Hey everybody, welcome to the first episode of the all-in podcast with Chamath Kalyanarathia
and Jason Galkatis. That cackling voice.
Where we’re trying to save ourselves from the end of the world.
It is literally, you know, we thought we’d start this podcast on April 1st, Chamath,
and everybody thinks it’s like a big joke, that it’s an April Fool’s joke. It just happened to
be the time was perfect. We had full intentionality of starting the podcast,
but we’re sitting here at home, quarantined. How many days have you been home? When’s the
last time you went out of your house? Well, I’ve gone out, but I’ve basically
been self-quarantined for two weeks now. I haven’t left my house since Tuesday night,
and this is her shower in about 72 hours. This is, you know, and then Chamath and I decided since,
you know, we’re going to talk about, obviously, the coronavirus today. We bring in
the smartest person we know in terms of the biotech and health space, and that’s David
Friedberg, who’s a close friend of ours. He founded or co-founded Climate.com Metro Mile,
and he now is the CEO of The Production Board, which is a biotech incubator, accelerator startup.
What do you, how do you refer to it, David? Yeah, we’re a foundry in broadly life sciences,
food, agriculture, and human health. Got it. So-
Jay, actually, before we do that, can we actually give a shout out to our sponsor,
which is all the incredibly shitty enterprise software that nobody fucking uses, and there
are no coupon codes because there are no ads in this podcast, nor will there ever be. Back to you,
Jason. Which I really appreciate. It’s like this deal gets better and better. Chamath’s like,
hey, Jason, I want to do a podcast. I want you to put all your resources into it and all your
time into it, and here’s the best part. The entire business model is we lose money. Thanks, Chamath.
It’s fantastic. It’s like, it’s like a microcosm of the venture industry all in one podcast.
Yeah. So let’s just talk about and start off here with, you know, we’re sitting here,
and today is the 14th of March. This entire coronavirus epidemic and, you know,
essentially the chaos really has only started here in the United States in the last 72 hours
or so that people are actually taking it seriously. They canceled the NBA, and I think that is the
definitive tipping point of when it hit public consciousness that this is no joke, and it was
really kind of dramatic, and Chamath, obviously, you’re a part owner of the Warriors, and so I
think it’s a good thing for you to discuss. When you saw that announcement that at tip-off they
found out that one of the players tested positive and they canceled the game and sent people home,
what were you thinking? Obviously, there’s a financial aspect to this, but the more important
one is the unprecedented nature of this. I actually had two thoughts. The first thought
was it’s incredible that all these organizations, other than the federal bureaucracy, were taking
such swift measures on their own. I mean, typically these things, a reaction to a pandemic
should be institutional and very much top-down. I think even every libertarian amongst us would
sort of say, I mean, this is the kind of thing where the president and the government needs
to step in first and kind of like dictate how things should happen. Instead, it was local
governments, state governments, sports leagues, companies, all making decisions in the absence,
in a vacuum of leadership. That’s the first thing I thought. And then the second thing I thought was
these actions are too unpredictable and they’re too all over the place. So, you have some states
and some organizations acting in a really decisive, aggressive way and others not.
And so, in the absence of highly coordinated action, this kind of half-in, half-out approach
is probably as bad as the no strategy, sort of clapping as a strategy in blackjack.
And so, those are my two thoughts. I don’t know, David, how did you react?
I mean, it seems like it’s about time. We’re kind of a little bit behind the times in terms
of the behavior on reducing social isolation. There were a lot of people calling for it weeks
ago that the U.S. is behind the eight ball on this thing and we really missed it, Mr. Mark.
But obviously, as soon as a person shows up and tests positive at a game, it’s like,
and your objective is don’t put anyone at risk. You got to shut it all down.
So, it seemed inevitable. It’s unfortunate that this sort of behavior wasn’t done earlier where
we could have kind of mitigated the spread as we’ve seen kind of be successful elsewhere.
David, why didn’t we do that? You were tracking this from an early stage. We were talking about
it during the poker games and just when we were chatting in our online group. And you seem to
understand that this was very serious, very early. Balje, if I’m pronouncing his name correctly,
formerly of Andreessen Horowitz, was on this in late January, early February. And here we are
six weeks later and we’re taking it seriously six weeks later. Why do you think there was this crazy
failure to anticipate this? I mean, it was right there in front of us. We were watching the streets
of Wuhan being blasted with chemical cleaners and we just sat there and just retweeted it and
we didn’t do anything. I think it’s a lot like climate change. If it’s not immediate in terms
of time and space, you don’t take action. As soon as it becomes immediate in time and space, you kind
of jump to action and it may be a little too late at that point because the fires already kind of
run down the meadow. We also politicized it from day one. I mean, people had to draw a line in the
sand. Trump had to draw a line in the sand, which is, I’m not going to threaten my presidency.
And so he had to downplay it and he had to sort of puff up his chest a little bit. And
that kind of rhetoric from the President of the United States, whether you like it or not,
flows downhill. It touches the CDC, it touched HHS, it touches Fox News. And you have
behaviors that were dependent and that are pretty correlated to sets of attitudes. So,
for example, I don’t know if you guys saw, but there’s been this incredible retweeting
of OpenTable reservation data. It’s incredible. And what it shows on the OpenTable blog,
and I’m glad that they put this data out. I don’t know how long they’ve been doing it.
But it shows reservation volume on a state level and on a city level and as it trends over time.
And what you essentially see is in places that have taken social isolation seriously,
if you use restaurant reservations as a proxy for people’s propensity to take this
pandemic seriously and socially isolate, it’s fallen off a cliff. And reservations are down 50%.
And in other places where you would otherwise be a believer of the rhetoric or a believer of
different versions of the news that painted this thing as anything less than a pandemic,
what you saw was in some cases, I saw Oklahoma City as of yesterday,
where traffic to restaurants was up. And so, if you have a multi-week asymptomatic
super spreader population in any of those states, you’re going to see some really difficult
circumstances. And it will unfortunately in the near term be drawn on what seems like
political lines not dissimilar to climate change, as David says.
Hey, David, when you hear Chamath’s sort of breakdown of Trump didn’t want to risk his
presidency by being alarmist, having the stock market crash, and then as somebody who has spent
their life in technology and science, the anti-science, anti-expertise kind of paradigm
we’ve been living with these last couple of years, how frustrating is that for you when
it’s so obvious what needs to be done? And then in terms of what needs to be done,
if you were president, and you had seen this in January, what would you have done, David?
If you actually had the ability, and let’s say it was February 1st and you had seen
what happened in Wuhan, what would your line of attack have been?
Well, I think that the anti-science rhetoric, by the way, is just nothing new. We view it
reasonably widespread now. There’s been anti-climate change. I’ve got a personal history
because I sold my last company to Monsanto, so I sat on the side of the anti-GMO movement.
And we’ve seen this throughout the course of history, anti-Copernican, anti-Galileo. This
is not new. There’s institutions and systems that benefit from people not necessarily being
connected to science and what it can prove. And what it demonstrates, the reality is,
over time, truth emerges. So science will find truth more than fiction will. And so hopefully,
we’ll realize that over time. The problem is the interim damage it can cause.
From a presidential point of view, I think the first thing that was missing is just testing.
And I just want to talk about testing for a second because it’s so critical. We’ve talked
a lot over the last couple of weeks in the media and as a group about where’s all the tests,
where’s all the tests. One of the important things to understand is the tests that we’re
doing today and the tests that everyone talks about are called PCR tests. And these are tests
that basically measure active living viruses in your body. So it measures their RNA. And so if you
do a PCR test and you’re positive, what it’s telling you is there’s an active virus that’s
within your body. If you did a PCR test and you were sick with a virus a few weeks ago,
it would show up as negative, but you were still exposed to that virus. And one of the things that
we don’t really know is how many people have actually been exposed to this particular virus
and for how long. And so the PCR tests are really important about getting an acute case care for as
quickly as possible and quarantined as quickly as possible. So that means you’re in this kind
of active infectious state. But what we really have missed the boat on, and we’re still missing
the boat on, is knowing who’s been infected and to what extent this thing has actually spread
already. And you can do that with what’s called an IgG test or an IgM test, where you’re measuring
the antibodies that show up in your blood, and they’ll be there for months for IgM and then for
years with IgG. And you can see if someone’s actually been infected. And these tests are
super cheap to administer, super easy to make. And I think that would have been the first thing to
kind of kick off, you know, you should still have the PCR tests, but they’re expensive, and they
take a long time to run, and they require chemical labs and all this stuff. An IgG or IgM test, you
can do like a pregnancy kit anywhere on the street. So we should have had 10 million of these
things distributed as quickly as possible. We should be putting them in airports or, you know,
in local hospitals, local community centers to really understand when this thing hits us. That’s
the best way to know. Taking someone’s temperature, all that that tells you is, hey, this person has a
fever. By the way, only 80% of people that get this thing end up with a fever, you know, when
they kind of get checked in. And so that’s kind of a crazy stat, right? One fifth of the people don’t
even have a fever that are actively infected with this virus. So we’re missing a huge percentage of
infections if we’re just taking temperatures and then doing a PCR test, and we’re missing all the
people that just weren’t infected. So I think that would have been the first thing is like,
figure out where this thing is infecting people to what extent and getting in front of it.
And testing right now. What is the state of testing right now? Do we, they keep,
you know, having these press conferences, I think Trump on Friday or yesterday,
Saturday, the 14th of March, on the 13th, on Friday, the 13th, he had what most people thought
was, you know, his best performance yet, his best leadership yet, obviously way too late.
And he said, hey, we’re going to have millions of these tests, we’re going to do them at Walgreens,
and we’re going to tap the private sector. This seemed like a really smart move to tap
the private sector, Chamath. Do you think that this is going to be effective?
Well, I think the only way that we’ll know whether this was effective is if we can actually figure
out how to get enough throughput, so that we can manage the number of beds and the hospital
facilities we have. So, you know, at this point, I think everybody admits that this thing is going
to roll through the population of the United States. What we’re basically betting on now is
how long that takes and how well that’s managed. And part of that has to do with how we can
differentiate, as David said, people who are, you know, symptomatic from the people that are
asymptomatic, but still positive. And then we can sort of enforce a more strict code on quarantining.
If all of those things can happen, we’ll be in a reasonable place to at least manage the onslaught.
The thing with tapping the private sector in many ways is it’s a brilliant strategy politically,
because it now sort of embraces a whole bunch of companies that are in the consciousness of America
as part of the solution, which actually by implication means that if this thing gets worse,
they are also then part of the problem. And I think that from that perspective, being able to,
you know, spread out and smear the blame, while preserving the optionality for,
you know, leadership in case it works, I think was the right thing to do.
Incredibly cynical, and probably accurate. You’re basically saying,
I’m not being cynical. No, I’m saying it’s incredibly cynical to actually do that. I mean,
if that was actually Trump’s thinking to say, let me spread the risk here, I’ll make Pence and
Walgreens and these companies, the fall guys, if it doesn’t work out.
Well, I mean, look, let’s be fair. These guys were inside the tent for two weeks. So,
the only reason to bring them outside of the tent and have a presser where you shake their hand
is to do exactly that, right? And so, they were part of the solution when we thought the solution
could be contained. But that solution was kept relatively private, and the front-facing,
you know, person on the front lines was the President of the United States. All reasonable.
When it looked like this thing was getting out of control, what we needed to do was
re-establish some sense that there was a broader team in place,
and put all of these other people out in front. I mean, in fact, if you heard the presser,
the most interesting part of it was how adamant he was that people asked these other people
questions. I don’t know if you guys were listening to it. But it was this constant
refrain of, does anybody want to ask these brilliant geniuses on stage with me any questions?
And, you know, the press had zero interest because they really wanted to understand
his mindset. So, you know, I think that from a political game of poker,
we’ve done the right things. He has done the right things, which is he’s kept optionality
to say, look, you needed a steady hand at the till. That was me. I didn’t overreact on the
front end. I brought in these people in the middle of it. And if he is able to salvage an
enormous economic stimulus package, I think the odds are on his side that history will judge that
he will have done a good job. And more than that, his odds of getting reelected are actually higher
than in the absence of Corona. Now, if none of those things come to pass, or many of the other
path dependencies kick in, and things are much worse, then that’s probably not true. But from a
political kind of poker game, I think he has done the best he could from where he was,
you know, the last three days. He’s in the best position he could have been in, all things
considered. Unless he had actually done the testing and taking it seriously from the beginning,
which is something also the press seemed very weird about. David, I want to get your perspective
on when Balaji was tweeting about this, and then the information. I’m sorry, I always forget.
B-A-L-A-J-I. I’ve had it on the podcast, but I always get it wrong. His name is Balaji,
Balaji. Balaji. Balaji. Listen, it only took me six years to figure out how to say
Palihapitiya, and now I’m correcting everybody on how to say your last name. I appreciate that.
David, when you saw his… I didn’t notice that I had a last name.
Bestie. Bestie C. When the Ricoh journalist who wrote that ridiculous story about, like,
Silicon Valley is paranoid about handshakes, how much of what the media is doing is
just completely inaccurate over these last couple of weeks? What are your thoughts as an expert
who’s quoted in the media about this moment in late-stage journalism where they seem to be more
concerned with dunking and clicks and link bait than the actually accurate transmission of
information? When I asked you to just even be on the podcast with Chamath and I today, you were
like, well, listen, I’m not an expert, and you’re the smartest person we know in the room about this
topic. What do you think is contributing there with the press and their ability to even process
something like this? Talking about science generally is really hard. Science-based journalism
is really hard. There’s just so much to this, like trying to explain to people the difference
between a PCR test and an IgG test. It’s like, you got to go do Bio 101 and have a conversation
and talk about this stuff. There’s a learning curve, so it’s a 30-minute conversation to
explain that. It’s a 30-minute conversation to explain GMOs. It’s a 30-minute conversation to
explain climate change. But I would argue that the journalists solve, or not the journalists,
I don’t want to put down journalists, but I would argue that consumers consume the media they want
to consume, and then that media wins in the marketplace for media. I think this is just
generally true. We want to have six-second soundbites. We want to have 140-character
statements as a consumer class. As a result, the media production that caters to that demand is
going to win and is going to do better. If we want to see stuff that shit-talks other people
and blows up companies and puts down presidents and puts down speakers of the house, we’re going
to look for that. We’re going to buy it. It’s going to get more ad dollars. Then those journalists
are going to stay employed. The journalists that are writing long-form articles that are
science-based and require 30 minutes to sit down and read the whole article are not doing as well.
There’s no one to blame but the consumer. The same might be said of the presidency and other things.
We end up buying what we want to buy. It’s not that the president showed up and he’s the guy
that got elected. He’s the product of what we wanted, of what the general population wanted.
By the way, back to the discussion earlier. The open table reservation data, in my mind,
is the single closest thing we’re going to get to a referendum on exactly this issue.
Meaning, if you listen to MSNBC or CNN or CBS and ABC and you believe that strain of journalism
on this pandemic and you took precautionary steps a little bit earlier than say people who
read Breitbart or watched Fox News and then it turns out that disproportionately those states
where those media consumption patterns are prevalent are more affected, it’ll be really
interesting to see how people, after all of that, deal with those choices and the implications and
then start to realize that we’ve been past the days of journalism for a long time. We’re in the
business of editorializing. We’ve been in that business since basically Facebook and Google
kind of destroyed the ability for journalism as it stands to remain intact. Now, they didn’t do it
on purpose, but it was the implication of building one and a half trillion of market cap. Consumers,
in many ways, as David said, not only let it happen but added gasoline to those fires.
But those things never resulted in anything meaningful until today. The linkages to
depression were kind of relatively brittle. The linkage to other things were relatively brittle.
So, there weren’t necessarily direct health implications to your media consumption patterns.
This may be the first time where we can actually show a direct correlation
to you consume a specific media and a specific editorialization of a problem,
you end up with one result versus another. If that does end up happening, it’ll be really
interesting how people internalize that result after this is all said and done.
So, if you’re watching Fox News and they tell you Corona is a hoax, which the president and Fox were
literally saying 10 days ago, this is a hoax. It’s part of the Russian conspiracy, the Ukraine
conspiracy, and now they’re going Corona crazy, and this is a conspiracy, and then you decide you
would go out to eat, which the open table data is showing they’re doing en masse, and you die,
or your grandparents, God forbid, die, maybe you’re going to reflect on the actual consumption.
Because WeCode is a left-leaning publication, and they
told us that we were crazy for not wanting to shake hands.
Well, look, let’s be honest, WeCode is fine, but in this situation with what we have to deal with,
it’s kind of the pimple on the dog’s ass, that let’s not worry about WeCode.
You have major media outlets who now have a responsibility to get on the same page
and tell one version, which is the truth. They have that responsibility now. I don’t think there
should be any variability between what CBS, PBS, NBC, MSNBC, CNN, Fox, they all need to speak from
one set of scientific facts, as of yesterday when the president declared a state of emergency.
If they’re not, in my opinion, there is some level of culpability in those organizations,
because if those people consuming those outlets then behave in a different way,
which they otherwise would not have, had they had the different version of the news,
that’s not individual’s fault. That’s the fault of an organization that’s optimizing for
positioning, narrative, and monetization over a moral authority and an ethical
duty that they have to the United States. Let’s, David, look forward here at what
is going to happen from March 14th forward. We have every Apple store closed, the NBA on
hiatus, obviously, as we discussed. Supposedly, a bunch of tasks are going to be done in the
coming weeks. Who knows? But people seem to be in the major cities quarantining in place,
obviously, stocking up food for a couple of weeks. If everybody in these major cities
does what they’re supposed to do and basically rides out the next three weeks, four weeks,
what do you think the outcome in those cities will be, David?
It’ll be what we see in China. A lot of people look at the curve at the beginning, and it looks
like an exponential curve of growth, and it is exponential, but exponential curves end up
consuming everything, so they don’t go on forever. What they resolve to is what’s called a sigmoid
curve. They eventually flatten out, the second derivative changes, and they flatten out,
and you end up with this thing coming down the other side, as most biological systems can be
modeled with this function, a sigmoid function. A couple of weeks away, hopefully, from that
happening, if everyone stays locked down, the reality is we just don’t know who’s affected,
infected, who’s been infected. I do still believe that we’re probably at least one,
maybe more, orders of magnitude off in our infected population count,
especially here in the United States. We’ll find that out over the next couple of months,
as these IgG tests get produced in China, they’re getting shipped over here right now,
they’re in Italy right now being used on the front lines, and we’ll start to use those to
identify how many people actually are infected, and things will start to resolve.
In the meantime, David, what do you think are the best protocols of care,
and how do you think we’re positioned if people bombard ICUs over the next few weeks?
Look, there’s a bunch of published reports now on what’s working and what’s not working in China,
and elsewhere. Italy, I think, is just swamped and overwhelmed. I just want to give you guys
these stats, right? Italy has about 12.5 critical care beds per capita, per 100,000, sorry,
population. The US has 35, so we’re 3x the number of ICU or critical care beds per person than
Italy has. And there are now published reports on how you can manage symptoms and reduce the
duration of the infection, and reduce the severity of the symptoms for different populations.
And these are starting to be employed, and they’re showing really great results.
There are active clinical trials that’ll be published in the next two weeks that are
in desivir, which is this antiviral compound from Gilead, that anecdotally has had really
great efficacy and has really reduced the severity as long as you catch it early enough and start
giving it to patients right away. We’re already starting to use it on a compassionate use basis
in the United States. The first guy they gave it to in Washington State started recovering the next
day. That was anecdotal, but we’re going to get more data on that soon. I think that we’re like,
we have the pieces now on how to care for people and how to get them to a point of recovery. We
just got to make sure we have enough beds and enough ventilators. Cities like San Francisco
have already taken over hotels like Milton here, and they’re being converted into effectively ICU
departments that they can be used for the overflow or the mass crunch as patients show up. Luckily,
we haven’t gotten to that point yet. But I think that all the tools are there that we should be
able to manage down and get the fatality rate, hopefully within a range that looks a lot more
like what was called rest of China, which was like, you know, basically 20 basis points,
fatality rate of infected patients versus like Wuhan, which is like 4%.
When I thought remdesivir, David, remdesivir has to, it has to start like literally right when
your viral load starts to kick in. And I read but tell me if this is true. For maximum efficacy,
it needs to be administered intravenously. Yes, intravenously is the way it’s been.
Gilead just launched a clinical trial, I think now or last week or this week, where they’re
going to try some oral remdesivir. Yeah, but yeah, it has been used as an intravenous treatment to
date. And there are there is a public a published study now that shown like, you know, earlier
treatment with remdesivir had a higher efficacy rate versus later. And that may explain why it
didn’t work in Ebola, because remdesivir failed. And Ebola is a very similar virus to this
Coronavirus. And remdesivir, quote unquote, failed in a clinical trial for Ebola, but they didn’t
have a duration window on like how long you’ve been infected before you start getting remdesivir.
For the patients that had only been infected for a short period of time that got remdesivir,
they actually had a much higher recovery rate. Well, Ebola patients. And so that that is,
you know, kind of buttressing that argument. And they and these patients also were on chloroquine
So it’s like the combo of the two that seems to be the most efficacious.
Yeah, it’s unclear. I mean, chloroquine is a, you know, a widely used compound, it’s used for
malaria, it’s got really nasty side effects. So you know, you don’t want to overuse it or use it
if you don’t have to, but it’s also shown significant efficacy. And it’s being used at
some protocols in some countries right now for infected patients of Coronavirus with with good
results. Again, like it’s so early, we don’t have enough data and people haven’t actually
published enough on these things for it to really be kind of scientifically validated.
But but but anecdotally, a lot of folks are and the chatter is that chloroquine remdesivir having
really great effects. And people are you know, some there’s some commentary about zinc and zinc
is a known antiviral compound, it can stop RNA replication in viral compounds, a lot of people
supplement with zinc for this reason, when they’re when they have a cold or when they have the flu.
And so you know, there’s there’s high dose zinc remedies that are that are being postulated as
having some efficacy. But it’s too early to say with great certainty what the best protocol is.
But there are different variations of these protocols that are being employed that are
working and reducing the fatality rate where you do have, by the way, you have to have hospital
beds, you have to have availability of staff. Otherwise, you have what you got in Italy,
Italy, like has already gone over the abyss, people just can’t get treatment,
because there aren’t enough healthcare workers to the number of patients. So it’s a it’s a
shit show. What, what, why is it that, you know, when we look at sort of, you know, if you look at
ArcGIS, a world meter, where are the cases in India? Yeah, where are the cases in Nigeria?
Like, what the hell is going on in those two countries? Why aren’t those countries going
off the charts? It’s crazy to me, because if you’ve ever been to India, it is a friggin beehive,
right? population density is crazy. You can’t do like as much as they say they’ve got social
isolation going on in India. Now the same was true with SARS and MERS. So SARS and MERS did
not take off in India either. And so some people have speculated that India’s failure to have
Coronavirus pandemic outbreaks has been a result of the high temperature. But if you look at the
temperature in India, over the last couple of weeks, it hasn’t necessarily been that much higher
than and yes, there’s a tipping point, I think it’s around 77 Fahrenheit. But there’s there’s
there’s evenings, there are people that in India that have been sick. So if someone’s sick, and
they’re on a bus with 80 people in India, and it’s evening, it’s unlikely that you know, something
is not going on there. No, and by the way, in places like Delhi and places that are even north,
it’s cold. I mean, it’s like it’s like a winter in in Milan, for example, I mean, it’s roughly
the same temperature. So the conditions are rife for this thing to spread, but it hasn’t, it seems.
So there’s three risk factors I want to highlight that have been identified as potential risk factor
that real risk factors for Coronavirus. The first is the age of the population. So people over 65
as a percent of population, Italy is the third oldest country in the world. Okay, so about a
quarter of Italians are over 65. That is nearly 3x or 2x what the US is as a percentage of population
being over 65. And it looks like if you’re over 65, you have a 10 to 15%. Sorry, 10 to 15 x
likelihood of having a severe reaction to the SARS Coronavirus that we’re experiencing right now.
The second is smoking, and there’s differences of opinion on smoking. But here’s a crazy statistic
on smoking for you. So the number of people, let me find the statistic, because I actually
pulled it up for you guys to mention it. The number of people that smoke per, okay, here it is.
Number of cigarettes consumed per year per person in Italy.
Oh, let’s guess. Let’s set the under over under per person in Italy.
So a pack a day would be 20. That’s 7,000 a year or so. If you smoked a pack a day,
if half the people do that, I’m going to set the line at 3,500 per year per person.
You want to take the over? I’ll take the over. I’ll take the over.
Okay, you guys are you guys are both off. It’s 1500. Okay.
Okay, so it’s the United States. Yeah, the United States is 1000. So the United States most. Yeah,
1000 third less. And India is 89. Like no one smokes in India. And the percentage of the
population in India that’s over 65 is less than like 9%. So India has this confluence of low
smokers, older population, warm weather, younger population, sorry, younger population, warm
weather. And so this may start to extend and the smoker rate is just like two orders of magnitude
off from the rest of these guys. So these things multiply, right? So think about Italy.
Italy has a very, very old population, like 2x with the US indexes. And again, that multiplies
by 10. So now you’re talking about 20x the impact of a Coronavirus hitting everyone.
So 20x the impact there, they smoke about 50% more, so call it 30x. And they have a third the
number of beds. And that’s a nonlinear relationship. Because as soon as you max out on ICU beds or
critical care beds, boom, you’re over the abyss and everyone starts to die. And so the Italy problem
may be a confluence of this like elderly population, maybe a smoker, smoking population,
and the critical care beds per capita. And the opposite may kind of explain what’s going on in
India. So do you think that India is sort of one or two sigma to the left, and Italy’s one or two
sigma to the right? And which means that, you know, in a reasonably well managed, but even in
a poorly managed situation, you know, we may be a multiple of the flu in terms of its impact,
plus or minus? Yeah, I don’t know. We look, one of the things that’s crazy is the like,
the fact that this to talk about like distributions to math, like, some percentage of people have this
incredibly bad experience with this virus. And then a huge chunk of the curve have like mild,
cold and flu symptoms. And yes, there’s anecdotal people saying, Oh, my God, it’s not it was like
worse than the flu. But there’s a large percentage of people who are recovering reasonably quickly
and seem to be getting over this thing. And that’s of the people that we’ve actually tested
positively with a PCR, we don’t know how many people there are, it’s going to be asymmetric,
right? It’s not like we’re going to have an unusually high number of people that had really
bad symptoms that didn’t show up, we’re likely going to have a much higher percentage of people
that didn’t have symptoms that didn’t show up. And so there is some like multiple probably of
people that we aren’t accounting for at this point, that have had this virus.
I mean, like, if that’s true, then there’s there’s a lot of logic, actually, to being out,
because then if a lot of people have gone through this, then you’re promoting that point where you
get to herd immunity faster. Because then the folks that basically have these antibodies are
out in the field, absorbing all of the spreaders and actually mitigating the
let’s define the herd immune, the herd concept. So if you end up being exposed to a virus,
like this virus, you develop antibodies to it, and they stay in your body for, say, 20 years.
So when you hit that virus, again, whether it’s like chickenpox, or measles are very similar,
your body will automatically wipe that virus out of your body, you don’t have to develop the
antibodies, they’re already there. So you’re no longer a carrier. Yeah, you’re actually technically,
they call it immune, right? You’re immune to that virus now. And so the more people are immune,
think about a network with nodes on it. Yeah, there’s a node and any nodes that it touches
get infected. If one of those nodes gets infected, and now it turns off, and it can’t infect other
nodes, any virus that gets near that node, it’s no longer going to be a point of transmission.
And so the more people have this thing, and the more people develop immunity,
this is why you have a sigmoid curve at a certain point, it stops spreading with as high a rate,
the current statistical rate that’s estimated for this virus is 2.5 infections per person infected,
and flu just by kind of comparison is 1.5. And so this looks like a very contagious infection today.
But after enough people get infected, the curve flattens out. And for people to understand this,
Chamath, what was the when you were heading growth at Facebook, what was the viral coefficient?
At the peak, you know, one person joins Facebook, how many people have an impact with Facebook?
Seven, right. So if you have something like seven at the peak for Facebook, it hits over
a billion users in some 10 year period. Here, we’re talking about, you know, a fraction.
Well, actually, that’s, that’s an incredible example. Because like if you we used to call
that K, but in science, we call it R naught. But if R naught is seven, then you actually can see
how, you know, in about two and a half years, you touch basically 3 billion people. Now, that’s,
that’s like, you know, if you consider so in this interesting way, actually, Facebook’s growth
of not of users, but of registered users. So people that may have churned out,
that’s an incredibly interesting model for a highly viral super spreader disease in many ways.
And it shows you the window of time you have to act decisively to get in front of something.
Yeah. Which Facebook did to MySpace, like MyFacebook, basically, and MySpace,
they had that viral coefficient because the products were so,
they had so much friction, you have friction.
David, but David, do you think that people, if we if we run enough testing now to figure out
that people have these antibodies, they should be out? No, they should be mingling and interacting
and, and should we be sending all people out? Like, how do you? How do you actually have herd
mentality become a useful thing? Because what if everybody just isolates? Look, we do it so
successfully that none of us have this immunity? Look, this is a general, there’s a philosophical
question about and it’s how the FDA operates and the CDC and you have to ask these philosophical
questions first, which is what is your objective? What are you solving for? If your objective is to
minimize the number of people that die from this particular virus, you’re going to have one
decision. And if your objective is to minimize the economic impact relative to the number of people
that will die as a result of bad economic impacts, you’re going to have a different decision. And
it’s really hard to kind of think in the in the in the broader context, if you’re saying like,
don’t let anyone get sick and don’t let anyone die, everyone should stay home and not take any
risk. Right. And that’s effectively what we’re doing. And given the uncertainty, it certainly
seems to make sense from a policy perspective, we should be doing that today. You know, but the
result of like, look, we now know that some percentage of people have, have the IgG. And so
let me ask the other question, if I knew that 99% of people that got this thing had no lasting
effects and got over it as if it were a cold, would that rationalize saying everyone should
go outside because you have a 99% chance if you catch it, whereas 1% of people if they caught it
will still die. So you know, how do you draw the line, right? What’s the right philosophical
decision in that context. And so even if what we’re saying is true, that 99% of people can get
it, they’re asymptomatic, they get over it, they develop immunity, and we can, you know, kind of
develop herd immunity, and very quickly kind of reduce this thing, we’re still going to be putting
1% of people at risk of death by doing that. And so, you know, what’s, guys, what’s the over under
today? The President said he had a Coronavirus test administered last night.
The 13th. Yeah, he said that.
Finally, somebody cornered him.
We’re on a 24 hour shot clock or less. I have my own view. I’ll go last. But what do you got?
What’s the over under on what the results are?
You know, he shakes a lot of hands, and he had a lot of foreign visitors, and some of them have
had it, I’m going to put it at, I think it’s got a 20% chance of having it. 30, something in that
range. One in five, one in three, something in that range.
Yeah, I don’t know. Five, 5%.
I think that the answer, the answer that we will get is that he’s negative. I think that the
the way in which they do this test is incredibly important. And so, if I had to guess,
I talked to I talked to Saks this morning about this as well. If I had to guess, here’s what they
would do, which is they test 50 people in the White House, all at the same time. You know,
they, they, I mean, like, this is what this is what we would do. You test 50 people in the White
House, right? And an incredibly small number of people know which vial is which person,
then you send it to the lab, and you get the results. So no lab tech can ever know. If there’s
even one positive result, you quarantine everybody. And that’s probably the most risk minimizing thing
you can do. So that it’s not just the president that gets tested, and then we’re not waiting with
bated breath for a positive test. And then the government can can basically manage how they treat
him. Because I think it’s highly problematic in the next two or three days, if we found out that
he was positive. And I think it’s much more manageable to say there were 50 people tested,
one person was found to be a care or, you know, two or three positive tests and record
and everyone’s quarantined. Yeah. So yeah, what are the chances, anonymous chances,
or what if the chances that he has it already, he’s been tested, and they’re already lying
in the sake and that they’re telling us he’s getting tested on Friday, I don’t I don’t
I think that that’s zero, just because I think he’s, he really is like he’s, you know, by being
the President of the United States, the most powerful person in the world, the richest person
in the world, and the best taken care of person in the world. And in as much as those, we all
believe in those things, which I think everybody around the world probably does. I think it’s
really important that he is there, healthy as a sign of strength, quite honestly. But what if
he’s sick, and he recovers to mop what happens in markets, right? So let’s say he he gets declared
to have a Coronavirus markets tank, as you’re saying, and I fast forward five days, and he
comes out of it. He’s like, yeah, that’s tough. But it was like, so I think I think I think it’s
more that we will not be told that he is sick, but that he is quarantined for safety on the
presumption that he recovers. That’s the smartest thing to do. If I were them, right? Well, that’s
what I would do. Now, maybe the only because the the thing is, you want him to come out of this
100%. And you want him to be healthy and say, guys, much ado about nothing to your point.
Because if he can say that, I think that a lot of people will calm down. And then,
which by the way, we all need to start talking about, which is the second and third order effects
of literally shutting the world down for what looks like somewhere between three and nine weeks,
if not more. So we can we can get to that task and figure out what’s there.
The the real corner case scenario is, if his situation degrades, and, you know, Mike Pence
has to become the president. That’s a real that’s, yeah, let’s let’s talk about that. I mean, if,
and this is dark, but I mean, this is the way you have to think about all possibilities. If you’re
making strategic decisions, if he gets on a ventilator, what happens? Is it going to just
cause a pure terror and panic stock market collapses? If he dies, God forbid. I know some
people hate him and wish death upon him. I don’t I mean, I don’t like him. But I don’t want to see
the president. Let’s be clear. Nobody should die from this. Unfortunately, people will.
I did what happens?
I think that I think the odds of that are incredibly low. So let’s not even
kind of deal with that. What if a celebrity dies? I mean, I, you know,
we live here in America with the NBA and Tom Hanks with the things that made people finally
pay attention to this. If Tom Hanks or an NBA player dies from this or is put on a ventilator
and almost dies? Well, let me ask the question. Let me ask the question of like, if they die,
and then if they recover in the next week, so as you see, because no one’s had these recovery
stories, there have been zero of them out there. Everything is about you’re in the hospital,
you’re dying. And you’re gonna know, there have been zero here, but there there are tons of them
on WeChat. And so you know, for example, like when you when you look at how the Chinese have
responded, you know, they went from a massive lockdown, to a partial lockdown, to what is being
a graduated decline, and you know, a ramping back up of, of life as they knew it now, in terms of
the top down control measures. I think if in Western culture, we have to deal with a lot of
very visible people dealing with this successfully, I think people will be more lackadaisical than not.
I think if people self quarantine, and then get better, that’s the best result. If people get
sick that we all know, and unfortunately, are in a really terrible straits. It’s real, I think it’s
really bad psychologically for folks to have to deal with that is the worst path. Not good. Yeah.
The care, the care of the celebrities is going to obviously be great. And it’s very likely that
Tom Hanks and these NBA players who are in fantastic health are gonna, they’re low comorbidity,
and they’re getting great care, and they’re going to come out of this thing in the next 10 days.
And you know, when Tom Hanks goes back on Instagram and says like, Hey, look, like I had a
bad cold, that’s what it felt like it was like just being knocked out for two days. It just seems to
like create a different story that I think most people, at least in the United States are assuming
which is this thing is just pure death. And we’re all going to die from it. We were talking before
about Italy’s profile. Iran also had a breakout. Iran is very young. And they seem to be I just
pulled up the Wikipedia page about cigarette consumption per year, and they’re right behind
the United States with 936 per year per capita. But on a demographic basis, they’re very young
with looks like only 10% of the population, 12% of the population, yeah, 12 or 13% of the
population is over 55. The rest are under 55. Well, maybe David says it’s kind of now we may
be we may look back and realize that this is a disease of combinatorics, right? So if you have
a bunch of ands, that’s the worst case scenario. So if you are old, and you have comorbidities,
and you have limited critical facilities, and you have a high smoking incidence, and so you’re,
you know, pulmonary compromise, as well as immunocompromised, and Dan, Dan, Dan,
you have an exponential, you know, unfortunately, decay function.
And ACE2 receptor.
And ACE2 receptor, exactly.
So it turns out that so the ACE2 receptor is this protein that shows up on cells.
And it is the point of entry for this virus into cells. And so they have now identified that Asian
men that smoke have a higher production of this ACE2 receptor than other men that smoke that there
may not be a difference between smokers and non smokers and white people. So they’re starting to
identify that there may actually be both genetic and behavioral underlyings that can increase the
entry points for this virus on yourselves. And so we don’t know yet what as you know,
to mock calls it the combinatorics are we don’t know yet like what combination of things is going
to increase the risk factor, there may be something genetically, in the Iranian population,
or in the behavior of the Iranian population, that may increase either the receptors,
or it may increase the the health of the recovery of the lungs, and so on and so forth.
I have one question. And then I want to move to economics, because I think it’s really important.
David, what do we do from here? So that if this type of thing were to happen again,
and I’m speaking specifically about the science, the rapid prototyping,
the figuring out of both the testing, the identification, and then a pathway to drugs,
what do we need to do as a, as a world, frankly, differently than what we’ve been doing today,
to make sure that we’re better positioned. So there’s definitely got to be emergency protocols
that are more clearly defined for these sorts of circumstances in the US to be able to do testing
under CDC guidelines. You have to have a clear lab and you have to have a test certified and
there was all the certification bureaucracy that made it really hard to be a tester for this thing.
So then they had emergency use authorization, or EUA, where you could kind of say, hey,
this test in this lab can be used to figure out what’s going on. And that also then turned into
a bureaucratic nightmare where you had to go submit a request for doing emergency use authorization,
and so on and so forth. We’ve got to fix that. So it’s not so specific to each test in each lab.
And it can be a generalized guideline for this type of test for this type of disease
can be very rapidly prototyped and launched in production. And so you don’t have to go through
an approval for every one of the tests under an emergency circumstances like that. The second
thing is we got to get production of these tests in the US. And we shouldn’t be limited to PCR
tests. There are new technologies called Sherlock assays that use CRISPR molecules, and you can print
the test on a strip of paper, and it can find DNA or RNA in a segment and light up the strip of paper
and tell you right away if that DNA or RNA is in the sample. And you can do that like on a pregnancy
test, you don’t need to ship it to a lab. And so we’ve got to get those things approved, we’ve got
to get them standardized, and they can be broadly applied to any viral infection that could start
coming out to the population. And then we’ve got to get production for those in the United States,
because right now we’re dependent on the Chinese and Koreans to make the tests for us. And then
we’re sitting around waiting. Meanwhile, they’re on lockdown, and they want all the tests. And so,
you know, there’s, there’s a couple of things to fix here.
What about how the FDA goes through the approval process for candidate
compounds, including and unlimited to sort of the time and the cost and the process for
double blinded studies, and
we treat humans, we treat citizens like idiots. And I don’t think that it’s fair and reasonable
that people shouldn’t have the right to decide what they do and don’t want to use. And that’s
just my personal point of view on this stuff. And we basically act a little bit like a paternal state.
And the you know, going back to my earlier point about kind of what’s the philosophy here,
the philosophy is do no harm, it’s not to do the most good net of harm. And so when you say a do
no harm, it’s like you cannot put a drug out there that might kill people. Even if you might kill,
let’s say 2% of people that take it, but 80% of people now double their lifespan, or 80% of people
that otherwise would have died can now live right. So the framing of like the regulatory approach
to drug development and approval is really challenged in the United States, it makes it
hard and expensive for new drugs to get built and launched very quickly, even though we have the
manufacturing and science capacity to do it. And it also makes it really hard because individuals
don’t have choice. They have to wait for FDA approvals before they can decide whether or not
to take the risk themselves on whether they want to try this drug. remdesivir should be broadly and
widely available right now people shouldn’t have to file for compassionate use to get it. They
should be making it printing it should be in every hospital and people can decide whether or not they
want to take the risk. There doesn’t seem to be any mortality associated with taking remdesivir.
So it seems pretty clear cut that most people would raise their hand and say, give me that shit.
Like, it’s crazy that you have. It reminds me when you say that of
the same patriarchal approach we have to allowing people to invest in private companies,
totally we’re trying to protect them from what from placing a bet on investing in a private
Airbnb or LinkedIn or, or something like that. And we have these rules that might be 50 or 100
years old in the case of accreditation laws. I’m not sure how, you know, how old these FDA double
blind laws are, but this might be something we need to rethink. And you see with the crypto space
too, where people can experiment with cryptocurrencies, they have to go to, you know,
Switzerland or another geography or location to do that. So when we, when we start thinking about
the economic ramifications, and obviously this is, I think for some people, they might feel
distasteful to start talking about money in the face of a global pandemic. But as you said earlier,
David, people will die because of economic issues as well.
There are more people, let’s be clear, more people will die because of the second and third order
effects of coronavirus than these first order effects.
Give us some examples of that. Give us some examples, Shamal, so that people understand
what we’re saying here.
So, you know, the, the, this is, this is the tragedy that’s unfolding before our very eyes
right now. It is the slow motion train wreck. You know, if I go back to 2008 for a second,
let’s just talk, talk a second about that. In 2008, what we really saw was a very, very focused
kind of contagion that was very much lost on most people, except for those that had been the victim
of predatory lending and subprime mortgages who lost their houses. That was terrible.
But the real financial impacts were borne by institutions and their shareholders.
The long-term effects, however, did come back and spill over to Main Street because a lot of people
then as a result had a lot of time, hard time getting really back on their feet and that
economic malaise spread like a pandemic all over the United States.
But the immediate short-term pain was felt by a handful of institutions that for most people
are nameless, faceless organizations run by, you know, to quote Bernie Sanders,
millionaires and billionaires, okay?
One percent of the one percent.
This is completely the opposite. This is Main Street first and foremost. And that kind of impact
in all of our lifetimes, we’ve never had to deal with. And it’s not going to be the two to three
or four month, you know, eight to 12 week social isolating lockdowns that we are in.
It’s all of the downstream effects to all kinds of industries, you know, obvious, like the obvious
ones, airlines, cruises, hospitality, retail, and then the non-obvious. So, you know, again,
let’s imagine that you’re a startup and you sell software. Well, you would say to yourself,
I sell enterprise software, so no big deal, nothing happens to me.
Not true, because some of your customers or some of your customers’ customers are either in those
impacted industries or their customers are those impacted industries. So this is the first time
in a very long time where we’re really going to see the domino effect of, you know, economic
contraction, this combination of a supply side shock and a demand shock. And supply side shocks
can be fixed. They can be fixed actually relatively quickly. It’s the demand shocks
that are much harder to recover from because they’re deeply psychological in nature.
They drive deleveraging. And deleveraging is going to be an important term that folks will hear
over and over over the next nine months. And that process of deleveraging, this multi-trillion
dollar credit bubble that we have to hopefully in a reasonable way, but probably not, it’ll be
violent and messy, unwind, will leave, I think, a lot of people unemployed, a lot of businesses
out of business. Or could, because can’t we have some kind of basic intervention here?
I saw today Alamo Draft House as an example, you know, which is a smaller business, a movie
chain that many people love. They were getting sort of dunked on, barbecued, and potentially
canceled on social media because they furloughed their employees for 30 days. They’re hourly
employees. So now these hourly employees, basically furlough means we’re not paying you anything and
we’re shutting down. So now can’t Trump or anybody just give people a stipend or something? And this
might be the UBI tax we’re waiting for? Sure. Well, how? I mean, for example, there are millions
and millions and millions of small businesses. What are we going to do? We’re going to have them
go to a website, fill out a form, and all of a sudden, what? You get as much money as you want.
You somehow prove what your monthly burnout is. No, you basically could just say, here’s my last
three paychecks, and we give you four paychecks. I mean, you go to that paperwork and apply for it.
The easiest way is going to be a tax refund as a percentage of your taxes paid over the last three.
It’s going to be something like rebate. But I think these kinds of surpluses, guys, don’t do
the trick. I think that, for example, if you are all of a sudden in receipt of, let’s just say,
a year’s worth of your average three-year taxes over the last… I bet you you put it in a savings
account and you don’t do anything with it. You’re not going to go to Alamo. You’re not going to go
to Alamo Drafthouse. Now, let’s look at Alamo. Alamo Drafthouse, more than likely, I don’t know,
but I’m guessing, rents their retail footprint. Right. Sure.
And there is a REIT, or there’s an MLP, or there’s a landlord that owns that retail
real estate footprint. That person has probably bought that building at 80% loan to value at a
4% capital. The math doesn’t matter except to say that you are not in a position to forgive
four, five, six, seven months of rent. You’re not in a position. The banks will foreclose in default.
And so you will demand that money of Alamo. Alamo will then first deplete their savings.
It’ll be very difficult for them to tap the debt markets and get a loan unless they get it from the
government, and hopefully they can. But those are the knock-on effects that are going to happen
right now. We have to see the first of those dominoes fall and follow that trail of breadcrumbs.
And to me, it’s in that devastation where addiction goes up, where all of the sort of
things that we’ve seen in the last 10 years, we have seen it right in front of our eyes what the
impact is when we lack a social safety net, where we don’t take care of the poorest men and women
beside us. And then we have a financial shock to the system. We already know how bad it is.
Sorry, when the impacts were just with a few companies. And now, you’re going to expand it
industry by industry. No, I totally agree. I mean, we saw it in the rural markets in the 30s.
And we saw it in the Rust Belt in the last 20 years. The statistic today is that 48% of all
US employees work for a business that’s got 10 or fewer employees. Now, these businesses are not
only retail, it’s also the plumber, the gardener, the housekeeper, any local service provider in
any one of these markets. And in this market, we’re not having folks come out and do local
services. We’re not going to the local hair salon. We’re not going to the local coffee shop.
All of those people are typically living on two to four weeks of cash flow.
63% of Americans have less than $500 of savings, and a huge percentage of them and another 10%
of Americans work in either the energy sector or as retail workers, in addition to that small
business market. So we’re talking about nearly 60% of American employees being exposed to the
fallout from shutting down business for anywhere from two to six weeks or two to nine weeks,
whatever the number is. And most of them only have two to three weeks maximum of cash flow or bills
owed in their bank accounts. Travel is an $8.8 trillion, $9 trillion part of the economy of the
world. So 10% of world GDP or actually more. And two quarter shock is basically $4 to $5 trillion.
Right. The implications of that rippling through every economy in every country,
I don’t think has been really internalized. And this is where we need massive coordination at
the federal level across the world. This is where the presidents and the prime ministers
of the most important countries need to come together now, decide on a global stimulus package
and make sure that they drown the markets with confidence that they will be there.
Because otherwise, when you see drawdowns like this in the stock market,
we’ve had this conversation in our group chat, the bottom isn’t put in 20 days into a drawdown like
this. It doesn’t happen on day 20. We are in day 20. Monday will be day 21 or 22. So the bottom
comes in somewhere between day 200 and day 250. What that means is that September to October.
And what typically happens is we react in a partisan way. So check the box so far. We do
half measures. Check the box so far. Then we correct on the first order problem. Let’s just
say we’ve done that now. And now we have to start the economic rationalization of these impacts,
trace them all, and then start to fix them. And if it’s anything like 2008,
it’s going to dribble out in phases, which means that the real damage won’t really be understood
for another quarter or two after people print the quarter, and after people guide. And when
these public companies do that, the stock market and investors by and large will realize, wow,
this is a much bigger problem than 2008. And if that plays out…
You think this is a bigger problem than 2008?
Yeah. David, do you agree?
I agree. By the way, on Chamath’s point, I pulled up these stats and I put them in your document,
Jason. But 1987, peak to trough took 14 weeks. The dot-com bubble bursting took 25 months.
2008 took five months. And we’re only, as Chamath said, less than a month into this one.
1987, we saw 33% retracement. 2000, we saw 47%. 2008, we saw 56%. And we’re only 20% into this
one. And by the way, another way to think about retracement is not a percentage loss, because
we’ve had a massive bull market here for the last couple of years. But it’s how many months did you
retrace back in terms of the S&P? In 87, we traced back 23 months. In 2000, we traced back five and
a quarter years. In 2008, we traced back 12 and a half years. And so far, we’ve only traced back
13 months to the S&P where it was 13 months ago. The other thing you guys have to keep in mind is
the thing that is very different. So it’s not as if everything is going to be the same. It’s not
going to be a repeat of the dot-com bubble or 2000. But they’re similar and they rhyme.
But the differences are important. The difference this time around is that we have gone through a
multi-year period of incredibly low volatility. And in that period of low volatility, two things
have happened. The first is that we have had public market financial capital market participants
get absolutely levered up. So I’ll explain what that is in a minute. And the second is the emergence
of computers and quant funds and algorithmic trading. So on the first side, let’s just say
David and I ran a hedge fund, Jason, and we took money from you. And we’d say, Jason, we’re going
to give you 10%. And you’re like, that sounds like a good deal. Bonds are at zero. Here’s my money.
Now, David and I would look at ourselves and say, well, we would love to stay in business forever.
And we want to collect 2% off of Jason’s money. So let’s try to do this in the most conservative
way possible. We’re going to try to get 1% a year. Can we make 1% a year? David and I look at each
other and we say, yeah, we can make 1% a year. How do we do it? Well, let’s break it down. Divide it
by 12. OK, we’ve got to get 82, 83 basis points every month. OK, we can do that. We can make 80
basis points a month. Or sorry, 8 basis points a month. Sorry, whatever the math is, 8.5 basis
points a month. And so let’s say we figure out a way, being really conservative, we make 8.5 basis
points, 1% a year. Well, eventually, we look at each other and say, OK, well, we need to multiply
this by 10. I got it. I’m going to go to my prime broker, JP Morgan, Goldman Sachs, Morgan Stanley,
and say, guys, I want you to lend me 10 times on my money.
And they’ll say, whoa, whoa, whoa, big boy, hold it up. And I’ll say, listen,
look at the volatility. There’s no volatility. This is a really safe thing to do. For every
dollar I put up, you give me 10. And now everything that I was doing is multiplied by 10.
My 1% a month becomes the 10% a year. Voila, I look like a genius to you. In reality,
David and I are making 1% a year multiplied by 10 turns of leverage. OK? Every hedge fund runs
this way. Now, when volatility goes from 0 to 50 to 60 to 70 in a matter of days, which is what’s
happened now, the banks, who are not stupid, say, hold on a second. You owe me money.
You need to post more money if you want me to continue to give you this kind of leverage.
There’s too much volatility. I cannot guarantee that Amazon is worth 50% of what you say. I have
to assume Amazon is worth 20% of what you say. So I can’t use Amazon stock as collateral. I can’t
use these 10-year bonds as collateral. I can’t use whatever you’re giving me as collateral. You
need to post more money. And then what happens is I have to delever. I make margin calls. I have to
delever. I sell my safe assets. I sell gold. I sell all these things, which is what’s been happening
now. So that’s number one. The second, which is why you see all of this massive volatility,
and it kind of builds on top of itself, is you have these algorithmic quant funds
that just see price signals and then they act. It doesn’t matter if it’s a good day. It doesn’t
matter if it’s a bad day. They know that the next tick is going to be up if the last tick was up
or down if the last tick was down. And when you have hundreds of participants putting in billions
of dollars multiplied by that leverage, so hundreds of billions, you get these tsunami effects where
one day you’re down 10% and then the next day you snap back 9%. Because even if there are a few
individuals making idiosyncratic human-led decisions, all of a sudden it’s drowned out
by the computers and the leverage. That’s a really big difference that exists today that
doesn’t really exist or didn’t exist in the last times. And so we’re going to be in a very violent,
thrashy environment as we delever, right? As we figure out which credit funds are upside down.
There’s about $75 billion of debt across the top seven or eight petroleum companies that comes due
over the next few years. And the average price for a barrel of oil needs to be $50 for them to not be
upside down. It’s $30 and falling. Some of these guys like Oxy Petroleum needs oil to be at $80
a barrel for them to make their debt payments. So we’re going to start a very awkward period
of deleveraging and a very long period where we’re going to have stresses and shocks that are not
industry-specific. It’s not just going to be Lehman and Bayer. It’s going to be brand name
companies that many people that are listening to this know and understand who are put under
financial pressure, who cannot make their interest payments, who default on debt, who miss their
earnings. And so this is an environment where cash becomes king and an incredibly clean balance
sheet becomes the single most important thing that you can have. So the Googles, Apples,
Amazons of the world are sitting on tons of cash, Microsoft’s. I mean, they’re just going to go on
an M&A spree, you think, or they’re just going to sit tight? Well, the anger that’ll turn on to those
five companies is going to be incredible because you talk about a trillion dollars of cash,
a trillion dollars plus with five companies, they represent 20% of the S&P 500.
And, you know, the only thing that hasn’t really sold off yet are those five big names. They’ve
come off a lot, but not nearly as much as the rest of the market. If and when those things break,
not because of their balance sheet or of debt issues, but just because of how risk-off everybody
is in the broader market, you’re going to look at those companies and they’re going to get in a
really difficult situation. You could have forced repatriations where the US government says,
sorry guys, the money has to come back and I’m going to tax it. And, you know, all these things
people say will never happen, but there are these moments in time where you just can never say never.
And I would say to all of us, this is a moment where your presumptions of normalcy need to get
paused. Yeah. Well, and we’ve had these moments before with 9-11, the financial crisis, great
recession, and the dot-com bust. David, what are the chances, percentage-wise, that this results in
a very quick resolution? So quick resolution being defined as, hey, we quarantined for a month.
Turns out America is similar to countries that don’t seem to be impacted by it. And we’re back
to business as usual in the third quarter, fourth quarter. Look, I think the chances that this
resolves in a month and we’re all, and, you know, we hit that, I’m actually just looking at today’s
reported numbers and it looks like hopefully we end up at the same number of new cases as yesterday,
but we’ll see by midnight. But, you know, hopefully that starts to happen. People recover.
Again, I pray that we get these IgG tests out there so that we can show that there were 10
times or hopefully some large number of people that were asymptomatic that had this thing,
not from showing it that it’s going to cause more contagion, but that, you know, the general
case of this or the, you know, the average case of this or the 99th percentile case of this is
relatively mild and people calm down. But I do think it’s nonlinear in terms of that second
order and third order effects that we’ve been talking about. Even if we got back to business
as usual in a month, we don’t yet know how losing two to four weeks of cash flow is going to affect
every salon in every major city, every local restaurant, every local movie theater, every
local plumber, all these businesses that have had their revenue literally turn to zero in the last
two to four weeks. If they only have two weeks of cash, they’re bankrupt. If they have six weeks
of cash, they’re reducing their investments this year. If they have eight weeks of cash,
they’re probably cutting a couple of people from their payroll. So we won’t know for a couple of
months going back to this point about, hey, we’re talking about Q3 when this all finally kind of
comes to bear what the shutdown that we’re in right now and are going to continue to be in
probably for another two to four weeks is going to do. And we’re going to find that out over the
next couple of months. But it’s going to be ugly. And so I’m not feeling like very confident that
in four weeks we’re going to say, hey, guys, we’re out of the woods unless the federal government
shows up with a three trillion dollar loan package that any small business can access
and any unemployed person can access. And it really fills the gap. And then you’re effectively
talking about one year of a Bernie Sanders tax hike anyway. So it’s like, hey, it doesn’t really
make that much of a difference. Look, it’s 20 percent of GDP that we’re giving away for one
year to keep the economy from completely collapsing. And I think that’s where we have to end
up. But until we get that package and we know how big it is and we really know that it’s going to
fill the hole, we don’t know if we’re driving off a cliff or not. It is 100 percent. Yeah,
100 percent certainty that Trump will do something like this because he wants to
save his presidency, correct, Jamal? It’s the only chance he has. I think the problem is that
the Republicans and the Democrats are playing political chicken with each other. And this
happened during TARP. It was a trickle, trickle, trickle, trickle, trickle.
And I think it’s going to happen here. You don’t think they’re going to get on the same page and
realize, gosh, we’re all going to lose in this case? Or do you think the Democrats have
a reason to let Trump fail and let the economy fail so they have a clearer path to victory?
No, no, no, no, no. Because then I think Trump should get reelected because they have
a bigger responsibility to the people than blockading the president of the United States.
That’s ridiculous. I think the reality is that we are woefully underestimating the second and
third order effects. And so, we started with an $8 billion package. This last package, I think,
when we put the numbers together, will probably be an order of magnitude bigger. Okay, whatever.
We’ll wait a few months and then we’ll have a couple hundred billion dollars. It’ll be kind
of TARP-like. It’ll probably be a bailout of a couple of specific industries.
But you can’t bail out every industry. And the ultimate package probably needs to be
on the order of a year to a year and a half of world GDP spread across all the major countries
of the world. And so, for the developing countries, the mechanism is probably the
IMF and the World Bank, but we need somebody real in there doing it. Not these kind of like
career bureaucrat dipshits that are in there now. So, get somebody like Bloomberg. Maybe he
steps in and he can allocate the money. And then the G8 or the G20 basically then put 75% of the
dollars into their economies. Germany has to basically go into deficit big time. They can’t
kind of run this austerity campaign. So, there’s a lot of big decisions, Jason, that need to happen.
These things can’t happen in days nor weeks. And they’re precipitated on data and political
pressure. And that takes sort of weeks to months to build. So, I kind of think we’re in a kind of
wait and see mode here where there will be these relief rallies because people, I mean, look,
legitimately, we all don’t want to be living through this nightmare. And so, every chance
people get to buy as a signal that this is over, they will take, like they did in 08.
But eventually, the news just kind of is you can’t overlook it. And you can’t take the ostrich
strategy of managing a business. So, you know, like I’ve had a company already who did a deal
yesterday at two times forward ARR. Two times. This is a company that will do 35 million of
revenue. 35 million of revenue. Now, you could say, hey, that’s crazy. Like we’re a startup. Like,
you know, we are funded by the best of this tier one, tier two venture capital.
And honestly, my reaction is shut the fuck up and go fuck yourself. You are going out of business.
And that was the market clearing price. But that CEO did right by his team. And history will look
favorably on that guy. Because like Buffett said, in moments like this, and in your life,
in business anyways, but I guess also in life, the most important thing is to not go out of
business. It’s to survive. Yeah, I mean, I was explaining it to my founders in our group slack
room. And I said, listen, job number one, if you take the scene as a captain is you got to keep the
plane in the air. You know, you got to find a place to land the plane. And you need to know
your altitude. And that’s your runway. And you know, you can’t get it in the bank.
Look, I think in this way, startup CEOs are the greatest canary in the coal mine, because,
you know, they are the ones that are the most resistant to these implications. They love the
halcyon days of the Cinderella ball. They love it. The clock never strikes midnight. They’re
never running down the stairs leaving the glass zipler. You know, that’s what makes them great.
In many ways, they live beyond what their station in life is. And hopefully they make it.
But in moments like this, you really have to realize that the that the shock clock is on.
And it has nothing to do with you. And if you are losing money, and your opex is high,
and you don’t have 24 to 36 months of cash, you have to really figure out how to get that money,
because it’s, it’s going to get harder, not easier. I give you a simple example.
You know, I, I was thinking about like all these companies in the next few years that have plans
to go public. They have options that have to invest, you know, they have RSUs that will expire,
I’ve read about Airbnb. You know, these are really complicated examples of companies that are great
companies with unbelievable employees, who deserve a hard to be rewarded for the hard work that they
put in. And now you’re faced with the situation where you’re money losing, burning cash, you know,
options about to expire. I mean, people have to really go public. I mean, this is why Bill Gurley
was sounding an alarm what three or four years ago saying, Listen, if the windows open to go
public, get out and, you know, clean up the balance sheet. Yeah, I mean, the IPO, I, you know,
my last year, last year, I wrote this in my letter, like last year, I took a lot of heat from
some folks around me, because I focused on liquidity. You know, I generated one, I put 1.7
billion on the balance sheet last year. And I just remember like people like you’re an idiot to sell,
why are you selling at these prices? And I said, Honestly, I’ve been through the dot com bubble,
I went through that it took me 13 years to get even from 99 to 2012. Well, 13 years.
I went through oh, wait, but it wasn’t so bad, because I was mostly head down working at Facebook
at the time. And I just thought, after 10 years of building something, I don’t want to have all
my chips on the table anymore. And what I want to be in a position is to be a good steady source of
capital in moments like this, you know, call it a white knight, call it whatever. But now, you know,
what I’m telling everybody is put out the word. I have billions of dollars in a balance sheet,
I’m willing to put it to work. I want to work with founders who are sober and realizing how
important this moment is for their company. But there’s going to be an incredible number
of businesses that have to act. And they’re not going to act for the next two to three quarters,
I get it. But they like the government, like the stock market, like everybody else will capitulate.
Yeah. And hopefully, when they do it, the money is there.
David, how are you approaching the next year? When you look at yourself doing, you know,
building startups? I mean, obviously, you know, as I sell people, you know, fortunes are made in
the Dow market, they’re just collected in the up market, as Chamath just pointed out, as well.
How do you look at the next year and then going into this next decade as a founder?
So yeah, we build businesses, and then we eventually bring in outside investors into
those businesses. So we are eventually going to be looking to capital markets to help fund our
projects. And so we put money off our balance sheet into starting these businesses, and we
fund them during that initial phase. So the first thing we’ve kind of talked to folks about is like,
you know, don’t optimize for time, optimize for survivability. Now. I’ve had one VC text me
earlier this week and say, we’re all leaving the office. And this was a VC who had given us a
offer to invest in one of our companies, yank the offer this week, and said he’s going to go,
they’re shutting up shop, no one’s going to be in the office, they’re not doing any deals until
things kind of come back, whatever that means. And then I’ve seen another venture firm, which
is a much larger firm, say it’s business as usual, we don’t care about up markets, down markets,
we’re still investing, valuations will shift, hopefully, and you know, the markets are going
to shift what we’re going to invest in, but we’re still here and we’re still doing business.
So I think the first thing is, is, you know, for the right businesses, there’s always capital. I
mean, I built my company, I raised my Series A in November of 2017, sorry, 2007. And then 2008
happened. And I’m really glad I raised more money than I wanted to for my Series A, we made it
through that period, we built a business. And then by 2011, we had such a great business, we raised
a nice Series B, and then a Series C a year later, and then we sold. So it was an incredible run,
but we went through that period of building. And it was, you know, it was great that we had the
cash for the businesses that don’t have the cash I’m worried about, like, you know, are we gonna
have to put money off our balance sheet to help fund them? Because it seems like there’s less of
these convertible notes and safes and people interested in bridging stuff. And, you know,
all the stuff that was a little bit, you know, I’ll like, like Chamath was saying earlier,
I’ll take more volatility right now, or I’ll take more risk because the ball is low, it’s very likely
that everything ends up raising their next round. Now we’re talking about probably 60% of things
are not going to make it to their next round. So I’m going to take less fall and that has
a kind of exponential effect in terms of accessing capital. So we’re telling everyone cut costs,
make sure that you manage for survival, do not manage for optimization on time.
Traditionally, we’ve kind of been aggressive and said, try and get as much done in six months as
you can and hit these big milestones as quickly as possible. Now we’re saying, you know what,
take your time to hit the milestones, just make sure you de-risk a little bit, even if it takes
two years instead of six months, as long as we have enough cash to survive two years.
As soon as we get out of this, you know, we’ll be fine. But that’s kind of where we are.
Sounds like wise advice. Chances, Chamath, as we wrap up here, we’re 80 minutes into the first
episode zero of the all in podcast emergency pod here talking about coronavirus with David
Friedberg and Chamath Palihapitiya. Chamath, chances right now that this is
resolved in a couple of months and we get back to business as usual,
where would you set the percentage chance at? Zero. If you, I think we deal with the
first order effects of the disease in eight to 12 weeks. So, you know, probably by May,
we’ll have a decent handle on the impacts and we’ll be through most of the worst of it.
And I think the economic bottom is probably Q3, Q4. And I think that, you know, we’re like,
we’re going to touch 2000 on the S&P, if not lower. I hope we don’t, but I think we are.
And I would just encourage everybody to start internalizing the second and third order effects.
We are the world, as of now is shut down for two months. The world. And, you know,
much like an old car, you can turn it off fast, but sometimes when you turn it off.
Yeah, it sputters. You have to open the hood and take a look under there, maybe clear out some.
It takes a while. It takes a while. You know, travel, by the way, you know, it’s an interesting
anecdote. Whenever there’s a demand shock in travel, I like travel, by the way, just because
it’s a really good, another canary in the coal mine for so many industries that are interconnected
and highly dependent on each other. When there’s a demand shock, it typically takes 19 months for
it to recover. One, nine months. So, almost two years. So, Dave, it’s right. I really, really
encourage folks to batten down the hatches, keep, you know, enough dry powder so that you can
withstand what can happen in two years and stop worrying about valuation. Find good capital
partners in moments of distress like this who can be, you know, fast and decisive and in size
and try to get back to work and keep your, keep the people that work for you safe.
Yeah. And if you’re worried about civil unrest, riots, breakdown of society, that’s something that
people have been hypothesizing about. No, no. And they always put it on like that. The internet
people are the ones who are most paranoid about this because Peter Thiel and whoever bought some
New Zealand real estate. There’s a lot of us that fucking scratched our whole lives to get
to the United States. And I don’t think that’s who we are. Yeah. I wouldn’t have come if that’s
who we were. Do you think there’s any chance of a civil unrest at this like sort of society
breakdown kind of issue? Yeah. We’re an incredible country. I mean, you can read Buffett’s letters
and he talks about with a great perspective of the last, you know, what we’ve built in this country
over the last 200 years. I mean, the economy, the infrastructure, the food availability,
the health availability, the housing availability, government’s challenged, but it’s not as challenged
as elsewhere in the world. I don’t think in the United States where, you know, it’s going to be
a shitty time for people with capital. It’s going to be a shitty time for people with retail jobs
and hourly jobs and so on. The government’s going to be there to help them. But I don’t see this
government failing the people no matter who’s in charge. I just don’t think we’re set up that way.
Other countries have different models. I think there’s other places where that may happen,
but not here. 100%. 100%. All right. Listen, this has been a great episode zero emergency podcast
for the All In podcast. Thank you to my co-host Chamath Palihapitiya for pushing us to do this
podcast and David Friedberg, Continued Success Building Companies. And we’ll see you all next
time. Bye-bye. Love you, boys. Thanks for doing it, Friedbergers. When do you think the next
poker, when can we all get tested and play a game of cards? God, please, Friedberg, give us
some tests so that we can just get together. I’m losing so much money in every other part of my
life. Why not lose money at the poker table too? Can we do a Zoom set up like this later and then
all get on the same poker stars table? When do we do that? Yeah. I think we just have to get
something going here. Because we can do a play poker stars table and just play PLO.
The play for a dollar. Let’s do it. Let’s do it. Let’s get on poker stars. All right,
everybody. See you next time. Bye-bye.