Wait, that’s not even a sweater, that’s a sweatshirt.

No, no, no.

It’s not even cashmere.

It looks like polyester or something.

Okay, quick, Freebrook, come on the video

where you’re wearing the same thing as J. Cal

so we can make a quick joke and bring it in.

Yes!

Morons.

I mean, you guys are so predictably dumb, the two of you.

It’s so itchy.

Do you have a rash?

Jason made me buy this outfit and I put it on

and I’m like itching, I’m about to take this thing off.

Polyester, wool, polyurethane, what’s that made out of?

Don’t let your winners ride.

Brain man, David Satterthwaite.

I’m going all in.

And it said, we open sourced it to the fans

and they’ve just gone crazy with it.

Love you guys.

Queen of quinoa.

I’m going all in.

Okay, everybody, welcome back to the All In Pod,

episode 87, here we go.

Tons of news going on.

Thanks for all the great feedback on episode 86.

We’re gonna start with emerging markets.

Oh, and yeah, welcome to the program,

David Freeberg, Sultan of Science.

The dictator himself from his palace in Sri Lanka,

his new palace in Sri Lanka,

he’ll be taking over over there.

We’ll get into that.

And Sachs is in witness protection right now, apparently.

Where are you, Sachs, in this white nondescript room?

Can you say where you are?

This is my soundproof padded room.

Yeah, oh, is that what if, that’s what if Biden’s done,

your Biden derangement syndrome,

they put you in an asylum?

What do you do, you rock back and forth

and say inflation Ukraine, inflation Ukraine?

No, we just had the room soundproof

for better podcasting.

Oh, look at you taking the job seriously.

I don’t say it looks bad, I think it looks good.

Yeah, you can put a little art behind you or something.

Just put one of your Monet’s behind you.

You know, the ones you have in storage downstairs.

Okay, emerging markets are facing

some huge challenges right now.

Quick primer on three types of markets,

developed, emerging, and the frontier market,

if you don’t know.

Developed markets are considered US, Japan, Europe.

Their GDP growth is lower, single digits typically.

In the emerging market, it’s roughly defined

as developing but not fully developed.

That includes countries like the BRICS,

which is Brazil, Russia, India, China,

and recently added South Africa.

Many other markets are included in that.

They were previously called the third world in the 80s.

People didn’t like that term.

Investors will bet on them having a higher GDP growth,

typically two times or three times

what the developed world has.

China, for example, 2019, 6% growth.

US in 2019, 2.1% growth.

And of course, there’s frontier markets.

These are viewed as small, unstable, illiquid,

generally risky.

If you look at something like Kenya, Vietnam,

those would fall into that category.

Vietnam, 7%, GDP growth in 2019 to the US is 2%.

Sometimes people like to make bets on them.

Here’s a nice little chart for y’all to look at,

and you can just see China versus Vietnam

in the United States since the 80s.

And so why is this all important?

Well, the Wall Street Journal reported last week

that EMs, the emerging markets,

have been feeling massive pressure.

We’ll get to Sri Lanka in a moment.

That’s a frontier market, to be clear.

But three things, well,

we’ve got probably a half dozen things going on.

Let me just highlight maybe the top five,

and then I’ll hand it off to the besties.

You have high bond and loan yields.

The debts, debt rates are increasing

in the emerging markets and frontier markets.

Think what happens when you got a variable mortgage

or you try to get a new market, a new mortgage.

In the developing markets,

the developing market investors

have stopped investing in emerging markets

and frontier markets, as you might suspect

during a downturn,

and they’re even pulling money out.

Then you have surging inflation.

We all know about that,

and we’re gonna talk about inflation here in the US

because we got the print this morning.

And slowing growth.

We’ve also talked about this

for the last six months on the program.

All these problems get exacerbated

when economic growth slows and it’s slowing globally.

And then finally,

we have the potential issue of contagion.

We don’t know exactly what’s gonna happen

when various countries are facing these challenges,

although we did tell you here

what would happen with the Ukraine.

Shout out to Sachs and Freebird fertilizer,

wheat oil, all that good stuff.

And it’s becoming very acute.

Perhaps the canary in the coal mine is Sri Lanka.

Breaking news, President Rajapaksha fled for the Maldives,

and it’s a state of emergency.

Curfews were declared.

I think that’s been canceled as of the taping of this.

We can get into the state of Sri Lanka.

Your thoughts, Friedberg?

I know you’ve been chomping at the bit to discuss this.

Yeah, that was a good long intro.

I think, you know, the high level for me,

if you look kind of at debt markets around the world,

there’s about $300 trillion of global debt.

And I put this chart in the chat here, Nick,

you can put it on the video.

And about 100 trillion of that debt globally

is in emerging markets.

And so these countries generally have, you know,

much more kind of variable GDP growth,

as well as challenges ultimately with their currencies.

Most of this debt recently,

and this has been a trend for a number of years lately,

has been issued in their local currency

rather than in US dollars.

And so as the currency devalues,

it becomes more challenging for an investor

to make a return if they’re investing

from a US dollar denominated base

or some other dollar denominated base.

So look, the EM, the emerging markets are heavily saddled.

I mean, some of these countries have over, you know,

300% or 250% debt to GDP.

And what’s really gone on recently

is that many of them as net importers of energy and food

are gonna struggle to make the stuff

they need to make at home or to feed their people at home

because of the rising inflation

that’s been happening around the world

from the producers of those goods and services, those goods.

And so to import those goods is more expensive.

That makes it more challenging

for people to be able to afford food,

to be able to afford energy.

This is part of what we’re seeing happening in Sri Lanka.

What’s compounding this is we have rising inflation

in the US, so as we’ve been talking about a lot,

the Fed’s been raising interest rates here in the US,

which means that you can now buy treasuries that yield 3%.

If you’re an investor around the world,

where else are you gonna put your money

except US treasuries in a market like this?

You wanna buy 3% yield in US dollars

versus, you know, getting 10% yield

in, you know, some currency denominated account,

some currency denominated bond in a country

you don’t really know well or trust

as much as the United States.

And so as a result, a lot of dollars

are moving out of emerging market debt into US debt,

and the price of that debt has collapsed.

And so we’ve seen in the last couple of months

a decline of emerging market debt of about 20%.

This makes it harder for those countries

to issue new debt to fund things,

and it’s creating this really challenging spiral

that may ultimately lead to defaults.

Those defaults absolutely have a trickling effect,

because if one country starts to default

and you’re an investor in emerging market debt,

you’re gonna say, hey, wait a second,

I just took a huge loss in this position,

you’re gonna start to sell off other emerging market debt.

And then it becomes harder for those countries

to raise more debt and fund themselves,

and it can cause a cataclysmic spiral.

So, you know, it’s a really scary scenario

we’re wading into now, and I think we really hope

that the US starts to taper interest rates

and we find some stability in these markets

over the next couple of months,

because it’s not just a food and energy crisis,

it’s also a humanitarian crisis,

and ultimately could lead to a global financial crisis.

And in fact, the bond issuance is-

It’s highly complex, but it’s something

that folks are tracking very closely here.

What’s happening also is the companies

that were already at risk are going to

start feeling this impact.

We could jump into Sri Lanka if we want.

Sri Lanka has, I think, a bunch of short-term issues

and a couple of very long-term issues.

Let me set the backdrop,

because I think this is really interesting.

Let’s take, let’s study Sri Lanka

through the lens of two other countries,

Jamaica and Singapore.

If you go all the way back to 1960,

so roughly when Singapore became a nation,

the Jamaican population in 1960 was 1.6 million people.

The Singaporean population was 1.6 million people.

Sri Lanka’s population was 9.8 million.

Jamaica’s GDP was 700 million.

Singapore’s GDP was 700 million.

Sri Lanka’s was 1.4 billion.

Now you fast forward to 2022,

Jamaica’s GDP is about 13 billion.

Singapore’s GDP has grown to about 360 billion.

And Sri Lanka’s GDP is 80 billion.

So what did Singapore do right?

What did Jamaica kind of get right?

Because one of the things that they kept in check

was their population,

even though their GDP didn’t expand that much,

so per capita income was still quite healthy.

And then what did Sri Lanka get right

and what did Sri Lanka get wrong?

Well, some of the things when you look at Singapore

is that they found a way to embrace,

despite a very heterogeneous culture

and sets of religions inside of that entity,

inside that city state,

they found a way to promote multiculturalism,

yet also promote English as the lingua franca.

Why was that small thing so important?

Because it allowed them to be a hub

for the rest of the world

in a way that many, many other countries couldn’t do.

The second thing that they had

was a very low level of corruption

because they had a leader in that case, Lee Kuan Yew.

And again, some people in the West

will paint it as slightly authoritarian.

He would paint it as Asian values,

but the net result of it was very low levels of corruption,

a small but highly effective public service

and meaningful investments in education and healthcare

to make that country grow over decades.

And within a generation,

that country completely exceeded all expectations.

Sri Lanka struggled through a civil war.

I was a by-product of that civil war.

It was partly religious, it was partly ethnic,

and it was 20 plus years in the making and in the happening.

And it took a very right-wing autocratic leader,

the brother of the current deposed president,

to basically root it out.

Now, in order to root it out,

there were enormous amounts of war crimes

and all kinds of things

that I don’t think anybody would support,

except it brought some amount of stability.

And so then you would have thought,

okay, maybe this is the point

at which you can now really start to grow.

But these guys, yet again, found a way to navel gaze

and just to infuse so much corruption and graft

inside of how the government was run.

By the way, and it wasn’t just the right,

it was also the left.

They spent two and a half times more on defense

as of last year than they did when they were in wartime.

Doesn’t make much sense.

The public service grew to the largest it ever did

in a moment where, you know,

you really should have prioritized private enterprise.

So all of these things sort of created a situation

where they fundamentally didn’t know what they were doing.

So the other two issues there, I think,

and that’s a great summary of like really

those frontier countries and what made them emerge.

Singapore also has a great strategic location,

which Sri Lanka kind of shares.

They’re both island countries strategically located

for trade.

And then I guess the policies, right?

Singapore went on a very, very aggressive tax

and business policy effort.

Did Sri Lanka do that as well?

And then maybe you could speak to just how important

those are as islands, you know, and their geography.

Because Jamaica doesn’t obviously have that.

I mean, Sri Lanka has this massive growing importance

as China has emerged.

The problem in these last few years

is that they did everything possible

to not just alienate China, but to alienate everybody

on every dimension possible.

You know, they alienated China.

The coup de gras was that there was an enormous shipment

of fertilizer, chemical fertilizer,

that was sent to the ports.

And it was summarily rejected and turned around

because somewhere along the way,

the leadership in Sri Lanka decided that they were woke.

And so they enforced every farmer to go organic.

The problem with going organic and organic fertilizer

was all of the small farms shut down.

All of the large farms had 20 to 30% crop yield reductions.

The prices of food went crazy.

They reversed policies two or three times.

And really what they found is that, you know,

they tried to go woke.

Instead, they went broke.

And all of a sudden, all these other countries

who were there trying to help said,

wait, what is going on here?

So they offended China.

They offended the Middle Easterners.

They offended the Japanese by cutting a light rail project

that Japan wanted to fund.

I mean, in every step of the way-

They de-industrialized.

This country found a way, they didn’t de-industrialize.

They tried to follow this woke agenda.

That is de-industrialization.

I mean, reversing from like the modern techniques

of industrial production, like fertilizer

and modern systems of farming is de-industrialization.

It’s, you know, it’s going to be a curse ultimately.

Saks, to your point, we just discussed this last week

with the farmers.

You know, if you’re in a frontier market,

trying to adopt the regulations and the strategic goals

for the environment of the emerging market

is like two giant hops.

It’s probably insurmountable.

Well, look, there’s a strong analogy

between the populist uprising that’s happening

in the Netherlands with the Dutch farmers

and the populist uprising that’s happening in Sri Lanka.

Basically, they’re implementing the same policies.

This is that Sri Lanka is further down the road

and it’s a poor country to begin with.

So, you know, like Chamath mentioned,

in April of last year, the Sri Lankan government

banned the importation of chemical fertilizers

and pesticides used in farmings.

They, again, went with this idea

they thought they could encourage organic farming.

So the result of that was that overall production,

agricultural production fell by a third

and rice production fell by 43%.

And rice is, you know, the biggest staple in the country.

So now you got people there starving or going hungry.

You’ve got massive food insecurity

as well as the whole economy basically has been crippled.

And the result of that is society has essentially collapsed.

So, you know, now the question is,

why did the Sri Lankan government feel compelled

to adopt these policies?

A lot of it has to do with the fact

they’re getting these massive loans

from the World Bank and the IMF

and the World Bank and so forth

are imposing these ESG requirements.

So Sri Lanka has something like a 98% ESG rating

even as their economy and society is collapsing.

How is that possible?

Well, they’re doing a great job following the prescriptions

of the global elites at Davos.

I mean, this sort of global elite flies into Davos

from Brussels and Washington on their private planes.

They have panels on ESG

and then they prescribe these policies

for countries like Sri Lanka.

And this is the result.

I mean, it’s crazy.

They’ve been telling us for years

that somehow there’s no trade-off

between their environmentalist policies

and creating a healthy growing economy.

And this is an example of that’s not true.

There are real trade-offs here.

And the crazy thing is that the elites expect

poor people in Sri Lanka to make up

for their environmental emissions.

It’s not really fair at all.

Here’s another example.

In March of 2020, Sri Lanka enforced

one of the world’s strictest China-esque COVID-19 lockdowns

despite one of the lowest death rates

and infection rates in the world.

And so for nearly three months,

it literally crippled the economy

and the livelihood of citizens there.

But here’s where it gets crazy.

Then they actually go against global best practice

and they ban the burial of COVID-19 victims

claiming that it could lead to groundwater contamination.

I don’t even know how they came up with this.

But you know what this did was it significantly

undermined the small minority of the country that is Muslim

because of religious practice there is you bury your dead.

And then that caused great pain to them.

And then it, as in turn, it hurt

all these international relationships

with all these Gulf nations.

So then you come all the way around

and then you go back to those same Gulf nations

a few months later and you’re like,

can I have subsidized oil?

And they’re like, no, not so much.

And just to paint a picture

of what’s happening there right now,

as I mentioned before,

it’s pretty much a state of emergency.

You can see various videos trending on social media

and you always take those with some caution

because sometimes people will take clips out of context

or label them incorrectly

or use clips from other moments in time.

But what’s really happening there right now

and you shared a video in our group chat

is everything is now being doled out in various ways

in very small amounts.

So there are lines for basic goods

and inflation is crippling there.

And as Freeberg mentioned,

they started to pin their exchange rate

and their currency to, I guess, the world’s exchange rate.

And now everything is super expensive

and essential imports like food and medicine and fuel,

they don’t have the money to pay for it.

So this is going to be a complete societal collapse,

it seems, and they’re going to need to get bailed out.

There was a bill that was introduced in the government

that said the central bank would be

forced to have a discipline on money printing.

Sound familiar?

In March of 2020, the central bank of Sri Lanka

began printing money in order to finance

a growing budget deficit.

Again, happens in many countries.

And they did that in part to fulfill an election promise

that they made that they would maintain

single digit interest rates.

Again, sounds really familiar.

So they printed about 100 billion rupees in March.

In the next two years,

the central bank printed 1.65 trillion rupees, right?

So 16 and a half times that first number.

And then as a result,

what they saw was the highest inflation

in post-independence history.

So time after time,

what you’re actually seeing in Sri Lanka

is not a microcosm of something that’s endemic

to whatever you want to call it, Jason,

a developing country, a third world country.

Frontier.

A frontier country, a Southeast Asian country.

In fact, it actually resembles many of the policies

that exist in so many countries all around the world.

And what’s really important here is that as goes Sri Lanka,

so goes Ghana, so goes Pakistan,

so goes a whole bunch of countries

where you’re already starting to see food riots,

food insecurity, energy insecurity, rampant inflation,

sovereign defaults.

And you have to ask yourself like,

how are we going to really tourniquet this whole thing

and prevent a much bigger contagion

like Friberg just talked about?

I think it’s a-

And we might be out of bullets-

It’s a really important issue.

Because you mentioned COVID.

It turns out a lot of these frontier countries

were already on debt relief

and being given a moratorium on making their debt payments

since they got so walloped during COVID.

And then now the other shoe drops and here we are.

There’s no relief you can give them

if they’re already not paying their loans in some cases.

By the way, here’s another thing that happens

in a lot of these developing countries.

So in the middle of all of this chaos,

what do you think happened?

The parliament got together,

they passed an amendment to the constitution

and it enforced and it gave incremental power

to one individual, the president.

And typically in most of these countries

that run by a parliamentary system,

the president is a figurehead, right?

The person shows up, you know,

shakes hand, kisses babies, that’s it, right?

Maybe convenes a Senate, but that is it.

Now all of a sudden the person has control over defense,

control over budget, control over the central bank.

And this person cannot be, you know,

voted out in a no confidence vote

the same way that a prime minister can.

That happened here as well.

So yet another example of if you start to see

a bunch of autocrats in some of these developing markets

feel like the answer is more power,

it’s been tried here, it didn’t work.

So I think that there’s a lot of lessons.

I am a little concerned and skeptical

that many of these other developing countries

that are teetering on insolvency will actually learn

what they need to hear.

We are the definition of the developed world, reportedly,

and we have a president

who tried to stay in power still in election.

So it literally is happening here

in the United States as well.

The parallels are truly terrifying.

All right, the CPI, I’m sorry,

did you just actually say something?

I was just rolling my eyes.

That’s not noise.

There’s no noise from an eye roll.

Ah, that’s what it was.

It sounded like a boulder going down a hill.

Wait, sorry, can I ask Chamath a question?

Yeah.

Chamath, by the way, if people don’t know,

Chamath is of Sri Lankan descent,

just to make that clear,

if you didn’t hear his little mention of it.

Didn’t you go there a couple of years ago?

I mean, here’s another great example of,

in this case, this was the left

who managed to fuck things up.

So it’s not just the right that screws things up

in that country, it’s the left as well.

So in this example, I went there

and I offered to bring Google Loon, myself and Google,

we offered to bring internet access to the entire country,

like guaranteed internet access.

This was like five years ago.

And we set up an entity and the government

tried to do the right thing and grant some spectrum.

And instead of sort of like fast tracking this

and allowing this project to become a reality,

there was an enormous amount of infighting

that essentially said that we were trying

to steal the license or we stole the license

or we were trying to monetize the license.

And both me and Google were just like, forget this,

this is not worth it.

And we abandoned the project and walked away.

Instead, Google ends up servicing

a whole bunch of other countries.

And the reason why Sri Lanka was part of it

is because the balloons follow a certain orbit

and it would go over Sri Lanka no matter what.

So it’s kind of like, we can light it up for free,

all we need is spectrum in this country,

Google’s already doing that work.

So I’ve gone there a few times.

I found it very difficult to try to do the right thing.

I think people, there’s a level of infighting

that I hope this crisis changes.

I also think that it’s an opportunity

for people to reset writ large,

the gerontocracy that runs many of these countries,

including the United States, quite honestly.

There is an opportunity, there are some of my friends

who I think may emerge in the next few weeks,

who are very well-known people in that country

who literally want to, step one,

remove most of the executive power from the presidency,

make it a true parliamentary style system

with an empowered prime minister,

and empowered elected officials,

and let the country run and fix itself,

deprioritize some defense spending,

deprioritize the growth of the public sector,

reprioritize the growth of the private sector.

I hope they’re successful.

I would love to invest, if given the opportunity,

under those kinds of market conditions,

and I would love to go back at some point.

But my history with the country has been very fraught

because as I’ve gone to try to do the work, Friedberg,

people are just haters.

And they just, they will cut their nose off

despite the, they’ll just do the worst things possible.

Chamath, there’s a,

I think you have a second swing at bat here.

Only 50% or so of people in Sri Lanka have internet access,

and maybe we could talk to our friend over at Starlink,

and that could be an incredible mitzvah

and changing thing there.

If you get 100% of the country on internet,

my God, that could change everything,

and it seems completely doable.

By the way, and this is the most literate country

in the world.

You have to understand, like the people in that country,

the human potential in that country is incredible, okay?

There are not developing countries like this

that have this type of literacy,

and the kindness of the people.

These are incredible, hardworking people.

But the elected class is some of the most inward,

navel-gazing, corrupt people,

and this is the opportunity

for the young people of that country

to wipe the slate clean with all of them

and start over with some.

The literacy rate is 92% or something crazy there.

It’s very high.

It’s a highly educated, literate group of people.

The truth is, the number of people living

in extreme poverty has plummeted thanks to globalization.

We went from almost, yeah,

two billion people living in extreme poverty.

Now, that’s gonna end in our lifetimes.

We have maybe 500, 600 million people

living in extreme poverty.

That’s because of globalization.

That’s the great thing that’s happened.

Now, what’s also happened at the same time

is people have gotten out of sync.

We have elites, to Sax’s point,

who think they know better,

and they’re trying to enforce on an emerging market

or a frontier market, God forbid,

the things that we have the luxury of doing

in the developed world.

We don’t even do.

Wait, hold on.

Well, I mean, yes, people are.

We haven’t banned chemical fertilizers

in the Western world.

Well, we do have,

and Europe has standards for gas mileage

as but one example.

No, Jason.

We have emission standards.

We have the accords that we’ve been working on.

All of these things are starting in the developed world

and now exactly to what Dave was just saying

is we’re taking them from the developed world.

We are imposing them,

and Sri Lanka apparently embraced it.

I guess they get points when they’re at Davos.

Sri Lanka is not rich enough to resist.

That’s the issue.

So the US has an ESG rating of 51%.

Sri Lanka has 98%.

Why is that?

Because in our country,

we’re not gonna impose these crazy mandates.

There’s enough resistance to it.

But if you’re in Sri Lanka

and you have these massive loans and debt service,

you have to do what the IMF and the World Bank

and all these international institutions

want you to do.

Yes, exactly.

They’re the ones who imposed all this stuff.

So great.

So Sri Lanka ends up with a 98% near perfect ESG rating

even as the country is completely collapsing.

Read the Schellenberger article here.

He says,

the underlying reason for the fall of Sri Lanka

is as leaders fell under the spell of Western green elites

peddling organic agriculture and ESG.

And then he mentions that Sri Lanka

has a near perfect score of 98,

higher than Sweden, which is 96 and US is at 51.

What does having such a high ESG score mean?

Short, it means that Sri Lanka’s 2 million farmers

were forced to stop using fertilizers and pesticides,

laying waste to its critical agricultural sector.

And then it goes on from there.

So it was the imposition of,

it’s not that Sri Lanka’s politicians

implemented Sri Lankan ideas

that caused the collapse of their country.

They implemented Western ideas.

They implemented the ideas.

And they were also corrupt.

So it was a combination.

Fair enough.

But they implemented the ideas they learned at Davos.

It’s almost perverse.

You’ve got all these Western elites,

again, like John Kerry and so forth.

They fly in their private jets to Davos.

They come up with these ESG rules.

They coerce countries like Sri Lanka to obey them.

And it’s the people of Sri Lanka who end up paying the price.

I mean, this doesn’t make any sense.

Yeah.

What’s your reaction to that, J. Cal?

You’re somehow gonna blame this on Trump?

No, I don’t know how Trump has anything to do with this.

You’re the one who brought it up.

Well, I mean, I’m just thinking about it

from first principles.

You know, we should as a species, humanity,

should be trying to trend towards taking care of the planet

and lowering emissions and being in renewables.

And then how we go about doing it,

perhaps there was good intent here.

But obviously, if the country is corrupt

and they’re teetering already

and they don’t have the bankroll to do it,

forcing them to do it can lead to collapse.

Nobody forced anybody, but what did the score give you?

It’s not as if it all of a sudden got you.

Well, no, no, they forced them by nature

of you get your loans if you do these ESG requirements.

So that is forcing them de facto.

Okay, fair enough.

But I’m saying like, you know, now that you have this score,

it’s not as if you issued green bonds

and you could stave off this default.

No, they shouldn’t do what you said before.

It’s like, Sri Lanka should be looking at what Singapore did

and just copy the playbook, right?

I mean, it’s so obvious that, you know, a country.

It requires a level of long-term leadership

and a lack of corruption.

And I think those two things are very hard to come by.

And I think a third,

which is a very controversial statement to make

is it required Singapore to adopt English as a lingua franca.

Now, in fairness to Singapore,

they also embrace multiculturalism, right?

So you had forced, you know, not forced,

but you had bilingualism in the school.

So Hindi, Malay, or sorry, Tamil, Malay, Chinese, right?

You would learn all of those.

And so, you know, you kept an ethnocentricity

to where you came from,

but they allowed you to understand a lingua franca

that allowed you to merchandise your skills

to the rest of the world.

And it really-

Are you saying they adopted the melting pot playbook

and they allowed everybody from around the world

to have their culture,

but yet participate in a common goal?

Oh my God.

Literally, if you say melting pot to young people today

and everybody should try to adopt, you know, a new culture,

but keep some of their own,

people find great offense to that.

And that’s what we were all taught.

The melting pot is what made this country great.

I think Lee Kuan Yew just called it multiculturalism.

But my point is that, you know,

I think the English decision by Singapore was important.

I think steady, predictable leadership by Lee Kuan Yew

was really critical.

And the lack of corruption, you know,

the way in which they promoted their public sector,

meaning, you know, some of the best paying jobs

in Singapore was a public sector job, right?

Like you would aspire to work

for the government of Singapore.

And so as a result, you had policies and movements

and the movement of capital and progress and rules

that were just, it’s an example for so many countries.

And you look where they are today

for such a small population.

They have the same GDP, by the way, you showed Vietnam.

They have a larger GDP than Vietnam,

which is an incredible statement, you know,

a testament to Singapore’s ingenuity.

So could that have been Sri Lanka?

I think so, knowing that the, you know,

the levels of literacy and intelligence,

and frankly, like, look, the religious stability

that can come from Buddhism, yet we’re not there.

We’re where we are today, which is a shame.

Yeah, and this is the canary in the coal mine.

I think we’re gonna see Freiburg,

I don’t know what you think is gonna happen

over the next six months,

but there’s gonna be other dominoes, certainly, yes.

I mean, I watch for Arab Spring type behavior, right?

I mean, you saw the protests

and people storming the presidential palace in Sri Lanka.

You know, I would imagine if we had a report

from the intelligence advisors

to the president of the United States,

there’s probably a long list and a growing list

of these nations you wanna keep an eye on right now,

where there is food insecurity, energy insecurity,

declining currency, you know, rising debt burden,

you know, there’s a breaking point for all of these.

And as you start to hit that breaking point,

you start to see more of what happened in Sri Lanka.

Now, when destabilization like this happens, it’s scary,

because what happens is there’s a new power that emerges,

and those powers may or may not be aligned

with the interests of the United States,

with the interests of allies,

with the interests of the world,

with the interest of Western democracy.

And so there are kind of scary moments

that can emerge over the next couple of quarters and years

as these camels back start to break,

as one straw after another

is put on the back of these camels.

So, well-

And who’s the white knight

who’s gonna come in and save these frontier markets?

Is it gonna be China, India, Russia, or the United States?

We’re plowing $40 billion

into supporting the Ukraine conflict.

You know, we’re busy kind of protecting our energy interests

and our interest with NATO as the United States.

And as you point out,

China will likely end up becoming the savior and supporter,

particularly where they have infrastructure investments

and interests.

I mean, I don’t know if you guys have followed this,

China has been building presidential palaces

for African leaders throughout the continent.

And these palaces-

No, I haven’t seen that.

They’re incredible.

You guys should put photos of them on the video.

Oh, sorry, wait, that’s the wrong one.

That’s Sachs’s house.

Sorry.

Sachs’s house.

No, that’s Sachs’s other house.

Sorry, hold on, next one.

Believe it or not,

they might put Sachs’s house to shame some of these things.

Oh, look, they brought the President of Japan.

Oh, sorry, that’s Chamath’s.

Next one.

Anyway, but yeah, this is a moment to watch

because there’s a very unfortunate confluence

of circumstances that may lead to destabilization,

that may lead to influence and power being gained

by folks that aren’t direct allies of the United States.

And this is why you want to build up a great cash reserve

and have a really stable economy

so that when these moments do happen,

the good actors of the world can take advantage

of them as opposed to the bad ones.

And the United States is not in a great position for this.

Every society, as they say,

is three missed meals away from chaos.

There are now a record 19 developing countries

with sovereign debt trading at distressed levels, 19.

And two that have already defaulted.

Yeah, just to start.

Pakistan has nukes, right?

I mean, if that’s problematic.

Well, and Pakistan, who’s famous

for enabling other countries, Iran, North Korea, reportedly,

they look at their nukes as an export

and they are more than willing to sell you nuclear technology.

I just sent you guys a link from Forbes.

You know, there are currently, as of today,

inflation protests going on across Sri Lanka, Albania,

Argentina, Panama, Kenya, Ghana.

And if you look at the videos

and you look at the images of some of these protests,

and again, there’s like, you know, in the African continent,

there are, you know, very radical militant groups

that will try and seize power

if there’s destabilization at the top.

And, you know, there are risks in South America.

I mean, all over the world, you know,

these sorts of moments can catalyze

a real shift in power and influence.

And there’s a lot of it going on.

So you better believe that folks

in the US State Department and the CIA

are very busy right now.

If you look at bond prices,

the three countries that are the next closest to defaulting,

so Russia has defaulted,

but that was more a vaguery of, you know,

foreign currency controls that didn’t allow them to pay,

but Sri Lanka has officially defaulted,

and the next three are El Salvador, Ghana, and Pakistan.

Yeah.

And by the way, Argentina, just so you guys know,

the Argentinian print on inflation

last month was 61%.

Yeah, yeah, yeah.

If we think that our 9.1-

And Argentina, as you guys may know,

they had a structural default a few years ago,

renegotiation.

They’ve been back at the table

over and over negotiating for years,

and now they’re facing this inflationary crisis yet again.

It’s a scary moment in Argentina.

Yeah, this is exactly like the European crisis

with Portugal, Italy, Greece, and Spain.

We’re gonna see a lot of negotiations occurring.

I really believe in this country,

and I think the people are incredible,

and I hope that whoever’s the president

basically takes as much power away from that role

and puts it in the hands of the prime minister

and gets out of the way.

All right, we’re hoping for the best.

Okay, CPIs, as everybody who listens to this show knows,

is a basket of goods and services

and how it changes over time.

You can slice and dice the CPI

based on food, energy, shelter, your house, et cetera.

Last two months have been just extraordinary to watch,

driven obviously by energy,

which has been driven by the Russia-Ukrainian conflict,

the Sachs rant on Biden’s administration.

The core index doesn’t include energy,

and so if you were to look at the core index,

it, and here’s a chart, 5.9% in June,

and it peaked actually with 6.5% in March.

So that’s been trending down if you take energy out of it.

We haven’t experienced-

Energy and food, I think, are excluded from core.

Yeah, and if we haven’t,

we haven’t experienced core inflation like this

since the 70s or 80s.

Here’s another chart just to zoom out,

and you’ll see exactly how jarring this has been

for basically our generation.

We haven’t experienced this since,

if you were born in the 70s or so,

that’s when it was higher than it is today,

and we’ve had, obviously, goods and services plummet

in our lifetime because of globalization

and low interest rates.

Energy hasn’t seen inflation like this since the 70s.

What is this chart?

Is this CPI?

What is that?

That is the core.

So that doesn’t- That’s core inflation.

That’s core, and then here’s the energy one

coming up next.

So when you look at energy,

obviously energy has been volatile in our lifetime

because a lot of the oil in the world

is controlled by dictators,

Middle East, Russia, Venezuela, yada, yada,

but the 40% year-over-year increase

in cost of gas and oil and energy

has put us back to the mid-70s, 80s in terms of pain.

That’s this chart.

So you see it spiking all over the place,

but generally it was under 20%,

and now we’re back above 20%.

It’s all about the oil.

Chamath, we were talking in the group chat before.

You were kind of satisfied with 9.1.

Do you think the 9.1 we’re seeing

in the inflation print today,

which was higher than expectations,

what is that gonna lead to

in terms of the interest rate hike?

75 basis points, or you think they just go right to one?

You know, we talked about this,

that this was gonna be a big print, right?

I think we all expected this to be a big print.

I actually also kind of put myself on a limb there,

and I said, you know,

I wouldn’t be surprised if at some point

we print a mid to high nines,

maybe even a 10 handle at some point.

Yeah, we’re getting there.

And the reason is because, you know,

rents are a little, you know,

they lag in how they’re reported inside of CPI.

So we have a couple more months to go of rents,

and rents are moving or budging a bit.

That’s number one.

We do see a little bit of fall off in energy prices,

but I’m not so sure that it’s enough, frankly,

to move the needle.

So I think that we could be in a sustained period for a while.

The more interesting thing I thought today

was that Canada surprised everybody

and raised their benchmark interest rate

by 100 basis points.

Okay, one full point.

One full point, 100 bips.

And they just said, we’re going for it,

we need to tame this,

we need to break the back of inflation.

They ripped the Band-Aid off, yep.

Yeah, and, you know,

and I think if you read the Fed minutes more carefully,

I think Jerome Powell is basically ready

to do the same thing.

Yep.

After this inflation print,

the expectation for July went to 80 basis points from 75,

which means a small percentage of people

actually think is going to be 100.

And September, I think, moved to 75.

Hmm.

So the question is, is that enough?

I just don’t know.

I don’t know.

And to be clear, this is for June.

The data we got on today, July 13th, is for June.

What we did see in July,

because we can track oil prices,

that’s down 20% month over month,

and the CPI has been driven largely by oil.

So speak to that, Shamaf.

What do you think it’s going to be in July

when we get it in August?

No, but yes and no, because again,

the owner equivalent rents are up so much

that they may actually break even, right?

Meaning rents go up by so much,

oil goes down by so much,

they cancel and we’re still at nine.

Okay, so that’s your prediction for July,

which we’ll get in August?

You think nine?

I’m worried that we’re

in a sustained inflationary environment.

I’m worried about that.

I hope that we’re not.

But then the question, Jason, secondarily,

is then what do the markets do?

And what’s so interesting today

is the markets shook it all off.

You could not have had a worse inflation print.

Everything was up.

Well, 10.

Meaning it was beyond the number that was expected,

every component of it was up,

everything looked horrible,

and people were like, meh.

Is that because the market is future looking, Sax?

The market is basically pricing,

we’ll get through this in six to 12 months.

Is that what you’re saying, Sax?

The markets are down right now, to be clear.

The print was definitely worse than expected.

Half a point.

They were expecting 8.8%, it was 9.1.

Last month’s number was 8.6.

I remember us talking about inflation

a couple of months ago,

saying that we thought it had peaked

maybe in April or May at the latest,

simply because inflation is measured

on a year-over-year basis,

and we were starting to lap much bigger comps last year.

Remember this conversation?

Yes.

Well, the lapping effect turned out not to be enough,

and inflation is still rising.

So we have not yet peaked on CPI.

I understand that core, we have peaked,

but deciding to exclude energy and food,

I mean, that’s a pretty arbitrary decision.

Those are two really important variables

that matter to the ordinary American, for sure.

So we solved this problem,

and to Sharma’s point,

we don’t know when it’s gonna subside.

And I think the big question now is,

when does inflation finally peak

and start going down back to where it should be,

and then how severe a recession do we have to have

in order for the Fed to solve this problem?

It feels like things are turning over in real estate.

We talked about that last week.

The number of homes being listed is skyrocketing.

The number of mortgages being originated

is plummeting while the rate goes up.

So we’re gonna see mortgage rates

probably go six, 7% towards the end of the year.

That’s gonna put a huge kibosh.

The high-end real estate is also starting to get hit

massively.

The number of listings is going up in the high-end,

and the number of sales is plummeting.

So that was one of the cards we wanted to see turn over,

and it looks like that’s turning over.

Just one small clarification is,

we obsess over CPI right now

because we’re all kind of these fake macro wannabe traders,

but I just want to remind you,

because the Fed has been pretty clear about this,

they don’t focus on CPI.

They focus on something else instead called PCE,

which is the Personal Consumption Expenditure Price Index.

Yes.

I don’t know what the flow-through

from CPI to PCEPI is exactly,

but that is the broadest measure of goods and services,

which does include food and energy.

So it stands to reason that PCE may stay elevated

for a while, which may give the Fed

enough of the motivation they need

to go 100, to go another 100,

or maybe go 100 and then a 75.

I think that David’s point is right.

All this taming that we’ve been expecting to see,

we haven’t seen it.

So every month it’s like, oh, it’s coming next month.

Every month it’s been, oh, it’s happening next month.

At some point, you may just have to say,

maybe we’re in a sustained period for a while,

and I have to believe it’s going up

before I believe it’s going to stay stable or go down.

Well, we did see energy go down.

Housing, we are seeing now starting to contract.

The number of price cuts has been surging,

according to Redfin.

So I think we’re starting,

and the layoffs obviously happened two months ago.

So don’t we think that we’re starting to see the headwinds?

And then we were talking to a buddy of ours

who’s big in the airline space.

He said, God, and I think you were pointing out

this statistic, that Heathrow is now capping

the number of people who can fly

because it’s been so crazy.

Heathrow is so overloaded with traffic of passengers

that they today came out and said,

we are capping the number of passengers

to 100,000 a day, no more.

And this is after the cost of those flights

was skyrocketing, $6,000, $7,000 to go to Europe.

I really go back to what Sachs said before.

The nugget for me of this entire summer

was what he said about his takeaway

from the CO2 conference, right?

Just to remind people that the person said something

to the effect of, oh, well, look,

all these other people will be saving money and cutting jobs.

I intend to hire, and nothing has changed for me.

And the comment that I made in our group chat is,

well, maybe that’s the psychology of everybody.

It’s not just the CEO of a company.

Yeah, just to be clear, what CO2 did

is they polled all the founders in the audience.

The poll results showed that on the one hand,

everyone in the audience understood

that we were headed for a big downturn

and economic conditions and fundraising

are gonna be much tougher.

On the other hand, all the founders,

or two thirds of them said that they were gonna use

this downturn to accelerate their business

as opposed to cut.

My one-on-one conversation with the various founders

are in line with that, which is, it’s all not me.

I know everybody else is gonna be impacted,

is gonna have to cut,

but I’m gonna be the one exception.

And there will be exceptions, absolutely,

but everybody can’t be the exception.

So I hear you’re saying, I’m gonna still buy my car.

I’m still going on my summer vacation.

Everybody else has to make cuts.

Well, it doesn’t matter what they say.

Consumers are behaving that way.

American Airlines basically put out

where they thought they were gonna be.

Their stock was up 10%.

Heathrow says we have too much traffic.

We’re gonna cap it at 100K.

There was an article about US home prices and rents,

and there were these two housing companies

in the Wall Street Journal that were profiled,

and both of them served middle-income neighborhoods

in Houston and these other places.

They’re like, we’ve never done better business.

And there are fewer and fewer people buying homes

because of mortgage rates.

They all wanna rent.

We have complete ball control.

And so where is the stopping

and the slowing down of spending?

It just may be reflexively this thing

where everybody feels like to have

the polite dinner conversation,

they have to talk about how they’re pulling back.

It doesn’t seem like anybody’s pulling back.

Austerity measures have not hit yet.

Well, I think they are in the process of working,

but it just takes a while.

I mean, what I would say is, look,

we are 100% gonna solve this inflation problem.

Why do I say that?

Because price levels are fully within the power of the Fed.

They just have to raise interest rates high enough.

Paul Volkow proved that in the early 1980s.

He had to raise interest rates as high as 20%,

but he crushed the inflation 1970s,

but that’s what it took.

So I have no doubt that the Fed can stop inflation.

I think the question is,

how much pain are they gonna have to inflict?

How high do rates have to go?

And how long do we live through

this sort of stagflationary period?

And that’s the unsettling thing,

is where it doesn’t seem like we’re anywhere

near the end of this yet.

I wrote this last week in a little note,

but this is why, if you look at the Taylor rate,

again, and people have abandoned the Taylor rate.

It’s not what it used to be, I guess,

but it’s still pretty directionally accurate,

which is what is the true equilibrium interest rate

that allows us to basically manage

and meet supply and demand together

so that we have a calm, stable economy?

And that stable equilibrium rate is approaching 5%.

You know, our target, the collective wisdom of the market

believes that 3% is enough to get the job done.

We’re right now at 1.5 to 1.75.

So if there’s any number between three and five

that is the true price,

we have a lot of work to do to get there.

Yeah, I think that’s a really good point

because the 10-year T-bill has been kind of funny.

It’s been kind of floating around 3%.

So that is the long-term expectation

of the interest rates that’s required

to have sort of normal inflation.

But what if it’s 4% or if it’s 5%?

If that ends up being the case,

it’d be a huge downside surprise to the stock market.

Well, how would you define that?

10% pullback, 20% pullback from here?

Well, you have a bunch of things.

Look, we talked about this other issue before as well,

which is if you believe the stock market is fairly valued,

you have to believe that prices are right

and that the earnings are right, right?

So, because it’s effectively,

if it all boils down to the price earnings ratio

of the S&P 500.

And I’m going to still maintain that the E is wrong.

The earnings are wrong for most of these companies.

So why?

Well, one is that when these companies start to report

their quarterly earnings starting in the next few days,

the year-over-year comparison is going to be

to the numbers that they posted in Q2 of 2021,

which by all accounts was a blowout number.

Why?

Because the number before that was 2020

where their business was zero, right?

So you have these incredibly tough comps

in terms of growth percentages that you have to reach,

which I don’t think are achievable.

Second is everybody’s costs of making

and selling things is going up,

which stands to reason that unless you raise prices

quickly enough, your profits will go down.

Third, if you actually do business

outside of the United States,

the US dollar has rallied so much

that you actually have less income

that you’re making in these other countries

when you convert them and bring them back

to the United States.

Now, most people look through that last issue,

but the point is if you add this all up,

there is a reasonable probability

that all the E’s are wrong,

in which case we have to reassess

what the right E should be,

in which case, what is the right PE?

Yes, and earnings are a function

of what you spend and what you make.

So that’s why we see so many companies

doing layoffs, cutting people,

Microsoft, Google, everybody is now putting people

on notice that they have to perform.

They’re firing white collar labor,

but they’re hiring blue collar labor faster.

And so we’re actually gonna see

a downtick in productivity, right?

You’re replacing a person that may sit down at a desk

and use a computer eight to 10 hours a day to do something,

but you are hiring a lot of people

that may get paid by the hour

or make it paid a fixed salary

if you do the right kind of work,

but that qualifies as more contractual blue collar labor.

The difference in that

is a productivity difference, ultimately.

And just so everybody knows,

for PE’s, price earning ratios over time,

here’s a quick chart for you.

Currently, and this is for the S&P 500,

we’re currently at 20 or so,

and we have twice in our lifetime

kind of hit that 13, 14, 15 level.

So we could have a 25% correction

from here in the stock market.

If you look at the highs,

our recent high in December of 2020,

we’re at 38 price earnings ratio.

So we’ve fallen from 38 down to 20,

almost in half,

and we could still go down 25% from here.

And that would basically not even set a new record,

that would just hit the last two crises we had.

The thing that I think will work

against this happening, Jason,

so yeah, you’re right,

maybe it goes to 3000 or 3200.

But if you look again today,

and what I mean by the market has roughly shaken this off,

the fact that the markets right now, as we talk,

are essentially down half a point.

The S&P is down 12 points.

It means that they are looking for any and all reasons

to say, this is a solved problem,

move on, nothing to see here.

Now, that is a psychological reaction.

Most of that, if you actually,

I called a friend today and I said, where are the flows?

And he said, retail right now is where all the flows are,

meaning it’s retail that’s buying,

they’re in the 30th, 35th percentile

of where they normally buy,

which is a pretty healthy signal.

Wait, explain what you mean.

Who’s buying?

So the way the market works basically

is you have buyers and sellers.

And to make it really, really simple,

you have hedge funds as one class of buyer.

Sure.

You have ETFs, but they’re not really because they have-

Exchange traded funds, yeah.

Yeah, but they have fixed strategies

and so they’re hedging, they’re moving, but whatever.

And then you have retail.

Okay, so it’s retail and hedge funds.

Those are the two main pockets

of where the flows come into the stock market from.

And you can get a real sense of what’s happening,

what the psychology of the market is,

if you see what those flows are.

And right now, what we see is that hedge funds

are largely on the sidelines.

They’re waiting.

What that means is they are,

well, they’ve been so battered and bruised,

in some ways I think they’re licking their wounds,

but they’re mostly waiting.

They do not find a compelling reason to buy, right?

But they have to buy at some point, right, Chamath?

This is their business.

No.

Well, I guess they would have to find

other opportunities, right?

Their business is to make money relative to their index.

And so if their index gets torched,

they doing nothing makes them look like geniuses.

So they don’t necessarily have to buy at any point.

They just need to make money in the end.

So right now we’re in a situation

where the markets are looking for a direction.

Retail seems to think that direction should be up.

Hedge funds don’t have an opinion or saying,

we’re just going to wait this thing out.

Okay.

Meanwhile, the data at best is a question mark.

And I think that’s the tension we have right now

in the stock market is the psychological desire

is for this thing to be over.

Meaning I think people want to hear inflation is done.

We’re starting the recession.

Give us three or four quarters.

We’ll be out.

Here’s a steady state interest rate.

Let’s go tech.

People want to accept the reality.

Freeberg, does that mean that we’re bouncing

along the bottom for the next year?

And then this is the time or the opportunity to buy it.

I want to get financial advice,

but what are your thoughts if hedge funds

and retail are kind of waiting in the way?

Are you asking me if the stock market is at a bottom?

Are we bouncing along the bottom?

Yes.

Or what would you, how would you describe the next year?

If you were to look at it, what do you think?

I’ll tell you guys some stories.

I went to a conference in March

with a lot of fund managers,

probably managed several trillion dollars in total.

People were like in shock and awe at that conference

because they had taken such significant write downs

and they were still getting written down.

So all their investments were off.

They were off 40% from the peak.

They were freaking out.

Things were collapsing.

No one was doing anything.

They were all sitting on the sidelines,

hanging out and waiting.

I went to a conference last week.

And so the tone and the demeanor was just like morose.

Last week, I went to a conference with a lot of managers,

also probably managing trillions of dollars across the pool.

And people were just kind of,

they had accepted this new reality

and they were kind of willing to look at new things.

And, you know, they were no longer engaged

in trying to shore up just their portfolio.

And a lot of the stuff we talk about,

which I think is tactical on the ground,

how do we deal with our businesses

and our portfolio of investments

that we actively work with in the private markets,

they were much more interested

in kind of starting to explore and think about new things.

And I hadn’t seen that three months ago.

So that’s a positive.

From a market participant point of view,

I think that folks have kind of accepted a new normal,

an inflationary normal, a high volatility normal,

you know, a normal of uncertainty,

a normal of kind of recession.

And as people have started

to kind of internalize that new normal,

I think they’re now starting to say,

okay, what should my action plan be?

And that action plan is,

I’ve got trillions of dollars of capital

sitting on the sidelines.

What should I start to do with it?

So, you know, my very, very, very anecdotal experience

has been that significant market participants,

I think are gonna start to perk their head up this quarter

and start to think about doing new things.

What that translates into in terms of, you know,

stock price movements and indices, I don’t know.

I’ve always said that there’s gonna be a huge variation

in outcome during this year.

And some industries, some sectors,

some types of businesses will outperform others.

And so I don’t wanna create generalized statements

about indices, but I do think that capital activity

is gonna start to come back this quarter

where people are gonna start to think about what to do

rather than pull everything out

because of the massive shift that’s happened

in the past couple of quarters.

Saks, what are you as a market participant thinking?

You’re looking at series A’s,

maybe doing some opportunistic flat rounds.

Are you looking at the startup market,

mid-stage market, and saying, hey, this is an opportunity.

Maybe I should start looking to put some money to work

in the next six to 12 months?

Or are you-

Yeah, of course, we’re still investing.

You’re still investing?

Of course, yes.

So as a market participant, you’re investing.

What are you seeing?

We’re investing, but we see that the pace of dealmaking

has slowed way down because founders know

that valuations have gone down,

the fundraising environment is tougher.

So last year they’re raising every nine months.

Now they know they should probably be raising

once every two years.

So the pace has slowed way down.

That’s a good thing?

It’s healthier.

It’s healthier, yeah.

It’s more normalized.

Last year, the companies that could raise did raise.

They have big war chests.

So I think there’s gonna be a delay.

It’s definitely a slower period.

We’ve done a couple of growth deals recently.

I think the fact that Tiger

and the other kind of crossover investors,

the fact they’ve pulled way back from venture markets

gives smaller firms like us

an opportunity to do growth deals.

How did you make the decision to invest in those companies?

They’re both companies we’ve known for a long time.

We’ve wanted to invest for a while.

So, you know, the opportunity arose to invest

and it was way less competitive

than it would have been last year.

So this is what you call opportunistic.

You knew the firm, you had high confidence in them

and opportunistically they need money.

We’ve basically done two deals in the last like four months.

And what was your pace, let’s say 18 months ago?

It was a little faster than that for sure.

There’s just more deals happening.

Interesting.

If you wanna think about tail risk

where there’s some event

that can massively shift the market,

you know, the indices South, right?

Make them go negative.

And everyone pulls money out of equities

or out of bonds further.

There are some of those events brewing, right?

We’ve talked about the consumer credit risk.

We talked maybe Taiwan,

maybe this emerging market crisis

that may kind of be emerging.

These are like little turtles putting their heads out.

They may not come out,

but there’s enough of these turtles now,

kind of circling you,

that there’s still reason to be wary.

Whereas-

Let alone a black swan event,

which would be undefined.

These aren’t even black swans.

These are just like significant-

Known risks.

Yeah, known but significant risks, right?

And if any of them do kind of take off,

we’re already in a very shaky kind of period right now

where we’re trying to manage inflation and recession

and businesses are trying to raise capital.

And again, this is why a lot of biotech companies

are trading below cash

because the expectation is

they’re not gonna be able to raise capital.

I mean, any one of these-

And they’ll go out of business.

They’ll go out of business.

So any one of these things pops up,

boom, you start to see things go.

So I think that’s the reason people,

investors, portfolio managers,

are not gonna kind of rush back in

to putting more money into equities

is just sitting around,

waiting to see how a few of these things resolve

before kind of taking action.

But there are companies that do not face the risk of ruin.

They just are sitting on so much cash.

They have so much revenue

that there’s no chance of that happening.

Yeah, I’ve always said,

it doesn’t matter if you find a great business

and you believe in that business over the very long run,

you don’t need to worry about timing the markets.

You put money in that business,

as long as you get a fair valuation for it today

relative to what it should be priced at,

based on what markets are telling you today-

Well, and a 20 PE would be more than fair historically.

Maybe, who knows?

But like whatever that is.

But if you find a great business

that you think is gonna compound value for you

over the very long run,

market cycles don’t matter.

And long run, you mean a decade?

Yeah, call it a decade.

Sachs’s business that he’s invested in,

these are tech companies

that I don’t think they’re planning to go public next year.

He’s making an investment in a business

that he considers to be a great business

that can compound value.

Not compound valuation, but compound business value.

Meaning they can do something more valuable next year

than they were doing this year

and continue to accrue an advantage in their business

that allows them to accumulate earnings over time

or accumulate revenue

that ultimately translates into earnings over time.

And there are many businesses that are public

that operate like that,

that regardless of any of these turtles

popping their head out,

those businesses will perform well over the next decade.

And I think that’s always a great place to invest.

So we basically went from D-Day, saving private Ryan

and seeing in the first quarter

to now people have accepted we’re in wartime

and we’re not shell-shocked.

And some people are looking for opportunities.

Chamath, you found an opportunity?

Maybe you could talk about the deal you did this week.

I tend to agree with Friedberg.

I mean, you find these businesses that you like

and if they appeal to you and you do your work,

that’s the most important thing.

You shouldn’t be afraid to write a check.

Can you stop right there and just say

and define what you mean by do the work?

Because everybody hears you say that.

What does that mean for an investor,

for somebody like yourself?

What does doing the work mean?

It really depends on the sector.

So for example, when we were,

when I was trying to underwrite Opendoor,

what I really wanted to understand was,

what do take rates look like in all these various markets?

Well, how do I think take rates will evolve here?

How do value added services work?

What kind of margins can you sustain?

What is the sensitivity of different parts

of the real estate economy to interest rates?

That’s an example of work.

When I was underwriting SoFi,

what you’re trying to understand is,

how do banks generate net increased income, NIM?

How does that change over time?

How does bank charters change that?

How do loss rates change in times of economic expansion

versus recessions?

How do you price all of that

into a fair value of a business?

It’s just a lot of really detailed diligence

to understand all the facets

or as many of the facets as possible of a business

that allow you to have a clear,

high sense of what’s possible.

Then there are others which are pure technology bets

where you try to understand either the biology

or the technology.

So in the case of the deal that I did today

or this past week,

myself, a bunch of family offices around the world

led by a great chairman, Pablo Lagareta,

who started a phenomenal business called Royalty Pharma,

which is public.

Carlos Slim, a bunch of folks.

We put in about half a billion dollars

to help advance into clinical trials,

this business that’s trying to provide a solution

to chronic kidney disease.

So in that example, it was a lot of scientific diligence

on what are the existing solutions?

How do they work?

What is the mechanism of action inside the body?

How is this the same or different?

What does the early data say?

How are the clinical trials structured?

And then you come to an answer.

In this case, I decided the bet was worth taking.

And like Friedrich said-

Tell us the name of the company and what they do.

The company is called ProKidney.

And basically the idea is that it uses your own body

to help heal your kidneys

if you are on the verge of chronic kidney disease

or you are getting dialysis, et cetera.

And essentially how it works is it removes cells

from your body, from your kidney actually.

And then it does basically puts it into a centrifuge,

does some specific things to it,

grows and amplifies certain cell lines from your kidney,

and then re-injects those back into your kidney

and tries to improve what’s called your EGFR,

which is your estimated glomular filtration rate,

which is essentially a number that we can use

to estimate how efficient your kidneys are.

And essentially when you are a type two diabetic

or you have chronic kidney disease or kidney failure

or you’re on dialysis,

it’s because that filtration capability has failed.

And so all these toxins are getting pushed back

into your body.

And so, yeah, we took a half a billion dollar shot.

I wrote $125 million check.

I hope it works.

That’s amazing.

And then from Freiburg,

we saw some satellite images this week.

Biden, I guess, announced them.

They looked pretty trippy.

Explain to us what the downstream effect of what is,

I think, the most clear picture we’re seeing

of the cosmos ever created

and what that could actually do for humanity.

Well, this has nothing to do with Biden, but okay.

No, I just, that Biden showed it on Monday.

I just, that’s all it was.

He made it, they specifically had him share it,

which I think maybe they were looking

for a mini win or something.

Good for him.

He has nothing to do with this program.

I don’t mean, I just mean that like the scientists

and the engineers that worked on this for many years

deserve all the frigging credit.

The James Webb telescope is a space telescope,

just like the Hubble, right?

Remember the Hubble Space Telescope?

And this is a massive improvement over the Hubble.

So imagine you’re in a boat

and you’re trying to look at the bottom of the ocean.

You take a bunch of binoculars, a pair of binoculars.

You look into the ocean and you try and see

what’s at the bottom of the ocean.

How hard that would be, right?

There’s all this murky stuff in the water.

It’s gonna be really hard to see it.

The reason that we create a space telescope

is so that the same problem that we would have

looking at a telescope through the earth’s atmosphere

doesn’t impact the light coming into the telescope.

And so there’s so much stuff in the atmosphere, right?

There’s miles of molecules and dirt and dust moving around.

So by putting a telescope in space,

we get rid of all that murkiness.

And now we can really capture the light

that is coming from far, far away,

concentrate that light onto really sensitive

photo detectors.

These are photo detectors that operate

at nearly the coldest point in the universe,

negative 263 Kelvin.

And that photo detector makes it extremely sensitive.

And using a 20 foot wide mirror,

we can capture all the light that’s coming in,

concentrate onto the photo detector and read that light.

And so why is this important?

Why is this interesting?

Well, people get really excited by

and flip out over the cool imagery that they see,

these images, these colorful images of galaxies

and stars far, far away.

What we’re really doing is we’re not just looking far away,

we’re looking back in time.

So these images come to us from galaxies

that are 4.6 billion light years away.

So it took 4.6 billion years for that light

to reach our planet.

And we’re actually seeing what happened

in the earlier part of the universe.

And we’re seeing how these galaxies formed,

how they’re moving, how they interact with one another,

how the planets interact with one another.

But what a lot of people miss

that I think is the most important thing to highlight,

as an astrophysicist,

when you’re looking through telescopes

and gathering telescope data,

you’re not looking for imagery like we looked at today.

That’s really good to sell the story

and get Biden to do a press conference.

What they’re really looking at is spectrographs.

And a spectrograph is,

it shows for every wavelength of light across some spectrum,

what the intensity is of that amount of light,

that wavelength of light.

And particularly, the James Webb Telescope

has incredible micro shutter arrays

and incredible sensitivity that allows us

to go from near infrared to infrared

and some visible light,

and look at that spectrograph.

Why is that important?

Because if you can capture the spectrograph

in a very high resolution way,

for a sun or for a planet far away,

it can tell you very specifically what the movement is

and what the chemical composition is of that object.

And from that, we can start to do incredible research

and infer very important things

about how planets form, how stars form,

how many places like earth might be out there,

how things are moving,

how much mass or matter there is in the universe.

And there are two very, very big question,

questionable phenomenons in astrophysics right now.

One is called dark energy, one’s called dark matter.

Turns out the majority of matter in the universe

is undetectable.

And there also is this really weird energy force

pushing on everything in the universe,

causing the universe to accelerate its expansion.

So the universe is expanding,

everything’s moving away from itself,

but it’s not just expanding and slowing down,

it’s expanding and speeding up.

And so having this sort of instrument in space

that allows us to capture in a very high resolution way,

using spectroscopy and other tools that astrophysicists use

and better map out how this is happening

in different parts of the universe

starts to give us a better sense

and allows us to kind of inquire

and start to develop theories around what’s really going on.

And I want to say one more thing,

because a lot of people think that this stuff

is just so esoteric and it’s like super interesting.

Why are we spending $10 billion on this?

Most applied engineering and the technologies

that we’ve developed as a species

started out initially as pure research

with no frigging clue where it was going to go to.

Imaging DNA, penicillin, electronics, MRI machines,

so many of these capabilities evolved

from scientists just querying the universe

and asking questions and gathering data.

And all of a sudden they came across something,

developed a theory, built an application of that theory

and a technology emerged

that changed the course of our history as a species.

And that’s the reason to do pure research.

And that’s the reason it’s so important

for us to put $10 billion into a program like this.

We’re going to discover amazing things with this tool

and it will ultimately hopefully yield advances

for humankind that we cannot even contemplate today.

So I’m excited.

Could be energy, right?

I mean, understanding dark matter and dark energy.

Totally.

And then maybe we can-

Has changed everything in energy, right?

Jake, I’ll think about it.

One day there might be a capability

where we say there’s a new class of matter

and a new understanding of energy

that we can then apply in some form of physics on earth

that we can do something interesting with.

And we have to be able to query

and understand the universe to do that.

Could we measure-

There we go.

Could we measure the matter from Uranus?

Okay, I knew it was coming.

I mean, the Hubble telescope actually,

correct me if I’m wrong here,

it actually told us the age of the universe.

How much dark matter is in Uranus?

Shemot, a lot.

A lot, you’re full of it.

But we now know, I mean,

the Hubble told us the rate of expansion of the universe

and it also told us the age of the universe

and we found all these other planets.

Totally.

To Freiburg’s point about, you know,

looking through the muddy water.

Here’s a great visualization.

On the left you have Hubble,

on the right you have Webb.

Beautiful.

And if you slide this, you can just see like

just how crystal clear these images are.

And from my understanding,

we found some number of universes already

that we didn’t know just from the first images.

By the way, I want to just give everyone a heads up.

This imagery looks beautiful

and I’m going to print out a big one.

I’ll put it behind my frigging desk here

because I think it’s so fantastic.

Astrophotography is one of my kind of all time,

you know, favorite forms of art.

But remember, this is imagery that was actually captured

in near infrared and infrared spectra.

And then they converted it to visible light

to make it look cool.

So remember that.

These images, you know,

these clouds, if you were actually there,

don’t actually look like that color,

but it’s a very cool way to visualize the density

and the spectral changes.

Where does this sit for you in terms of your excitement

between the new season of Doctor Who

and the Foundation Series?

Let me give you,

let me just give you guys one more kind of

really interesting.

If you start at our sun and you look at the sun,

it’s super bright.

If you go at the speed of light for four minutes,

you reach the earth

or a couple of minutes, you reach the earth.

Look backwards six minutes or seven minutes,

whatever it is, look back.

And now the sun looks like it does in our sky.

If you go for another couple of minutes,

you end up looking back from Saturn

and the sun starts to look like a star.

I mean, that’s how dim it gets.

Now imagine continuing to go at the speed of light

for another hour.

You look back,

you’ll hardly be able to differentiate the sun

from the rest of the universe.

Now do that for 4.6 billion years.

And you’re shooting away for 4.6 billion years.

Now look back.

How frigging hard would it be to see anything?

That’s the technical capability we just put into space.

We’ve built a 20 foot wide mirror

to concentrate the light,

the photons that traveled for 4.6 billion years,

lost all of their density,

lost all of the, you know,

completely dimmed out,

completely diffused.

And we’re capturing a few of them,

run that concentrated way onto a detector

for minutes at a time

and generate this image.

It’s really profound how technically complex this is.

And again, that technical complexity

can ultimately yield other technological tools

that we could use in all sorts of industry.

So I just want to highlight that.

I posted it for you guys.

It’s an incredible story,

but basically this program was riddled with delays

and things that weren’t working.

And then they put this quiet,

very assuming engineer in charge of it.

And he completely turned the whole thing around.

And it’s one of the most incredible quotes.

What’s his name?

Let’s give him a shout out.

His name is Greg Robinson.

And he turned a $10 billion debacle

into a groundbreaking scientific mission.

This is the quote from the Wall Street Journal.

The quote from the NASA,

the head of NASA’s science mission directorate,

Thomas Zurbuchen, says it all.

There’s a huge distance between success and failure

and only a few actions that move you from one to the other.

He said, Greg Robinson worked such wonders

that his boss calls him, quote,

the most effective leader of a mission

I have ever seen in the history of NASA, unquote.

Really incredible.

This project, yeah, the $11 billion project.

Big shout out to Greg Robinson.

Yeah, and this has been going on for,

I guess, 20 years now,

this process of getting this built

and 10 years of really intense building.

What would the next,

and then we’ll switch over to politics for a quick second

as we wrap up here.

Freeberg, what’s the next telescope,

because obviously if we’ve gone Hubble to Webb,

what would the next one conceivably look like

and what would the timeline for that?

Is there another one that’s gonna come

and then what would that enable?

Because it does feel like if we accelerate this,

we’re gonna really get a deep understanding

of the universe that,

this seems to be accelerating our understanding, correct?

And our technology is obviously accelerating,

so it feels like we could send another one of these out

in the next 10 years

that would dwarf this one’s capabilities.

Yeah, so a lot of telescopes operate

on very different wavelengths

and they’re meant to kind of pursue different missions.

So, there are some telescopes that are already operational

in kind of the gamma ray spectra,

but really there’s a,

I don’t know if we ever talked about this on the show,

but one of the really interesting areas of inquiry

is these gravitational wave detectors.

And there are new, more advanced versions

of those systems starting to come online.

Those are not space-based telescopes,

and we can talk about that another time,

but they’re creating new methods of inquiry

where we’re not capturing photons, light,

coming from far away.

We’re actually capturing the waves of gravity

coming from interactions of matter around the universe.

And it’s a new way to kind of observe the universe.

Those telescopes represent a new class of inquiry

that was just kind of discovered a few years ago

and proven out,

and now there’s a lot of work going on into that area.

And Friedberg, you had something

you wanted to give a shout out to.

Yeah, I just sent you guys a photo

of a new dog I adopted last week.

Her name is Daisy.

Aw, so cute.

We flew her out from Virginia.

Daisy is one of 4,000 beagles that were rescued

from a facility in Virginia that was shut down by the DOJ.

This facility was investigated by PETA

and the Humane Society,

and they basically shut this facility down.

This is, in the United States,

we only do animal testing on beagles.

They’re the only dogs that we do animal testing on

because they can put up with pain

and they have a high tolerance

and a high threshold for pain.

It’s a really awful fact.

We need to change that in the United States.

The FDA does not provide good guidance on this.

So pharma companies, pesticide companies,

makeup companies very often test on beagles.

So this company, you know,

that was operating this beagle facility in Virginia

was shut down for, you know,

ethical issues at their facility.

And the Humane Society took control.

The company’s called InVigo.

Their parent company is publicly traded.

I think that the fact that we test on these beagles

in this country is awful.

We adopted Daisy.

There are 4,000 beagles like Daisy available for adoption.

I’ll put some links in the show notes here.

People feel free to go and grab them.

I’m sure there’s a long list.

The dog is absolutely incredible.

I think that it’s awful we test on dogs in this country.

And I think I urge anyone that has influence with the FDA

to get them to provide better guidance.

This is not the law, it’s not required,

and they don’t provide good guidance.

And so a lot of companies de facto

and default to testing on beagles

when they really don’t need to and shouldn’t.

So-

Freeberg, let me ask you a question.

I think it’s incredible that you adopted the dog.

I hope all 4,000 get adopted.

How should we do testing?

Totally.

Look, I think that there’s really important

ethical lines here, and we can debate those.

This is a good nuanced conversation.

We use mouse models in biology

to explore solutions for human disease.

We use primate models, right?

Which means we use primates.

We use dogs, we use cats, we use mammals.

There are certain things that are obviously not necessary.

We don’t need to take beagles

and pour tons of Kim Kardashian’s newest makeup line

in their eyes to see what happens.

It’s not required by law,

and it’s not about getting some pharmaceutical drug approved.

This is in an area that I’m not gonna get into the debate

on exploring and resolving kind of pharmaceutical solutions

and things that can actually treat human disease.

Where I’m particularly sensitive to

is when it’s not needed.

And when we’re taking these animals

and just doing awful things to them,

when there’s no law that requires it,

we’re not putting stuff in our bodies,

and this isn’t about protecting humans.

It’s really about cover your ass behavior

for makeup companies and pesticide companies

that they don’t need to be doing.

And that’s really what I’m addressing.

3,999 beagles to go.

If you adopt one of these beagles, send us a photo

and we’ll share it at the end of next week’s program.

Thanks for letting me say that, guys.

It’s really important to me.

No, I think it’s super important.

And how we treat dogs who are connected to humans

in a very special way,

I think speaks volumes to us as individuals.

Sax, would you like to,

well, on the Biden administration, talk about 2022

or give us an update on Ukraine?

I give you the choices.

I mean, it’s like elder abuse at this point.

I mean, I know you’re trying to-

Oh my God.

Can I ask you a question at all, Ken?

I know you’re trying to tee me up here,

but like, all I can say is 9.1%.

I don’t want to beat a dead horse at this point.

Can I read you guys something?

And you can tell me,

there were these,

there’s a group called Committee to Unleash Prosperity,

but two researchers, Stephen Moore and John Decker,

this is in the Wall Street Journal article

I posted in the group chat,

the pair studied the resumes

of 68 top executive branch officials

whose work shapes the economy,

from President Biden and Treasury Secretary Janet Yellen

to White House Special Assistants on Economic Policy.

Quote, average business experience of Biden appointees

is only 2.4 years.

What?

Any fresh-faced 25-year-old on Wall Street

has clocked more private business hours,

again, I’m reading from the journal article,

than most of Washington’s top officials.

62% have, quote, virtually no business experience, unquote.

And we could add Bloomberg-

By contrast, the average Donald Trump cabinet official

had 13 years of experience in the private economy,

the authors say.

What a disaster.

60, 70% of Democrats wanna get rid of Biden,

they don’t want him to run again.

I’ve never seen a president been defected on,

been turned on by his own party

so quickly into an administration.

He needs to take back ownership of the Democratic Party,

which means he has to pivot back to the center,

and he needs to have a wholesale replacement

of the team that he works with on domestic policy,

it’s not working.

And Chamath, that was his pitch,

we’re gonna go back to normalcy,

he was gonna be more of a centrist,

and that’s not what we’ve gotten,

but of course he was handed the disastrous economy

that Trump created.

Why do you say he was handed a disastrous economy, per se?

Well, because of COVID,

and because of the massive stimulus that we spent,

those two things.

That was like a setup.

I mean, if Trump won a second,

do you think it would be much different?

If Trump was running the economy,

with the setup was there.

Trump probably would have spent more money, right?

Trump wanted to spend more money.

That’s a really good question, actually.

I have to think through that.

That’s a really good question.

Let’s move on.

What’s the update on Ukraine?

There’s a really interesting chess game going on right now,

where the Russians are slowing the flow of gas.

No, no, no, it’s better than that.

It’s better than that.

They shut down Nord Stream One

for their annual maintenance.

Bullshit.

It’s supposed to be back up by July 21st.

And so the real question is,

what happens if Putin hand checks Europe

and just takes an extra day or two

to get that thing back up and going?

It’s a…

Let me make a prediction.

I think the Western alliance is gonna fracture

come this winter.

Yeah, Germany’s gonna be freezing.

The Germans are not gonna take this well

when they can’t put their heat on.

Listen, a foreign policy based on virtue signaling

is one thing when your economy is good

and you’re not worried about your energy security

and you can heat your homes.

It’s another thing to have a foreign policy

based on virtue signaling

when your economy is in recession,

you got runaway inflation,

and you’re in winter and you can’t heat your homes.

Your morals change real quick, don’t they?

Three or four months ago,

the liberal interventionists were triumphant

about this Ukraine war.

There are three big predictions.

One, that Ukraine was gonna win.

It looked like Ukraine was winning

the first couple of weeks,

but now it looks like Russia has won this Donbass region.

Number two, they predicted that we would collapse

the Russian economy with all these sanctions.

The opposite’s happened.

We’ve collapsed our own economy.

And number three, they predicted this would strengthen

the Western alliance.

That’s the only card that hasn’t basically turned yet.

And I think it will this winter.

I think you’re gonna see serious opposition

to the way the Biden administration

has led the Western response.

I think it’s well said that if Germany

has the gas lines that Sri Lanka had,

you would see a definite fracturing

of how people look at it,

just like they flipped last week

and they made natural gas and nukes,

nuclear power, a green energy.

So yeah, their morals and ethics

and their virtue signaling go as far as their wallets

and their heat and meals go.

As we all know, this has been another amazing episode

of the All In podcast for the baron of beagles,

the dictator himself and the rain man.

Yeah, it’s definitely Biden’s fault.

Now there is no chance for any of us

to pass Fribourg on the popularity.

He just sealed the deal with his fucking beagle thing.

I know, I know.

What do we do?

I’m gonna save a whale next week.

I am gonna bring a dolphin that I kill myself.

How about that?

Oh, you’re gonna prepare a dolphin sashimi?

Okay, great, that’ll secure your part

as the most hated bestie.

We’ll see you all next time on episode 88.

Good luck 88 of the All In podcast.

Bye-bye, love you besties.

Bye-bye.

We’ll let your winners ride.

Rain man, David Satterthwaite.

Oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh.

And it says, we open sourced it to the fans

and they’ve just gone crazy with it.

Love you besties.

I sween a quinoa.

I’m going all in.

Let your winners ride.

What?

Let your winners ride.

Let your winners ride.

Besties are gone.

Go 13.

That’s my dog taking a notice in your driveway.

Sex.

Winner, winner, winner.

Oh, man.

Oh, man.

My half a dasher will meet me at Flint.

We should all just get a room

and just have one big huge orgy

because they’re all just useless.

It’s like sexual tension

but they just need to release somehow.

Wet your beef.

Wet your beef.

Wet your beef.

Beef.

That’s going to be good.

We need to get merch.

Besties are gone.

I’m going all in.

I’m going all in.