 2021 to seven in May. And they bought it in the end. And basically, they bought it on the same price they was trading out in January.

Starting point is 01:37:00 No, my point is you could buy a McDonald's franchise for two million, or you could buy the company that fixes the people that needed McDonald's for 21 million That's why they got a good deal. By the way, at McDonald's you can't make money selling pharmaceuticals and upselling, you know other stuff that Amazon's gonna Certainly. I think it's super interesting that I think it's super interesting that Amazon's getting into this business. Wow, I mean, that is really interesting. They clearly have an economic model that shows some significant footprint. As retail footprint. Well, yeah, and there may also be kind of a supplement

Starting point is 01:37:33 for a mucyotical kind of upgrade opportunity. There's synergy in this business. And think about this energy between my head and think about what they're getting is also not just the physical locations, but a network of doctors that can do telehealth. I don't know if you guys have ever used one medical, but they do really easy Zoom telehealth services.

Starting point is 01:37:51 And so you could hop on, get a prescription, have it fulfilled by Amazon, it shows up at your doorstep and under an hour. It will be an incredible synergy for that business and probably a real value driver, not just at the core units, but with risk of other things they're gonna sell through. Your one medical doctor will provision a blood test.

Starting point is 01:38:09 He or she will analyze his blood tests over a telehealth. They will prescribe a better diet. That will be sent to Whole Foods, who will then, I'm sorry, I'm serious. And then the whole thing is sent to you, right? It's like a medicine is eating at Whole Foods. Amazon, it makes so much sense for Amazon to expand into built out retail footprints

Starting point is 01:38:28 because that business model now gets more and more complete by the day where you become so ingrained and enmeshed in this loop of Amazon's really about, at the end of the day, is the subscription business. Amazon Prime is the driver of Amazon's travel. That's gonna be a great point. We had another Amazon Prime lock-in. I know it sounds silly, but two days

Starting point is 01:38:49 it'll be a little bit more. It'll be an end for all about your subscription. I will bet you guys a dollar that within a year after closing the deal, they're going to massively expand the telehealth footprint of what we're medical is doing. 100%. Because one medical had to go out and do customer acquisition to go and acquire customers, to make money doing telehealth services,

Starting point is 01:39:08 and they're spending $1,000 probably CPA to acquire these customers. Amazon's already got the, why didn't Google do this? Amazon's already got the customers. They've got a 70 million people, but it's a different, by the way, I think another thing. Good old doesn't know how to do messy things in the fiscal world.

Starting point is 01:39:26 They don't know how to do service. I mean, Amazon's been working warehouse as they do. Okay, what about Apple? Apple knows how to do stores. Why is it Apple's business? Apple knows how to do four products in a beautifully designed showroom. That's like a $20 billion services business.

Starting point is 01:39:37 Now, Amazon knows how to get in the nitty gritty and the nuts and bolts operations. Yeah, I do miss things. Yeah, real world stuff. The other thing that's really interesting about this Amazon deal is that it was done with Bezos not at the helm. I think it really begs the question and begs an answer around, are these guys going to

Starting point is 01:39:51 continue to innovate like this? I think right now the jury saying yes, they are going to continue to push the synergies they can drive from this business by expanding into ancillary services and industry. It's really impressive to see them doing this without without Bayzo's running the day to day. As a shareholder, I feel that. So really great to see. I mean, this is where like they could buy DoorDash, Uber, Lyft, those kind of real world service. They're buying a chain. They're buying it just like they did with whole foods.

Starting point is 01:40:20 They're buying an asset that they're going to get tremendous leverage and synergy out of very cheap. They're buying this company at the same price. It was trading out a few months ago Yeah, no, no, it's a great. They have a great CEO at one medical was a friend of mine and we were moving congrats Shout out. Yeah, right everybody. You see what your big sucks. No, I never I never went my beak in the steel dry be syndrome DBS I'm shocked we haven't seen the J. Cal victory lap. He goes on some podcast. Tells Bloomberg that VCs are going to get pinched for insider trading all these tokens and lo and behold on the Wall Street Journal, three guys, I guess a guy at Coinbase got pinched for basically insider trading these token sales,

Starting point is 01:41:07 front running it by buying them in his wallet and stuff. And so, where's your victory lap, Jacob? Conrested? Oh no, no! Oh no! Pete that out. Pete that out. Pete that out.

Starting point is 01:41:18 That would be our recreate joke. Jake, I don't want you to take your victory lap. Do you want to take your victory lap? Well, no, I mean, I told everybody, like if it smells like a security and people are buying it for that reason, for it to appreciate, don't be surprised if the SEC, you know, starts having tips dropped on them

Starting point is 01:41:34 that different VC firms, Incahutes with law firms, Incahutes with everybody, were liquidating their positions. We talked about liquidating positions as being the goal of venture capital. They created a shadow economy next to securities law and said, we're gonna just start liquidating their positions. We talked about liquidating positions as being the goal of venture capital. They created a shadow economy next to security's law and said, we're going to just start liquidating these things, but under what they made the rules up under which they could liquidate them.

Starting point is 01:41:54 I'm not picking on any firm or anybody. We'll see over time who gets pinched. But if you decide you're going to talk yourself into, this is not a security, even though it kind of feels like one, that's on you. That's on you as the person buying the tokens, issuing the tokens, giving the legal briefs on the tokens. I think people suspended disbelief and talk themselves into thinking that they weren't trading securities. I think the SEC now that everybody's lost their money is going to just tick off one firm after another and it's going to be massive settlements,

Starting point is 01:42:24 it's going to be three or four years of litigation. So, it's not a victory lap, it was such an obvious observation. We all saw it. I mean, how do you liquidate your shares in a company that has no product in the world? Like, come on, come on. People knew what they were doing.

Starting point is 01:42:40 If they get the book thrown out and they deserve it. All right, everybody, this has been another amazing episode even though Saxx is gonna say it's the worst one for you they deserve it. All right everybody. This has been another amazing episode even though Saks is gonna say it's the worst one. I do. That's a lake. Is that real? That's lake front. Is that a zoom background? Can I get that in the zoom park? Take a photo so we can all use it. Yeah, love you boys. Love you Basties. All right. We're back in the groove. Back at you. Well, let your winners ride Alright, we're back in the groove. Back at you. What are we on our slide? Oh, I'm not sure. Besties are gone. Oh, go through that. That's my dog. Take it away.

Starting point is 01:43:28 Wish you a drive away. Sit next. Get it off. Oh, man. My ham is the actual meat. We should all just get a room and just have one big hug. Or because they're all good. It's like this like sexual tension that we just need to release.

Starting point is 01:43:41 What? That beat. What? You're a beer of beef. Beer of beef. What? We need to down man. What, you're the bee? What, you're a bee? You're a bee. Beep, beep, beep. We need to get merchies organized. I'm doing all this!

Starting point is 01:43:57 I'm doing all this! you

All-In with Chamath, Jason, Sacks & Friedberg - E88: First principle politics, China chaos & outlook, state of private/public markets & more

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