Hey, everybody, welcome to Episode 98 of the all in podcast with us again. The sultan of science,

the Queen of quinoa looks like he brought a trucker hat. What are you getting jealous of

the Montclair hat? Or are you just not bathing? No, I need a haircut. I haven’t had a haircut

like six weeks. I’m getting my haircut this afternoon. It’s not going to make a difference.

I think what Freeberg is trying to tell us is that he is the Zodiac killer.

All right, there is the unibar. All right. And Montclair sacks is here with his $400

Montclair hat. And of course, the dictator himself. I asked Ron, I asked Ron to cut my

hair so that the white patch is more prominent. I think he did a good job.

Do you add the white patch with coloring? Or is it?

No, it’s natural. It’s just there. It’s just there. No, it looks so odd. If you

were doing it on purpose. It’s super random. I like the way it looks. I like the way it looks.

Jay Leno had a look like that. I’m about to go by the way, you know,

this in the fall in truffle season, I like to grow it so that it’s more wavy

white for white truffle season. Got it. I needed to have a reset cut

so that then we could grow a wavy for the fall for truffle season.

Listen to math. The only thing less relevant to us than your cashmere sweaters is your haircut.

Let your winners ride.

All right, suck announced a hiring freeze and a reorg at meta. He also said meta will reduce

headcount for the first time in its history. Metas headcount in 2023 will be smaller than it was

this year, he called at the end of an era of rapid growth. This on top of Apple reporting and

Apple got walloped in the market for the first time in forever. Apple pullback iPhone production

for the 14 after slower than anticipated demand. As I mentioned on previous episodes,

they’ve kind of done a gentleman’s layoff. Similar to, I think meta in that Apple said you have to

be back in the office three days a week, a bunch of people quit. So you don’t have to pay them,

I guess huge packages when they quit that way. Google CEO Sundar Pichai also called out employees

in July, as you guys all read. And he wrote, there are real concerns that our productivity

as a whole is not where it needs to be for the headcount. We have Google, of course,

hundred and 74,000 employees. So I guess the question I have for you is, are these the last

towers to fall to mouth in this pullback that we’ve seen, these are companies that don’t need

to do the layoffs, they have tons of cash. So they’re obviously doing that to maintain earnings,

one would, and to maybe send a signal to employees that they need to work harder,

what’s your read on these this past week’s shoes to drop?

Well, it definitely is the end of an era, I think it is sort of like the,

the end of this phase of big tech, where you had this, you know, unfettered growth,

where these business models were largely unassailable. And they,

you know, we’re really just fighting to grow into their valuation and just generate more revenue

to justify where they where they traded at. And now it’s this next phase where they have to

operate more like a cash cow business. And so you know, it’s an acknowledgement that

the growth is tapering. It’s an acknowledgement that they’re going to trade on a pretty tight

band in terms of multiple, which means that they have to manage expenses much more tightly,

which means that they can’t have a really broad based surface area in which to operate an

experiment, you have to keep the experiments small, you have to manage your expenses,

you can’t have employees basically, you know, run over the place management has to have a firm hand

in in dictating strategy and what people work on. So I think all of that signals that I actually

Jason, I don’t think this is the end, I actually think it’s the beginning, because these companies,

Apple, Facebook, Google, maybe a little bit Microsoft are the most sensitive to valuation,

because they are the most widely held, right? These are the these are the, you know, the

equivalent of us treasuries in the equity markets, the safest, most predictable, safe haven in times

of stress, if you want to own big, chunky cash flow generating businesses that you know, are

relatively unassailable, you couldn’t pick for better businesses than those. And so the fact

that they see enough in the horizon, to say that we need to batten down the hatches should be a

warning to everybody else. Freeberg is it as simple as this, that the they’re moving from top

line growth to bottom line, and they’re going to need to look at the expenses. What’s your read on

this for Silicon Valley? Well, I just want to zoom out for a second, because I remember I started

working in Silicon Valley in 2001. You guys are a little older than me, I think, but like we were

right at the kind of year one of the.com implosion, and all the fallout that happened from all the

funding that happened from 97 to 99 2000. And so from 01 to 03, it was super like deflationary,

everyone was cutting costs, and all the money that had been raised was kind of being pissed

away, or companies were liquidating, and you know, so on. And then starting in 2004, which is actually

when I joined Google, but there was also this big movement starting on 304 of like what people

called web two, then kind of new business models and new businesses started to emerge that seemed

to have real traction and real legs. And it was a different story, and a much more rational story

than what you saw leading up to kind of 2000 2001. And it was around that time when Google

started offering these crazy benefits, right? It was like, there’s a gym and free food and all these

amazing workplace. And suddenly, everyone had to do that to keep up, right? Facebook obviously mimicked

it, all the other big companies mimicked it, and then it became mainstay. And they also raised

compensation in the valley significantly, because Google had really cracked the nut on how to extract

value from the internet. And it really changed everything in Silicon Valley and changed everything

in tech. Because suddenly, every tech company, whether you are enterprise software or hardware,

or an internet e commerce site, to be competitive and hire great talent, you have to have the same

sort of environment, high wages, great salaries, really share the value with your employees,

you know, gyms and free food and all this sort of stuff. So it’s the first time I think in a

generation since like 2003 2004, that we’re seeing things start to turn the other way,

where instead of adding more benefits, you know, making things more attractive,

giving more value to employees, we’re really seeing the recession hit these kind of leading

indicators of how things are going to be in the valley. And as a result, I think we should expect

to see a similar impact on compensation, on benefits, on value share, and on kind of proclivity

to hire an opportunity to kind of jump jobs and you know, opportunities that we’ve all kind of

taken for granted over the past 18 years. And this is going to be a real shock to a lot of

people that work in tech. And a lot of people that have gotten used to the idea that every company

offers great benefits, there’s always another job to jump to, it’ll pay you more. And that that as

that engine of growth that was really driven by these big companies by Google, Facebook, Apple

starts to slow, no one needs to compete with them anymore as much and the compensation bands get

tighter, and the option value gets tighter and the free stuff gets tighter. So it’s the end of

an era. And I think it’s a new world for tech and Silicon Valley.

So what are your thoughts here in terms of startups in relation to big tech,

maybe having these austerity measures kick in and refocusing on profitability?

The big takeaway here is just that nobody is safe. And it’s not just startups have to,

you know, tighten their belts, it’s these big companies too. And I think we’re headed for

a broad based recession. That’s what it seems like. You saw Druckenmiller’s comments this week,

predicting a hard landing in 2023. No one’s talking about soft landing anymore. In fact,

I think we’re all wondering who’s flying the plane. So I think we’re headed for a pretty

big recession. And I just take it in a slightly different direction. I’m down here in LA,

had dinner the other night with a friend who’s a showrunner in Hollywood. And so a showrunner

basically is like the head writer, and they basically put together the writing team and

the content for a show, and then they sell them to networks. He said that like,

no one is buying anything anymore here. That last year, you had, there was tremendous

activity. And you saw like the Game of Thrones guys, you know, D&D, they got like a $300 million

deal from Netflix and Shonda Rhimes got a $300 million deal. These are like the platform deals

they did, yeah. Yeah, they got like, there were massive multi hundred million dollar deals being

made last year. And that was just for like future writing deals. Like Netflix wasn’t even buying

libraries when they did those deals. They were locking down talent for the next. Yeah, exactly.

So all of that has stopped. And the reason is that Netflix’s stock has been hammered, right?

And only so they not have the capital to do those kinds of crazy deals anymore. But they know that

Wall Street is watching them. And so fundamentally, they’re questioning whether a business model even

works if they have to spend that much money on content. So then all of Netflix’s competitors

basically have stopped. So this whole like frothy environment that you had for in Hollywood last

year, that’s just over the faucets been turned off. And it’s not even turned off to a trickle,

it’s just stopped. So you think that this like massive asset bubble that we had last year was

just in crypto and gross stocks. It’s not I think it actually trickled down into the real economy

because Netflix was one of those gross stocks, the money then flowed into writers in Hollywood,

and then lots of other places. This is one small example, right, that that this asset bubble

wasn’t purely just something that’s gonna be localized to crypto, it affects real people

in the real economy. And we are just beginning to see the unwind of that.

Yeah, what’s absolutely correct, I think is people were more risk taking, they had free capital,

they wanted to place more bets. And sure, why wouldn’t you bet on the game with our own writers

for the next decade. But looking at this is going to be fantastic for startups. I mean,

the startups I’ve worked with over the last five years have been, they always come to me,

oh, I got a developer, but this person’s got three offers from, you know, Facebook, Google.

And they’re like, how do I land this person, they got $300,000 a year, offering a million dollars

in RSUs. And basically, founders had to say, No, I can’t get that person. And so they had to get

creative. And they would hire people, Ukraine, Uruguay, everywhere in between, to try to find

developer talent, and they had to get creative. Now, all of those people are not going to have

four job offers, they’re going to have no job offers, they may have gotten laid off.

And those crazy, unrealistic out of school deals are going to be gone. And this means

massive consolidation of talent. You look at the startups community right now, tons of companies

are just going out of business, they’re packing it in, those people are going to go work at the

other startups that are stronger. So whoever makes it out of this as a startup, this is how the cycle

restarts, is talent then consolidates on the winner. So it’d be like taking the NBA and getting

rid of the bottom, you know, 10 teams, and just telling the best players there, move up to the

other teams, and everybody else, you’re out of the league. So I think this is incredible setup for

2023, for startups to consolidate talent. So I’m actually excited to see us.

It’s another data point that, again, I said it last week, I’ll go out on a limb and predict

my equivalent November fall predictions. Last fall, it was at the markets, we’re going to

poop the bed. My prediction now is that I think the markets are bottoming and consolidating.

Yep. 100%.

And this is the time, I think, to start nibbling and start getting ready to really rip the money

in. And I think there’s enough signals every day that kind of like, tell me at least that on the

margin. It’s time because I think the markets do a reasonably good job of digesting news,

and then pricing the forward reality, right? Like today’s price is really everything we

already know. And so the real guess is what’s about to happen in the future. And from my

perspective, I’m actually pretty starting to get a little constructive here. I think that

when companies like Facebook really do this, and, you know, like, if you think about it one way,

the financial markets have always had this thing that we have called a Fed put, what does that

mean a put is essentially the right to sell something. And what market participants have

always known for the last decade is that if things got very hairy, if there was uncertainty in the

market, the Federal Reserve would and they have consistently stepped in to create a buyer of last

resort. And so it always eliminated that last part of true, you know, supply demand balance,

because they would just come and say, Don’t worry, in many ways in tech, what the big tech companies

were, were that, you know, you could never really find what the true market clearing price for an

engineer was, or what the true amount of expenses you should spend on office space, or, you know,

free services, because you always always had these companies, which was an escalating arms race,

you know, if one company had a massage, the next company had gyms and massage and physical

therapists, and the other company would have buses to take you to the gyms and massage,

and therapists, and the next company would have protein shakes that were freshly made,

you know, and it just kept escalating and escalating, because the costs didn’t matter.

And they wanted, if nothing else, to get that marginal engineer, or product manager, or business

person to work at their company, which eliminated the risk that they would actually start something

to disrupt them. Blocker strategies very real, you should have a blocker strategies

is very real. So when you take this big tech put out of the market, you will get true price

discovery. And you will find out what the real price should be. For this kind of an engineer,

that kind of a product manager, you’ll find out what are the real expenses you need to bear in

order to build a real lasting business. And you’ll be able to sort through all of that stuff out. So

I think it’s a really good moment. And again, it’s yet another indication to me that I think

broadly speaking, the markets are now starting to stabilize, all the irrational behavior is starting

to exit the system, the parties in the last few hours, volumes going down, the alcohol has been

taken away, people are hanging around with a little bit of lights are coming on, they’re like,

I’ve been here a little too long. And I think that that’s a very healthy process for an economy.

And I think that that’s what’s happening right now. So I’m constructive, I’m a little bullish,

I’ll go I’ll go out on a limb, I think, you know, we could be three to 5% from the lows,

but we’re more near the lows than the highs. It certainly feels like the double bottoming

out process was the bouncing along the bottom. And yeah, who knows how hard the landing is. But

I think it’s a great setup for startups and people who want to start companies. I don’t

know if you saw girly did a great interview that trended on the Twitter. And he’s just saying this

is the best time to start a company. And I have to agree with him like you’re going to have talent

available. And who are you competing against for buying ads like there’s so many marketing

opportunities available. The first thing to go in a down market like this is

advertising and marketing. So and by the way, we will we will also relive what we have

empirically known to be true. And it’s been it’s been pretty well proven. The investments that one

makes in this period will probably be the best for many, many years to come because they’ll have

the most asymmetric upside. And that was true in 2008, nine and 10. It was true in you know,

2002, three and four. You I mean, you’re talking incredible companies just in those two periods.

Think about this Atlassian, Tesla, Uber, Google, Airbnb, Uber, Instagram, WhatsApp,

incredible businesses that have created tremendous value. And so there are businesses

that have been invested in for the first time in 2022, and will be invested in for the first time

in 2023. And 24, which will be the leading winners of this next phase and this next leg up. And so

the real opportunity is to find out who those companies are and get behind them. I think 100%

as I always tell people fortunes are made in the down market, they’re collected in the up market.

Freeberg, what are your thoughts here in terms of the startup community or company builder,

and talent, because that seems to be the piece that could be a silver lining on all of this

maelstrom that we’re going through,

I mean, technology always marches forward. So there’s always, you know, there’s always progress

to be to be had and to be made. That’s one universal truth about it’s weird that we call

it an industry, because a lot of technology companies in Silicon Valley today, don’t sell

technology to other companies, which is how Silicon Valley started. Nowadays, Silicon Valley

is reinventing other industries by being technology led. And that is certainly still

true, because there are so many, I hate using the term, but undisrupted industries

to pursue efficiency gains across and technology built in Silicon Valley can can can drive that

now, when I say Silicon Valley, I don’t mean the physical location anymore. And that’s the

confounding factor here, which is that there does seem to be this distribution opportunity

that’s also emerged at the same time, where people are doing remote work and work from home,

and distributed workforce models that seem to be highly effective. You guys talked about it last

year, and I don’t think they ever had an office, right? I mean, don’t most of the people work from

home there. And I think that the success that’s been seen in software companies that have operated

that model also changes the calculus because not only are our wages lower, and therefore the cost

of operating is lower, not needing a fancy expensive office in San Francisco is needed.

But you can also access far more talent than you ever could before. You don’t just need people to

live in the Bay Area or New York or LA or wherever you’re operating from. So from a software

perspective, this is an amazing time. I’ll tell you, there’s a flip side to this, like in life

sciences, real estate is more expensive than it’s ever been right now in the Bay Area. To get lab

space, there’s a total dearth of space. So there’s certain segments that I think are

why is ours lab space, like a specific specific designation, you know, I mean, there’s a revolution

in genomics, that’s totally transforming all of biology and human health. And what I’m saying is

you need a certain type of location that’s sanctioned for that. Yeah, yeah, lab space

is a certain kind of build out. And it’s not, you know, and so there’s a certain amount of

square footage, and it’s being built out a lot around the Bay Area. But the thing about life

sciences companies is you do have to operate physically, because you’re doing some you’re

building something physical. And so that is an industry that continues to remain very well funded

and very competitive. And I think, you know, there’s still tremendous value. And by the way,

there’s a lot of public companies to invest in, not on the primary basis, but that are tools

companies that are benefiting greatly from the continued demand and growth in spending in that

category. sex, let’s talk about competition, you know, a lot of talk, you know, of these large

companies pursuing many different verticals, we talked about anti competitive stuff, Lena Khan,

the bundling in the suite of products at Microsoft other firms. Now you have all these being cut

death, death to the room. Death to the room. By the way, did you see that Elizabeth Warren,

of all the things she could send a letter to the FTC about, I guess she sent a letter about the

Roomba. I mean, Senator Karen is just too much, man. I mean, there’s a lot of other stuff going

on, but you can let the room slide. That’s not important. Oh, you know, all the things that are

going on right now in 2022. It’s the Roomba that gets on the gets that’s above the line.

At this point, I mean, my point is sleepwalking. Oh, my gosh, walking. What is going on? There’s

a fit. There’s a famous history of World War One called the sleepwalkers, because that’s

basically what it felt like is they just slept walk their way to World War One. Basically,

what should have been a minor regional war, the third Balkans war that nobody should have cared

about. Nobody should have cared about this Franz Ferdinand guy, except for, you know, the Austrians.

Yeah, exactly. But the whole world basically got themselves invested in this thing.

And it feels and this is what we’re worried about. We’re worried about the Roomba

when the administration is sleepwalking its way into the next world war.

Well, I do not want Amazon, okay, to control my vacuum cleaner. I’m just going to put that

on the record. Okay. Because what happens if they know where the dirt is? They know which

rooms are dirty? What happens if they get ahold of Roomba? I’ll tell you what happens. The next

thing is they’re going to go after Dyson. Okay. And then once they do that, they’re going to put

chips in these things. And all of a sudden, they’re going to know exactly what Jason said.

What are you eating? Where your dust bunnies are? Yeah, all of this stuff. It’s this must be stopped.

Lena, come now. No, but to the point of competition, you’re seeing cuts to, you know,

all the non core projects at these big companies. This is going to be great for startups, right?

Like the idea that Facebook could focus on, you know, a fourth, fifth, sixth thing is going to

go away. Yeah. Well, look, you’re right that great companies are built during downturns.

PayPal was built largely during the downturn. The startup I created Yammer was built largely

during a downturn. So listen, there’s going to be opportunities innovation doesn’t stop just

because we’re in a recession or depression. But I gotta tell you, I, unlike Chamath, I’m having a

hard time finding a silver lining right now. Part of it is the comments that Druckenmiller just made,

which and he’s been right about this stuff. We’ve been talking about his predictions for over a year

on this podcast, and he famously shorted the pound for George Soros. That was when he was first

getting started. But yeah, since then, he’s one of the most successful macro traders in the world

and, you know, universally respected, and I think deservedly so. Remember, he said that this was in

mid 2021. He said that the Fed was engaged in a radical monetary policy, because even though we

were starting to get inflation, it was around 5% then, that they were still engaged in this bond

buying program. They’re still bought like 160 billion of bonds. And he is the first one waving

the alarm bell saying, what are they doing? And now his predictions have come true. I mean, we’re in

an inflationary spiral. And his prediction now is his central outlook is that the Dow Jones will

be in the same place where it is today in 10 years. And he made the point that yes, equity markets do

go up in the long term, but how long term you’re talking about from night from roughly 1966 to 1982,

the stock market was sideways, Japan had a lost decade as well. Like this is not unprecedented

after an asset bubble, right. And then from the Great Depression, it took until 1955 for the stock

market to recover. So in the long run, the stock market will go up, but it could be you know, we

could have a flat decade. This is his prediction, right? But he’s very smart guy. And then on top

of that, that’s not to say that you can’t be one of the ones who make money during that period,

because lots of people do. But we’re in for I think, a very tough economic period because

of just this radical, expansionary fiscal monetary policy we’ve had, basically the Fed

and the administration printed the last two administrations, but especially this one,

printed $10 trillion over the last couple of years. And they had

most of that was under Trump, but continue. No, it’s not. 100% I’ll pull it up in a second. But

anyway, keep going. We had Biden basically kept digging this hole, we had the $2 trillion of

American rescue plan, which we didn’t need. We just had another 2 trillion of the infrastructure

bill, the Inflation Reduction Act, 500 billion for student debt. Yeah, exactly. So Jason,

what are you talking about? And this was all after the emergency was over.

But I think I think that you guys are debating the wrong thing. I think that what Druckenmiller,

I think, by the way, just to be clear, both Druckenmiller and I can be right, which is he’s

commenting on the real world economy going into a recession. What I’m saying is that the stock

market tends to be nine to 12 months ahead of where we are, Nick, throw up that chart,

please, that I asked you guys to share, just to give you guys a sense of what I mean by this.

By the way, while you’re doing that, Jamal, Jason, look, I will agree with you that a lot

of this point, I’m just pulling him, he did 7.8 trillion, more than Biden, but fine.

A lot of the stimulus happened under Trump. You’re right, because that’s when basically COVID

happened. Remember, in the in that q2 of 2020 quarter, the economy shrank at a 30%

annualized rate, everyone thought we’re going into a Great Depression. And that’s why they

passed all the stimulus by huge bipartisan margins. Druckenmiller’s best point is that

this is all post vaccine, right? Yeah, so look, and I think we can definitely go back

and second guess what happened during the Trump administration. There’s an old saying that

many of the worst ideas are bipartisan. And so, you know, the spending that happened in 2020 was

clearly bipartisan, and maybe it went way too far. But in the last two years, like Druck said,

it was post vaccine post emergency. And they kept spending and it’s not just the administration,

it was the bond buying program of the Fed, where the economy was already fully back and they bought

another 160 billion of bonds. Yeah, I think I think the thing is that, you know, I think Stan

is a proven Republican. So maybe he is speaking a little bit of his book as well. I think it’s

fair to say that both Trump and Biden did not help. But overwhelmingly, I think where the where

the problem stands is a central bank. That was the same through both of those administrations.

And I think we should probably focus on them because you’re right, what they did was excessive.

And what they essentially said, is that if there is volatility beyond a certain amount,

and people cry uncle, we will not allow the markets to sort themselves out in an orderly way,

we will step in. And that’s what you know, again, what we just talked about the central bank put,

in this case, the Fed interventions, and these interventions really pervert a market because

you don’t know what’s going on. And that has huge ramifications in the real economy. So,

Nick, if you just throw up this chart, the the thing that is really important here,

and what this chart shows is essentially all of the hiking cycles that we’ve gone through since

1983. So 8387 894 9904 15, and the current one. And here’s what I just want to call out for you

guys. What’s incredible is that other than the one in 83, so this is sort of like, you know,

that last big one. What we’ve seen is that the stock market has a tendency

to immediately go to the conclusion very early on in a rate hiking cycle. And now why is that

important for normal folks listening to this thing? Well, the reason why that’s important

is right now we’re in month seven of a cycle, we obviously don’t know how long it’s going to be.

But the odds are improving every day that we’re near the end versus the beginning.

And why that’s important is again, if you’re thinking about when to, you know, buy equities,

for example, this is a really instructive guide, because what it tells you is the closer we get to

the end. Or more importantly, the closer we psychologically know that the end is coming,

we start buying and that and that’s just a broad based statement that has been true. So you know,

what you see right now, I think is really interesting, which is that despite all the

bad information, oh my gosh, the Nord Stream pipeline blew up. Could it have been sabotage?

Was it the CIA? Was it the Russians? Oh my gosh, big tech is slowing spending and firing people.

China’s in a coup. I don’t know if you saw that rumor. Yeah.

How about something more benign? You know, the the US, you know, US yuan is really trading in

a crazy way. The US euro is trading in a crazy way. The US pound is going crazy. Despite all of

that. Every time we trade down, the market consolidates very quickly. And we sort of like

so I think we’re forming a bottom. I do think that Stan is right, we are going to see a hard

landing recession, something will break in 2023. I hope it doesn’t. I hope it doesn’t affect a lot

of normal people. But it’s likely but at the same time, define hard landing. So I’ll tell you in a

second. But at the same time, I think what’s happening is in the equity and financial markets,

we are consolidating a bottom because we’re seeing through to that end state.

And this is where cheap equity gets bought. So why is there a reason to sell now? I think a lot

of the people that are selling the smart money sellers that I talked to are essentially right

now selling to book in capital losses to offset other capital gains from this year, a term that’s

called tax loss harvesting. And so if you have gains through this year, which some of us do,

this is the great moment to just sell the losers to book the loss to net it out so that you can

minimize your taxes for next year. That’s probably I think where we are at. And I think that’s why

they’re still consolidated buying. So what is the hard landing Jason, if I had to predict,

I think what David said is absolutely right, you’re going to see unemployment, get to an

awkward and uncomfortable number. Five 6%, I think could be something that we see.

And I think you’re going to see a lot more companies pull way back on their spend,

because demand is going to really modulate. Oh, you know, I’ll give you a crazy example.

You know, what happens to all the people in the United States that are on arm mortgages,

right, adjustable rate mortgages, when those things reset, they’re going to reset to 300

basis points higher, their monthly payments are going are going to go nuclear. It’s already

happened. I literally had a family member call me about this. And they were like, what do I do?

So in the UK, yeah, in the UK, 40% of all mortgage dollars are interest only arms

that will reset in January, to around 4% 40%. Can you imagine how upside down the UK economy

is going to be when people have to spend three and four times more to keep and then people have

to go to work. So people who have not been participating are going to have those bills

come in, and they’re going to have to go to work, they’re going to have to go to work.

Yeah. So free bird, what do you what do you think? hard landing here? And then what do you think 2023

looks like in that regard? It’s looking pretty bleak.

Do you buy that we’re bottoming out now as Chamath is sort of hypothesizing?

I mean, I’ll tell you. I was running some back of the envelope math.

You know how much debt there is in the world? Take a guess.

200. A couple 100 trillion. 200 trillion, about 300 trillion. Yeah, that’s debt

owed by governments, businesses, and households. And if in response to the inflation, which is

response to fiscal stimulus, which is a response to the entire economy of the world shutting down

for a couple of months, we end up raising rates from zero to 5%. That’s a $15 trillion of annual

debt service, which is like 18% of global GDP. Like that, the debt service alone. But what does

that mean? That means that for every dollar transacted? No, no, no, no, no, no, no, no, no,

every dollar transacted. No means nothing. No, it means you have. What does it mean? Like, so? So

what? So I’m saying that there’s a massive squeeze hat, that’s gonna happen, right. And so what ends

up happening ultimately, is because you could run this across local governments. I think it means

demand destruction. I mean, sovereign debt. Households. Yeah. No, no, I’ll tell you. I’ll

tell you about what it means. I’m sorry, but it means nothing. And I’ll tell you why these people

you can print more money, you print more money, I’m sorry to be the bearer of bad news. But like,

it is not as if we have a law, a constitutional law, or it’s not as if governments have

collectively decided that you cannot have debt to GDP above a certain number, that doesn’t happen,

guys, we passed 100 under Obama, and we’ve just kept printing money. So whether we like it or not,

and I’m not saying I’m a fan of this, or it’s right, we are kicking the can down the road.

And what we’re doing is we’re extending the maturities, you know, you’ll eventually have

hundred year government bonds, okay, just like you have, like now, you know, multi decade long

corporate bonds, we missed a chance for that. We missed it. Because brilliant Yellen actually said

no to that, when when rates were like near zero, and we had the opportunity to refinance the US

government debt, what using long term rates, basically long term bonds. And actually, it was

Trump, who, you know, crazy Trump, who suggested, let’s basically shift the debt to 100 year bonds.

And she said, No, so we value the dollar, right? So the problem is that we have all the short term

debt. And look at what just happened in the UK, when Liz trust tried to prop up the bond rates by

basically intervening, she was basically an inflationary policy to fight inflation,

the markets puked all over that. And that’s when they’re the pound hit, you know,

exactly. There’s only so you have to have a buyer of the debt, right? I think the list

trusting is really actually a microcosm of how, unfortunately, Western governments are working,

but I think there’s a silver lining, like, she basically came in a day after she got elected

and said, Okay, guess what, guys, at the same time, I’m going to massively cut taxes, and I’m

going to give you fiscal stimulus, I’m going to cap your energy bills, and I’m going to have these

huge transfer payments from the government into the hands of British citizens. I’m not going to

comment on whether that’s right or right, right or wrong. But the financial markets to your point,

David absolutely hated it. And within a few days, you basically saw the pound get crushed.

But then what did you see? You saw the Bank of England decide that financial stability was more

important than financial viability, meaning the things that she wanted to do were not viable.

So you could have let the financial markets sort this out, which would have forced the Prime

Minister to basically abandon the policy. But instead, the BOE said, Now, we’re an unlimited

buyer of UK guilt, which is the name of the UK bond. And everything snapped back, we’re back to

where we were before her speech and before the Chancellor of the exchequer speech. And so it’s as

if nothing happened. And that’s what’s so insane to me, which is that even though the Bank of

England, by the way, in the next week or two, we’re going to raise rates 140 basis points,

140 basis points, almost double what the Fed has done the last three times.

They’re doing both at the same time, they’re both raising rates, and they’re acting as a backstop for

bad policy. And this is what’s wrong right now in the world, we do not have a real check and balance.

So my point to Friedberg is just that I’m like emotionally on your side. But the problem is,

with these folks keep getting bailed out, David, they’re just going to keep doing this stuff. And

there’s no end in sight. Well, the the consumer doesn’t get bailed out. So that if you look at

it on a micro basis, instead of a macro basis, you’re correct, these governments will just bail

people out, even if they make bad decisions, as we’re seeing. But then the person who’s variable

interest mortgage just kicked in has $500 less a month in savings. So they’re now not going to buy

an iPhone 14, they’re not going to upgrade their car every six years, they’re going to do it every

eight years. So the demand destruction that’s happening is going to be quite severe. And that’s

going to reduce money, then monetary velocity. And then we restart mark my words, the Federal

Reserve will intervene. This is why I think we’re in a bottoming process. I think the the bleeding

edge of the smart financial actors are actually on Saksa side and Friedberg side. But then they’re

taking that next intellectual leap and saying, Okay, well, what happens when Apple basically

says, Hey, guys, I’m gonna have to fire 15% of my employees. I think what happens is the Fed

intervenes. And I’m just using Apple as an example. But there is a threshold of demand

destruction, Jason, I think you’re right, where we have the Fed put come back on the table,

and the markets just go bonkers. So they instead of doing 75 basis points, two or three times,

they’re just gonna be like, 50. We’ll slow it down. No, no, no, no, no, no, no, no, they’re

gonna they’re gonna get to four and a half very quickly. And then this something’s gonna break,

like all these guys are saying, I think they’re right. And then the Fed put comes back on the

table. And we’ll have this, we’ll have the UK, you know, the UK thing happened in what six days.

Ours will play out over six or nine months. But it’s going to play out the exact same way.

And Friedberg’s right, you know, we should have capped debt at, you know, 100% of GDP or less.

And Saksa is right, we should have issued 100 year bonds and zero rates when we had the chance.

We didn’t do either. So incompetent sex. I mean, there was no need to have rates this low for that

long. And maybe they could just keep them at some average number, instead of going down to zero,

or that spiking back up and just steering, you know, spitting the steering wheel, you know,

so violently, why don’t we have some basic concept of maybe not having zero rates and keeping them at

2% or something reasonable. So you have some dry powder?

Well, if you go back and listen to what the Fed said, and drug makes this point,

they were all worried that they got there was an inflation print a few years ago,

where it was at 1.7%. And they all started panicking about not being at 2%. So for a

0.3% move that they tried to engineer, they opened the floodgates. Okay, and that’s basically what

happened. And that’s why he’s so critical of it. The other thing is the Fed, remember the Fed said,

we’re going to be data driven. But then the data came in last summer, we got that surprise 5.1%

print, and they dismissed it as transitory. So they said they’re going to be data driven,

but they weren’t they they were dismissive. Now, on what basis did they conclude transitory? Like,

what was the proof for that? There was no proof. That was a political consideration.

The administration and me and Yellen is big part of that immediately reacted to basically downplay

the news. I mean, they PR did I mean, they didn’t want to admit there was a problem.

They went from transitory to this is permanent to now six months, but during and now we’re at

hard landing. Like, right, these people are not competent. Are they just not competent? No,

I think they’re really I think they are competent. But I think that they’re a little bit fighting

with one hand tied behind their back. I think if you had to take the other side sacks, you know,

the problem is they have a very specific strain of data that they focus on. And that data has all

these weird anomalies to it. Like, you know, they should look at rent data. But the way that the

rent data works is that, you know, you bleed it in one sixth a month over six months, just as an

odd example, or like use car data only comes in a certain way. So I think they’re driving in the

rearview mirror. I think there is something to that. I think it’s simpler than this, which is

listen, I think all politicians do this, which is when they get bad news, they want to spin it.

And they’re going to delay acknowledging the bad news as long as possible. So what happened last

summer, when this inflation started, they all dismissed it, it was all a talking point. I mean,

every single one of them. And here’s the crazy thing is J. Powell, he’s the only Trump official

who got reappointed by Biden by a huge majority. How do you think that happened? And when did it

happen? It happened at the end of May last summer. So just when this inflation print came out,

and Yellen and the administration were saying it was transitory, that’s when Powell was up for

renomination. And he swept through the only Trump appointment to basically be renominated

without even a question by Biden. Why? Because he got on board the talking points. He wasn’t

going to basically buck them at that time. So he waited six months, he bought into the talking

points. That was 100% political. I told you, I read Paul, it’s a very compelling argument.

It’s really compelling. It’s really it’s sad, but compelling.

Sachs, you should read the Paul Volcker book Keeping At It. He basically says Reagan

came to him off site where they knew they weren’t recorded and told them do not raise rates. So this

idea that the Fed is independent, like history now has shown us it is not like the there is

massive political pressure on them. I think especially at the time driving in the review

mirror, clearly, the data they have is not great. And then all this data is nuanced. You know,

jobs and this massive amount of jobs we’ve had in this country is because of you, we have a new

immigration policy, we don’t let people into this country, we kick out PhDs that we trained.

And then housing, we have I buyers buying this. So to your point, Jamal, I think a lot of the data

has changed. And they’re, they’ve got a bad data set, they have a bad dashboard, and they’re

driving with bad information. They don’t know their direction. They don’t know their speed.

Perfect. If you went more fidelity on the data, you’re right. If you went to a board of directors

meeting for your company and said, How’s the business doing? And the CEO says, Well, you know,

well, we’re going to have data from six months ago. And it’s like, Okay, I got that. But what

about like last week, you would fire that CEO to your point, Jason. And these things are knowable

today. Like there are businesses, for example, that are selling billions of dollars worth of

like IoT sensors here and there energy sensors here, everything is connected to the internet,

everything is automated, everything is running in code, you would think that the government would

say there’s a national level directive here, to get this into some kind of a system that we can

use, because these decisions are becoming more and more important. I think that would be a wonderful

idea and a project and what had huge value. A Manhattan project for understanding the economy

on a very granular level, we you invested in a startup at one point, I remember I heard the pitch

where they had people around the world taking pictures of food prices, Africa, India, the United

States anywhere, and then putting them into a database normalizing them. So you could know the

price of tomatoes or potatoes on a global basis, you know, and normalizing all that data, they don’t

seem to have this data there. They’re talking about August data. And it’s, you know, we’re now

in October. It’s a really odd situation. I think, you know, our friend, backers are made this point,

which was that, look, in this last FOMC meeting, the Fed raised their forecast for what the neutral

interest rate would be from three and a half to 4.6%. So in two months, they raised their forecast

by over 100 basis points. What is that based on? Like, is there a model? I assume there is a model,

I assume there’s data. So why don’t they just open source that? Why don’t they let the markets,

like see the model they’re using. So we have a little more predictability. Of course,

they always have the discretion to bucket or not follow it or whatever, or change it.

But like, you know, wouldn’t that be a better approach is to like, let us see the data and

the models in real time as it’s happening. And then the community, like like an open source

project could actually, like fork the model and actually create like better ones.

Well, to your point, to your point, like there’s the the Fed is actually known as the gold standard

of transparency. So the IMF has kind of like a view and how all these central banks act last week,

they actually excoriated and this is good. This is hurts me to say Canada, because of their lack

of transparency. Apparently, Canada doesn’t even put out minutes. And so they were like,

hey, Canada, you, you guys like, yeah, and you know, Canadians are I mean, the Canadian government,

at least like total moral virtue signalers, but they don’t value transparency, apparently.

But to your point, David, there is a lot of opacity in these things that really determine

how the real world works and the impacts to individual people are going to go and get

ratcheted way up. And nobody really knows what to expect, even though the data is there,

sitting in plain sight. I think two things can be true. I think

the Fed, the process of setting central bank rates by the Federal Reserve

should be reset. I also think that it could be true that the Fed is not responsible

fully for a lot of the conditions we’re now facing. We did have a bunch of policy decisions

that the whole world got swept up in and seemed to accept as appropriate at the time when we

shut the global economy down. And there was some weird assumption or belief that fiscal policy

would allow us to soft land or recover out of that. And at the end of the day, all that fiscal

policy did, and I remember I was speaking with a smart person at the time, and he said,

all the Fed’s going to do is they’re just going to inflate everything. And it’s going to take a

while and everything will inflate. And that way, everyone will feel good for a while.

But you can’t just stop the spigot of capital moving, goods moving and services moving

for months on end, and assume that the repercussions will not actually be felt extremely

harshly. And at some point, things are going to come home to roost. And that is what’s happening.

There was no winning solution for the Fed, or for any central banker. In light of the policy

decisions that were made to shut the global economy down, when COVID began, not to argue

whether or not that was appropriate, but that was simply a statement of fact. I said it before.

And I don’t understand if you were to take a first principles point of view on this today and say,

hey, let’s create a central bank and how should it operate, you would take all the data from

Intuit, from PayPal, from Visa, from MasterCard from the internet, you would take all of that

data, you would let the algorithms or the AI or the software figure out what is most predictive

of certain inflationary recessionary, totally, and growth indicators, totally. And you would

basically say, look, x percent growth, x percent inflation, solve for what the central bank’s

interest rate should be. And it should vary at 100% of a percent or a basis point every day.

And every day, the rate is reset, and the software resets it. And to have, you know,

some degree of human logic or oversight seems appropriate. But to have a decision made in

quarter percent increments, once every couple of weeks, seems seems kind of arcane. So I think both

things are true. The Fed isn’t necessarily fully responsible, we all want to point fingers,

you know, we can point fingers at the, the mania that swept over the entire world, when we started

our podcast, and everyone was like, what the hell is going on? Why are we locking down the world?

And this is nuts. And it felt nuts. And the response may or may not have been appropriate.

But at the end of the day, there was a cost and the cost is going to be born for very likely a

decade or more if we are able to get through it all. A lost decade is a possibility.

And central banks would be rewritten. So yeah,

well, I think there’s actually two original sins of the economic crisis we’re in. One is lockdowns.

You’re right. Like that was a fiasco. It didn’t do anything to stop COVID. It was an economic

disaster. And then we overreacted to lockdowns by then printing all of this money, both fiscally and

through expansionist monetary policy. So Freeberg is right about that. But I think the other original

sin here is the the QE and the ZERP, right, the zero interest rate policy that began in 2008,

2009, we broke the glass in case of emergency. And then it just became standard, like it was

on autopilot. Why did we keep printing? Why did the government keep buying?

It was a long tail event that became the meme.

The problem is that every time government is a bad idea. I mean, it’s just yeah, Milton

Friedman once said there’s nothing quite so permanent as a temporary government program.

How many times have we seen this? Every time the government supposed to do something on a one off

emergency basis, like ZERP, it ends up becoming institutionalized. We still have kids in schools

in California wearing masks. I mean, that it’s the same crazy thing that people cannot get off

these programs. The thing about ZERP, which if you look back, what really happened, if you think

about like how people live their lives every day, what what what has happened in our view of

government and politicians, it’s really eroded since 2007 2008, right? There’s huge amounts of

rancor, nobody gets along, everything tends to happen on partisan lines. And the reason I think

that that was allowed to happen or that accelerated is actually because of ZERP. Because if you think

about it, if you had failed policy, right, and the economy was completely broken, politicians would

actually have to get together and try to solve the problem themselves. And the last time they

really did that was actually in the great financial crisis. If you look at TARP, and if you look at

how all of these smart people actually had to get together in a bipartisan way to figure out how do

we bail out America and prevent a banking crisis, that was the last real effort that touched a lot

of people. But then David, as you said, at the on the heels of that, we broke the glass. And we’ve

been fighting ever since. And the peak of that fighting was basically Donald Trump getting

elected. And so I think like what it shows is that if you have these irrational central bankers,

that will are that are willing to constantly bail people out, you will never get a high

functioning government because policy is irrelevant. Good policy doesn’t matter.

I think policy doesn’t matter if any of it goes wrong. The central banker will come in and bail

us out. Well, and the second and third order impact of these is can become quite acute. And

just for people who heard the word surf, like three times zero interest rate policy, basically

keeping interest rates very low, very dangerous to do, because you get shit like this, like,

look at the number of unemployed people per job opening. And if you just look at this,

like ratio, this is the number of jobs per unemployed person, it gets way out of whack.

And then if you look at this other chart, just in terms of the total number of job openings,

you know, we started we talked about this earlier in the pod, hitting 11 million to burn that office

crazy, then what happens if you have too many jobs, you don’t let immigration you don’t have

a functioning immigration policy? Well, then you get this great, you know, people quitting their

jobs, quiet quitting, and then the boomers saw their net worth go up so high because of their

retirement accounts because of the stock market boom. And because of the housing boom, you had

all these rich parents now who are bailing out their kids who refuse to go to work and labor

participation goes from 70% down to 62%. These are the unintended consequences of Zerp that,

you know, now, how do you get a generation to go back to work? If their parents have, you know,

a $2 million home, and 3 million in stocks or a million dollar home, you have to break the economy.

Yeah. And that’s what they’re doing. We’re gonna break this we’re gonna we’re gonna get Google and

Apple who have unlimited cash to do a riff. Those companies don’t need to do a riff. They’re doing

it because they have no choice now. Because they want to break the economy so hard boomers have

71 trillion in assets over March. I mean, the wealth transfer that’s going to occur between

these two generations is crazy. Why would any us extra millennial with a boomer parent even go to

work if they’ve got a million US boomers have $71 trillion in assets? Is that what you said?

Yeah, yeah, that’s the number I have here. So an entire turn of global GDP

in savings. That’s about one seventh of the world’s total assets. It’s just a lot of locked

up well. And this monetary policy was done by boomers 70 trillion controlled by 76.4 million

people. Yeah. So if you want to really talk about the, you know, the rich, in a global context,

the rich are very specifically us boomers. Yeah, that’s one seventh of the world’s one

seventh of the world’s assets. It’s controlled by 76 million people.

How much of it is their homes?

I mean, they were they were at Woodstock, they you know, they live the best life in the best times

they enjoyed the most of the peace dividend in the 80s in the 90s in the 2000s. They are the

ones that control everything. It’s pretty crazy. It’s I think it’s less like Jeff Bezos and Gates

and Musk. It’s boomers that if you want to go and really zoom out and get it right, it is boomers.

It’s 1% of the global population that controls one seventh of the global wealth.

And they’re all in the US boomers hiding in plain sight, us boomers. There you are.

Well, once these housing prices decline in the stock market declines, that number is going to

shift. And that really is what’s fundamentally happening with the fiscal policy and the effects

it’s happening today. It’s having today, which is a redistribution of that value, because we’re

basically deflating all those assets. Now we’re deflating the average boomer assets, and we’re

going to deflate real estate assets. I mean, if you just do the math on that back of the envelope,

these boomers are worth a billion $1 million each. Like, think about that. Like every boomer

is worth 900k a million something in that range. 1.2 million. I mean, it’s bonkers. That’s the

average. That’s how much wealth they have. bonkers. You you two are a boomer. Jk. No, we’re jacks.

We’re Gen X. We had the worst we had the we had like we got really shafted. It’s like we you know,

we grew up with flannel. We we have a channel and it’s Morissette Alanis Morissette. Hold on.

Smashing pumpkins. I mean, 93 was probably the best year.

Smashing pumpkins ever did it for me. Billy Corgan’s voice was always like,

Yeah, it’s great. Really annoying rage against the machine. Can we do a quick shout out for

coolio? Sad to hear that he passed. We’re here for you. Yeah, I mean, it was really sad. The guy

was how old was he? 50? Were you a big fan of coolios? I love his coolio story from the pod

when he said gangsters paradise. I feel you. Yeah. And then when I saw him at Saks his birthday last

year, I was like, dude, I love coolio. I mean, I cannot tell you what a big fan I am. What was

the line you said to him? You said I feel you. I said I appreciate you and appreciate you.

Yeah, I appreciate you. We fly down for the birthday. You know, they shuttle you on the

cars from the plane to the to the house. We get to the house. And you know, we’re all waiting.

Of course, Saks is late two and a half hours to his own party. We’re all hanging out starving.

But then we go into the party. And then they have like coolio shows up. So we’re like sitting down

to dinner for course to all of a sudden pop comes out of the woodwork coolio I lose my shit.

I run up on the coolio fan. The dance floor. I grew up coolio like it’s like high school

jams, man. I mean, that’s like in the car cruising. And at this point, I’m like seven

tequila watermelon tequilas in so I’m like, Oh, my gosh. I’m on the dance floor, you know,

jamming out to coolio. I think coolio thought I was Saks, you know, because he’s like, yeah,

he’s like, Oh, two South African Jews. You guys all look the same. Coolio comes up starts

high fiving me and hugging me. And I’m like, What’s up, coolio? Oh, my God, this is like a

dream come true. He’s like hugging me. His face is right next to my face. I didn’t know what to say.

And I like I’m I’ve had a little bit of tequila and I whisper in coolio’s ear. I’m like, Oh,

no, I appreciate I appreciate you. I didn’t. Oh, my God.

I think I saw Friberg throw his panties on stage too.

You are such a nerd. I don’t know what to say. I mean, what do you say?

Well, clearly, you don’t know what to say.

Yeah, my team, my team and TPB, they had a cameo made for me that coolio sent in.

It was super heartfelt and awesome. Saks posted it on the internet, I think.

Yeah, I retweeted it.

Yeah, retweeted it. And it was I don’t know, man, it was he was he was actually a super nice guy.

Great guy. And it was super sad.

Yo Dave, it’s your friendly neighborhood coolio, bro.

I’m out here on the golf course thinking about you.

I appreciate you, man. So I want to wish you a very, very, very happy birthday, man.

You feel me? I want you to drink good. I want you to smoke good.

I want you to eat good. I want you to have some fun, bro.

Go big, do it right.

Yo Dave, happy birthday, man, from coolio.

Shaka zoom, man.

Well, all the stories are coming out now and not your experience was not unique.

He touched everybody he met. Literally, he’s college kids were like genuine, very kind, like

yeah, he was a real super friendly and like, you know, and and like wanted to ask about you.

I mean, it’s like a very like, I could have been a politician if he didn’t become a

music music superstar. And I guess he looked incredible.

He looked like he was 25. I mean, he literally went to these college kids met him.

He went to their like, you know, frat house. He cooked them dinner.

And then he got a guitar out with them. And he sang Gangster Paradise with them.

And he like orchestrated it with the crowd singing or whatever.

He was accessible. Then there was a video of him in Dublin on the bar singing.

Can I just say something to I’ve given the message?

Before? Yeah.

Before, but like, you know,

take care of your health, you know,

take care of like, there, there, there are these incredible drugs, I just want to call out

health as well.

If Lipitor, for example, or Crestor, or these statins are not working for you,

there’s this next generation kind of drug called the PCSK9 inhibitor, which essentially is

effectively a gene therapy that’s modeled after this very specific group of folks in the Nordics,

I believe, who actually have effectively immunity against heart disease.

And so it’s taken 20 years to refine this drug. But this drug is a wonder drug. And you know,

there are versions of it now that are injectable, you know, once every six months or whatever.

So go and ask your doctor if you’re not if statins don’t work for you look at the PCSK9

inhibitor. And then separately, after you’re 45 or so, you should get a CT angiogram.

Because these things are really important, or you know, a heart flow,

where they actually inject a dye, they characterize all your veins, they give you a calcium score

may not prevent this, but at least if it’s if it’s something cardiac related,

you can get to the bottom of it. And it’s a knowable thing nowadays.

Yeah, rest in power to our friend. And yeah, take care of yourselves, your health.

And speaking of health, shout out to Gwyneth Paltrow, GPAL, who, in her goop newsletter

pointed out that she loves the all in pod, and has to be honest, she’s obsessed with

the personalities a little bit. Anybody want to handicap that?

Listen, let’s be honest.

One.

If you want to live in health after a meal, the best thing to eat is a little dark chocolate.

Do you get your dark chocolate from goop? Do you have goop dark chocolate?

Jason, I was trying to make a story where I am the dark chocolate where I’m saying that

I am her favorite personality, you fucking moron.

So you’re handicapping that you’re her favorite. She said she’s obsessed with

plural. I’m gonna I’m gonna where does she rank her besties? I need to know.

I’m gonna rank as Friedberg.

Oh, really? You think that makes that sound? Yeah. Okay.

Then me, then you. Okay, I’ll take it. The fact that

Gwyneth Paltrow even understands like who we are is a win in my book. So I’ll,

I’ll be number four on her list. But GPAL, if you could rank the besties in your next newsletter,

that would be appreciated. And we’ll we’ll take your besties.

GPAL. All right, Sachs, you want some red meat? You I saw you wrote a piece. You want your red

meat? Should we throw it to you? Yeah, yeah. All right. Well, I mean, I think we we need a

Ukraine update because I mean, we’re talking about all the reasons that there could be a

silver lining or the markets bottomed out. I don’t think you can know for sure the markets

are going to bottom out unless you know that there’s going to be a successful resolution of

this Ukraine war, at least a non escalation of it. And all the things that have happened in the last

couple weeks have been on the road towards escalation. Exactly. So in the last like just

few days, you’ve had Zelensky saying that they want to be admitted to NATO. You’ve got Putin

basically annexing or saying he’s going to annex the Donbass. And somebody we don’t know who but

according to Radek Sikorsky, who’s the Polish foreign minister, he think the US somebody blew

up the Nord pipeline. So what is the common denominator? They say was blown up? Was it one

or two was this? I think it’s Nord one. So it’s the one that was actually like working. What is

the common denominator of all these things? They’re all eliminating key elements of what a peace deal

would look like. So everyone understands that a peace deal would require Zelensky to give up on

NATO, it would require Putin to make some compromises, likely in the Donbass. And it would

require the sanctions to be lifted and the energy flows to be turned back on. Well, so now those

things basically have been removed from the table, or at least potentially, that’s what’s happening.

So I don’t see how you’re going to get a peace deal now. And so if you remove all the off ramps,

what’s left escalation? Well, to me, this thing’s just going to keep escalating.

I thought you wrote a good piece in the American conservative should America go all in on Ukraine,

if you haven’t read it, it is 80% of rehash of what we’ve talked about here for the last year.

But there’s 20% new in it, I think. And I thought what was interesting, in terms of new stuff you

put in the piece, and it’s a good summary of, you know, poker strategy versus what’s going on here,

is that we’ve already proven, you know, if you did want to prove that Russia is not a threat,

with the exception of their nuclear, we now have proven that they’re really not going to be able to

do a domino and go into all these different countries, with the exception of obviously,

the threat of nuclear power. So I thought that that was a point. Yeah, what I was really

responding to in that piece is the assertion by the media that Putin is bluffing. How do they

know that? You know, how do they know that, like, you know, I think all of us understand poker

pretty well. And none of us ever would have the confidence to assert that we know exactly what

cards our opponent holds in any given hand, and how exactly they’ll play them. What do we do? What

do smart players do? We put our opponent on a range, a range of possible hands of possibilities.

And then we evaluate, what did their previous actions tell us? What story are they telling

through their previous actions? Well, what story has Putin been telling? This is not

a guy who bluffs, in my opinion, or at least that is not the story.

You think there’s a chance he would pop off a tactical new, it’s a nonzero chance.

I think if that if his life is on the line, he is incentivized to use every weapon at his disposal

to try and prevent his violent life isn’t on the line here, he can he can back out. Yeah,

but where’s this thing headed? If there’s no compromise?

I think they you know, I’m going to stick with my original prediction that we wanted to

ankle Putin, we wanted to prove he didn’t have, you know, as much strength as he did. And we

wanted to exhaust his resources. So we could finally basically get him out of office at

some point. So I do think regime change via exhausting him. And I think it seems to have

worked. We have exhausted. You’re agreeing with me. I agree that we have exhausted his I mean,

he’s proven he can’t fight a ground war, right? I mean, that that’s a pretty

Oh, he’s escalating. Now. He’s escalating. You think he’s gonna roll over? He’s not gonna roll

over. I think he but I think what we’ve proven haven’t we is that he can’t fight a ground war

effectively. He doesn’t have the army. He doesn’t have the weapons compared to the West. And he’s

been exhausted, you know, and I think his he’s spent now. The only thing he has left is what

you’re talking about is the nuclear option, literally, no, no, well, no, there’s, there’s

more intermediate options. First of all, he’s just called for the, the mobilization of 300,000

more troops. So that’s step one. People are leaving the country. Yeah, exactly. Look,

there’s gonna be very high costs on the Russian side. Yeah, they’re gonna be very high costs on

the Russian side. I would not assume that means that there’s something in it for us.

So what I’m saying is, even with this, you know, the the conscription he’s doing this draft,

he’s doing forced draft. I mean, he is kind of redundant. But this conscription or draft,

whatever you want to call it, has proven that he doesn’t even actually have the standing inside his

own country. People are leaving, they’re breaking, they’re looking about to break their arms. Like

it’s, it’s pretty dark. I think you’re making a lot of assumptions there, just like the media

who are saying that he is definitely bluffing. What I’m saying is, we cannot know that he’s

definitely bluffing. Now, the United States of America is blessed with being the most safe and

secure country in the world, and really in human history. And the history is full of humans

constantly being at war with each other. So that is a really valuable thing that we have. Why are

we so secure? We’re surrounded by gigantic oceans. We have these gigantic moats. In addition, thanks

to the wisdom of the Monroe Doctrine, for 200 years, we have prevented any great powers from

getting a foothold in the Western Hemisphere. We are completely dominant here. And no one could

ever stage an invasion of the United States. We only have one vulnerability, just one ICBMs.

That’s really it. So what are we doing? We’re basically engaging in a proxy war with the person

in the world who has the most ICBMs. And we are basically putting ourselves on an escalatory path

with him. This would be like if Achilles had gone in front of the walls of Troy and basically taken

off his armor and stuck his foot in the air and drawn a little bullseye around his, his heel.

That is what we’re doing. Why in the world? Why would we do that? Why would we do that?

If they are the last real threat, and they are the Achilles heel, if we can,

they’re not the last threat. They’re not the last threat. We’re never going to be out of threats.

Okay. Well, we got two major ones with ICBMs. But anyway, it looks like we’re in the endgame. Now,

what do you think happens here? We’re not in the endgame. We’re on a path towards escalation,

because all the off ramps have been removed. That’s my point. And instead of saying instead

of trying to find a diplomatic solution, first of all, we keep removing off ramps, and then we

blithely disregard the threat to ourselves by saying he must be bluffing. This is incredibly

stupid. The better question to ask is, hold on a second. The better question to ask is,

what’s in it for us? What’s in it for the United States of America? What is the vital interest

that compels us to risk our security? There isn’t one. This Donbass region, hold on,

this Donbass region is the Franz Ferdinand of this situation. It is not historically

important to us. We have invested in it all of this importance. And we are potentially

turning a regional war into a world war. We are sleepwalking towards this. Unless somebody finds

an off ramp, we are escalating our way into a much larger conflict. That is my point.

And I don’t see how anyone I don’t see anyone should reenter the markets with this geopolitical

risk hanging over our heads. Yeah, this is kind of like what I said a few weeks ago. And JP Morgan

put out an analyst report today saying that they were shifting from being, you know, call it roughly

positive, sort of like Chamath’s point earlier about being a little bit constructive in the

markets right now and coming in and finding opportunities to buy to realizing that the sum

of the portfolio of tail risks right now, you know, outweighs the upside that may arise from

finding these low priced opportunities in the market. And that seems to be the prevailing

market sentiment right now, is that there are too many of these moments that while each one of them

is low probability, the impact is of such high severity that the aggregate value, expected value

or expected loss of all of them is actually quite significant. And that is heavily weighing on the

market. And so to Chamath’s point, I think and to the question earlier about market conditions,

one catalyst for upside in the market while there is fiscal strain and economic strain and growth

strain, there is also this geopolitical strain in the market. If one or more of these things starts

to resolve, I think that weight starts to come off the markets. And you can see Oh, yeah, look,

I can see the market taken off like a rocket if Ukraine gets resolved. And I do think you’re

right. It’s all fat tail risk. That’s about to get resolved. I think that can potentially be

the political motivation here, which is that enough people like Chamath and you start making

the calls to your representatives pointing out how strained the market is because of this tension.

In the region right now, that maybe there is some path to resolution that becomes more active

rather than passive. Because this may be a little controversial, so we can talk about it. But I

think that the markets would have reacted much, much more negatively to a nuclear incident three

months ago, than now, and may not even react as much as we may think it would three months from

now. What do you mean by nuclear incident? You mean a nuke goes off or just a threat?

You’re saying if Putin blows up a nuke, the markets may not react that much.

I think that the markets are basically ring fencing Russia, Ukraine risk in terms of

currency instability, but that’s sort of now gone away. We’ve ring fenced the energy risk,

because it looks like energy reserves in Europe are actually going to be pretty meaningful,

they’re going to spend whatever it takes. So all of the second and third order effects,

it would be a humanitarian crisis, which would be horrendous, okay. But the markets don’t whether

we like it or not react to humanitarian crises, they react to the second and third order economic

impacts of those things. And if you actually try to think about what the second and third order

economic impacts are, you’re seeing many of those things get solved. And so what it would be,

it would be a highly isolating effect, it would be a humanitarian atrocity, he would be completely

cornered from a from a worldwide perspective. The monetary and fiscal implications of that

may not be as meaningfully disruptive today as they would have been three months ago. That’s

what I’m saying. Well, one thing I should clarify, I like freebirds analysis of the fat tail risk,

because I’m not saying it’s likely that this conflict goes nuclear, but I don’t need there

to be a high likelihood in order for me to be very concerned about it because of how disastrous

an outcome that would be. So if you’re doing an expected value analysis, it’s really hard

to analyze the expected value or negative value of a of a low probability disastrous event,

right? That’s the classic fat tail risk. I do think that if the markets think they have

priced in the effect of this war, then I think that’s an argument for a lot of downside to this

market. Because it seems to me that we’re on a one way ratchet here, all the off ramps for a piece,

or a diplomatic solution have been systematically taken away. And all that’s left are potential

escalations. So no, I hear you. But how did those translate those escalations to outside of those

two countries and into economic terms for the rest of the world? Oh, my gosh. Well, I mean,

if the war spreads here, I’ll give you a couple of scenarios. I mean, well, here’s one, I think

we’re just assuming that China’s going to stay out of it. Imagine if you’re China, and you’re

watching what’s happening, and you’re worried that actually, Russia could lose this war so badly,

that it emboldens hawks in America who want to target China next, you know, who are basically

on this global struggle against autocracy, you’re going to look at that and go, wait a second,

is it really in our interests for Putin and Russia to be completely toppled by this global

struggle against autocracy? It seems to me they could enter the Russian side, not militarily,

but in terms of support. So they would have an incentive, again, not to lose an ally. And then

by the same token, I think the Russians could lash out, I don’t think they’re going to go nuclear

right away. But I think they could pull a Grozny. I mean, don’t you think that

well, when, you know, in the Chechen War, when Russia was losing, they just rubbled Grozny,

I mean, they basically leveled to the ground. So I mean, Putin hasn’t done anything like that yet.

But if he’s facing defeat, isn’t that something that would be on the escalatory ladder is to

basically start leveling Ukrainian cities, destroy key infrastructure, all that. And then what is

the response to the West? Yeah, I know, I know. West may say, you know what, that’s unacceptable

to I agree. No, no, I look, I’m not debating how bad all of these things are. I’m just asking the

question, what are the second and third order economic impacts, because the market doesn’t

reflect human atrocities, we may want it to, but it just doesn’t do a good job of that it does do

a reasonable job of reflecting a discounted set of events in the future related to economic events

and impacts. And all I’m saying is that, you know, the most obvious impacts of this war have

been to currencies to commodities and to energy. And the world has had six or seven months to

reroute what they’ve needed to roughly solve a large percentage of those problems. It doesn’t

take the fact that this is a bad war, and it should end. I’m not saying any of it.

Right, right. No, look, you make you make a good point, which is that look, the market discounts

cash flow. So how did the cash flows get impacted? You may be right that valuation multiples have

gotten close to correction. But I think the thing that we don’t really know is what earnings and

profits and revenues are going to look like next year. And part of that is about the hard landing,

right? Like how inflated are all these companies revenues and earnings because of what I hear you,

I hear you. But this is why that chart is so important. Every other time,

except in 1983, in modern history, so the modern history that we have all lived,

says that the stock market bottoms in the first third of a process. And so if you think that this

process ends in 24, that’s a roughly 24 month process, 21 month process, we’re in month seven,

we’re in the power rally of what would map to the last six or seven patterns of behavior.

Yeah, I mean, I guess you may end up being right about this prediction. I guess what I’m saying is

that I personally would not want to enter the market until some of these fat tail risks are

taken off the table. Yeah, well, talking about nibbling in the market for a second. I’m not

saying they’re likely. I’m just saying that. Yeah, I understand. Obviously, none of us want

this to happen. I’m just asking a very specific question, which is and making an observation,

which is, I wonder how the markets would react. And I, I don’t see it being down 1000 points.

And that may be wrong. But by the way, it’s really shocking to see that. Yeah,

the diversity of views that you guys all share, I think, really represents the market.

There is no you do you have you to you have a view?

Dude, I like what the fuck?

But what is your view? Your is your view that we’re okay, we’re about to just go through the

toilet? Like, what is your view? From an equity markets point of view? Oh, just in general? Yeah,

like to equity markets, your temperature? How do you feel? Like, how do you feel?

Yeah, I’m worried about money not moving. What does it mean? Money not moving? I’m really anxious

about invested dollars, everyone seems. I think I mentioned a while ago that dollars were kind of

locked up in March. And then I went to this conference. And people were like, yeah, we’re

loosening up and making a plan again in July, because the market was kind of turning back up.

And now equity markets are turning down, bond markets have turned down, interest rates have

spiked. And there’s a bunch of these currency problems. So I’m very nervous about the flow of

capital, which I remember happening in a weight. And I remember happening when we were all joking

over text, when COVID happened. And we’re like, hey, the market can only go down 10% a day for

so many days in a row. And everyone was kind of like, you know, Chamath was talking about wearing

jeans instead of he’s like, I could just wear the same pair of jeans for the rest of my life.

That’s true demand destruction. When he started, you said that you’re like,

I’m going out the jeans from like, he was at Mayfield. Yeah. Yeah. He’s like, I don’t need

fancy clothes. I can just wear the same clothes. I have storage locker to pull those clothes out.

Right. That was that was the old for Chamath and Laura Piana on sale. Rent the rent.

You know, the CEO, the CEO of Laura Piana did send me a note after that podcast. He’s like,

is everything okay? The rate of GDP crash? I will tell you guys, the biggest indicator of

economic health is the rate of rotation of Chamath’s closet. Because that is big. He’s

like, you know what, I can take this season off. I’ll just wear last summer’s season. That’s when

I would guess that the rate of rotation of Chamath’s closet is probably predictive of IPO

market. No, I’m you know what, I was I was there last week rotating in I’m rotating in so maybe

that’s a good thing. The economy is about to rebound. I’m ready to take some companies public.

No, no, no, I’m buying I’m buying stocks because I was at Chamath last week, and it was supposed

to be black truffles. And then he jumped the fence. All of a sudden white truffles over my

shoulder. Boom, boom, boom, boom, boom. I was like, Chef, Chef, Chef. Chef, Chef, Chef. All

right, listen for the dictator. The Prince of panic attacks the Sultan of science, the Queen of

keen. Why himself see the Kevin Hart show if you’re in San Francisco or San Jose.

He’s hilarious. And for Montclair, Ambassador, David Sachs, the dictator himself.

I am the world’s greatest moderator and we’ll see you on Episode 99. Love you guys. Love you guys.

I’m going all in. We’ll let your winners ride. Rain Man, David Sachs.

And instead, we open sourced it to the fans and they’ve just gone crazy with it.

Love you. I’m the Queen of keen. Why? I’m going all in. Let your winners ride.

Besties are gone.

13.

We should all just get a room and just have one big huge orgy because they’re all just useless.

It’s like this like sexual tension that they just need to release somehow.

What? You’re a B.

What? You’re a B.

We need to get merch.

Besties are gone.

I’m going all in.

I’m going all in.