November's CPI, preparing for a downturn, macro outlook, Better.com's botched layoffs & more
Full transcript · Read the full conversation in order, with its original context.
§01Segment 1
Actually, the funny story from the from our Basel. So I was hanging with with Jay Kal, and we're talking to people.
Yep.
And for some reason, Jake Hall is being nice to me, and he said to Beeple. He said, do you know who this guy is? This guy is a legend in Silicon Valley. You know, he introduces me. Yeah.
And then I said to Jason, like, you know, this is people. He who just sold, like, $260,000,000, like, NFTs. I'm like, This guy's a legend too. And without missing a beat, Jake Howe says, well, maybe for the next year. Don't go all of you.
The let your winners ride.
Rainman, David Saffens.
And I said We open source it
to the fans and they've discovered reason why
Love US ICE.
Queen of
King Bob. I'm going
all in. Hey, everybody. Welcome to episode
58
of the all in podcast. Yes. The podcast I don't know if you guys have been watching
I'm drinking boys.
I'm drinking. Well, it's a Friday. We're we're filming late on a Friday. You can tell from the backyard behind Chamath that it's the evening and he's cracked open a little something something.
A little little little delicious poops.
Oh, bond? 2002 Saint Eve.
That's a that's a label of bond. Correct?
Yes, sir. Bonds St. Eden
2000 2.
Oh, pretty nice. Thanks for the invite. I'll be right over. Episode 58. Last week, episode 57, peaked at number 40 episodes in the world.
So thank you to the fans. We broke a 125,000 subscribers on YouTube and the pods over there are getting a 150,000 views. So thank just thank you to the fans. A lot of questions about the All In Summit. I went to see the locations when I was in Miami.
We've got the location we want. We're working on dates, and you'll have more information soon about that. So welcome back to the program with today, As always, is the Sultan of Science, the Queen of Kenwa himself, David Friedberg, the rain man. Yeah. He's definitely back from our Basel.
Of course, he went to Art Basel. And I don't know if he bought any art, but I was on his boat with him or his rented boat. Dave Saxon and I were on a boat. And
--
Rent a boat. Well, I mean, he hasn't bought 1 yet, but I think he's moving there. And then, of course, the dictator himself, Shamale Palihapitiya here
--
Shamale.
--
with and obnoxiously expensive sweater. Tell us about Yes.
Yes. Can
I -- Tell everybody wants to use.
--
was killed to make that.
What -- -- was killed for that horrible Ernie sweater.
This this is a collection -- Oh god. -- of the foreskins of some Oh, I'm not. No.
I'm out. I'm out. I'm out. I know.
I mean, it is incredibly soft and smooth.
I literally got a complaint.
Like like Four skins are.
Oh, gosh. But I'm
just really going into bad territory. I literally got a complaint. -- and Saxx are like, what are they talking about?
I literally complaint on DM about Shamak's conspicuous consumption of his sweaters? And they and she was like, listen. I don't mean to tell you your business. but I think Shamoff is turning off the audience with these -- --eners.
Was it an angry mid level white? It was white, but a very extremely successful one.
I'll leave it at that.
Anyway -- Really? Yeah. Really? They would just be served. They were glad.
Every week, really? Really?
We have to go through a Tremont sweater.
Does she pay does she pay attention when I put in $700,000,000 a year into climate change? How has she put in that much with the shitty sweaters?
Okay. Listen enough.
Give him 2 more. Give him some more wine. Someone texted that.
It's gonna be one of just -- It's
--
Just checking. If we're if we're gonna if start moral virtue signaling over here.
Alright. Well, there's a we got a lot to cover. I mean, this is just absolutely crazy.
We're gonna take a glass of wine real quick. then roll into the show. This is this is going -- The show
is gonna go off the route. I've already lost control
of the show. Alright. We gotta start with inflation and the economy. While Saxon and I were in Miami for art Basal, there was an absolute panic going on 2, 3 in the morning. People checking their Robinhood and Coinbase accounts to figure out how much they had lost in their crypto holdings.
But today,
I lost more in the Robinhood stock than I have in the Robinhood app.
That's too soon, bruh. Too soon for me. I'm about to distribute I'm like, do I distribute now or wait
first first? Nothing has been a stone syncing to the floor of the ocean.
Well, I mean, it's pretty crazy. -- found. No. I mean, listen. 17, $18,000,000,000 in pretty great valuation right now.
I think it's an opportunity for people. But I'll leave it at that. Let's talk about inflation inflation. But we're
not dispensing stock advice. We're not stock advice, but I'm
not selling any of my shares. I'm telling you right now.
Before I distribute Square
stock and mark my capital gains, I'd like to advocate to be blocking providence. Okay. Chamath, I'm gonna just ask you, don't show up drunk for the next episode. Lord. I can't even get through the first story here.
Okay. inflation, by the way. Does this woman even own a cashmere sweater that she has to take it off of?
Who is this person?
Fuck person.
Please beep that out.
God almighty.
Alright. What a fucking loser?
Stop -- Jonathan,
I'm I'm glad to hear you're doing something with all those foreskins because we don't want them to go away.
I don't want you to do it
the foreskins. All those circumcisions and
--
I would love for you to just drive here and
touch the sweater. I mean, I
I I can't like, this is something
to do on a Friday night. Alright. Inflation numbers. This is important, folks. inflation year over year, but I'm sorry.
But if you're if you're spending your time working in biotech, working in crypto, and fighting climate change, It's wrong to buy a cashmere sweater? Like, it's -- All of a
sudden, like, you also
have to look like a homeless fucking,
you know, the mummest one.
--
was -- Is that the goal we have to a little ugly
because being ugly is so cool now?
The idea was do we have to start the show with your fashion choices?
You started with that bullshit statement by this person who better be good looking or well dressed. Otherwise, they have no right to make this claim.
Alright. Calm down, Shamah. Let's get to the show.
You insulted a sweater game. That's a different reality. Now we met with
his most sensitive.
Honestly, you might as well have called me a Oh, dude. You might as well. Dude,
stop it. Just a sweater comment. And this is conspicuous consumption.
Is that is that what she's really trying to say?
She was just trying to maybe she's trying to call me before. I know you because
you brought it up. Who is it?
I'm not out here. I'm kidding. Let's cancel her. We're not getting nobody's getting canceled from pointing out that you're talking about $4000 -- Chinchillas. I've never said how much they cost.
We beeped it out. I've never said how much this was.
Alright. Do you wanna try to work more than $4000 a month?
Of course, I do. Alright.
But I don't know. Yeah. Chris, I taste. I rest my case.
I own many. Let's just let the point. Guilty. On all charges,
because it's making us consumption. CPI, the past
3
months, today was 6.8 year over year. The largest increase since 1982. We're getting back to the post Jimmy Carter era. And when Reagan got in there and inherited that mess, September was 5.4, October 6.2, November 6 point
8
points up 0.6 or approximately 10% over October, 1.4% over September, And here's the chart for those of you watching on the YouTube channel This all started in March of
2021.
That was the 1st month where the CPI rose over 2% and Who was wrong on inflation with the Fed chairman Jerome Powell called a transitory numerous times over the past 2 years, treasury secretary Janet Gallon in her senate. Confirmation hearing in December of 2020. Ellen said she believed the Fed and Biden admin could take advantage of interest rates being near 0 and spend more on stimulus. Khanom was Paul Crugman, thought it was transitory in his op ed, how not to panic about inflation. That did not age well.
Quote, our business is actually starting to set prices and wages based on the expectation of high future inflation. If they aren't and my bet is they won't be Then the lesson of
2010
to 2011 will remain, don't panic. My god. He could not have been more wrong. Who's right on inflation? Jamie Dimon in March, I would suspect there is a pretty good chance you're going to see rates going up and people are starting to worry about that.
The American public, specifically Gen Z, has been on top of this issue.
77%
of Americans were either somewhere were somewhat were very concerned about inflation back in March. In Gen Z, people aged 18 to 24 had the high rate of very concerned about inflation at 52%. Larry Summers also got this. Right? Sachs, what are your thoughts on inflation, which now seems acute and permanent.
Right. Well, it's definitely not transitory. Remember when it was at about 5.1% over the summer. that the administration said, no big deal. This is transitory, don't panic.
Then it went to 6.2. Now it's 6.8. Looks like it's headed to 7%. And the the real problem here is that these guys, the administration, have not adjusted course in light of this data. What they've tried to do instead is now speciously claimed that the same bills that they had written and conceived the bill back, better bill.
Somehow, even though it was conceived at a time, that was really deflationary that somehow this is gonna fight inflation. They're essentially repurposing. They're just changing the arguments they're using as opposed to changing their their legislative priorities. And just today, we got a report from CBO saying that this bill back, better bill wasn't gonna cost 2,000,000,000,000,000,000. Like the administration said, it's gonna 5,000,000,000,000 and add 3,000,000,000 to the deficit.
Over
10
years. Correct?
Over 10 years, if those programs are not sunsetted. So there's a bunch of budgetary gimmicks that were put in the bill Basically, a lot of the programs with Sunset after 1 year or 3 year or 6 years. And so that's the only way they've gotten it to this. you know,
§02Segment 2
$1,900,000,000,000
price tag. The reason why that's a gimmick is because once the programs are created, there's gonna be it will create a special interests or constituency who is now dependent on those programs, and no one's ever gonna wanna cut them. Milton Freeman's Milton Freeman famously said that there's nothing quite permanent as a temporary government program. So that is the game that Progressers are playing. Is they're gonna create the dependent the dependency, the constituency who Once they receive the program is never gonna wanna give it up, and they're counting on the fact that these programs will not sunset, which means they will cost 5,000,000,000,000.
and it will add 3,000,000,000,000 to the to the death set. So, you know, the problem is it'd be one thing if we were in a deflationary environment if the economy was in the tank But the these guys are continuing to pump more and more stimulus into an economy that has enough. And, really, Larry Summers made this point all the way back in February. I think this is worth reading what he said. He said there's a chance that macroeconomic stimulus on a scale closer to world war 2 levels than normal recession levels We're set off inflationary pressures of a kind we have not seen in a generation.
He said this in February, everyone in the administration, dismissed him all the liberal economists, that you mentioned basically derided him. He turned out to be exactly right. And he was just saying this about the the one point, roughly 2,000,000,000,000 they passed back in February for a COVID stimulus. And, you know, since then, they passed 1,200,000,000,000 for infrastructure, and now it's this another 5,000,000,000,000 for build back better. So, you know, the the real problem here is that they are not adjusting course in light of this data that keeps coming out that inflation is a bigger
and bigger
--
So what's the right thing to do in your minds acts and then without a huge amount?
--
said it. Can this bill? We don't need it. And this is not what Biden was elected to do. you know, he was elected to provide normalcy, stop the chaos.
And he he never
got a mandate for this kind
of, you know, whatever
$10,000,000,000,000
tax and stuff.
--
wanting to do an infrastructure bill for a long time, but we didn't that was prior to pumping so much stimulus into the system.
--
done the infrastructure bill and not the bill back better. It would have been one thing. But we're this is basically the the 3rd hyper stimulatory bill that that they've sought to pass. First, they did the COVID release bill at a time when really The economy didn't need that stimulus. I mean -- Right.
And that was dovetailing this when you get your mouth involved in this is the jobs report. November nonfoam, farm payrolls increased only 210. They expected it to be 573. So it's a big miss. However, kind of a miss bag because there's over
11,000,000
job openings And we're now at 4.2 percent unemployment rate, which is the lowest which which is getting towards the pandemic lows. And, you know, it's This is, like, before the 2008 financial crisis. Shamal, how do you reconcile inflation along with this crazy a job situation where people will not go back to work. People are planning on resigning. There continues to be resignations, and there's too many job openings.
And people are raising salaries and still can't hire people?
Well, I think we did a pretty good job of unpacking the great resignation. I think it was last pod. So right? Remember, like -- Yeah. there are 3 structural issues that play in the jobs front.
1 is that you
have this really meaningful
under immigration that's happened because of
Trump. The second was you've had a big mismatch between the Degreed classes in America and the jobs that they can have for what they think they should earn, meaning you go to school, you get into all this debt, you try to become a teacher or something, and then you realize you can make more at an Amazon house, crazy, strange. And then the 4th is you have all these boomers with an enormous amount of savings,
30, 40, $50,000,000,000,000,
who are pulling forward their retirement and also subsidizing their kids. You put it all together, there's less of an incentive to be in the job force unless you pay higher wages. Now Let's just put a pin in that for a second. I think the thing that Saks talked about is really important which is that we have to really figure out whether inflation is transitory or it's persistent and it's here. And I just wanna bring up I'll Nick, I'll send you these text these the the the Twitter links to this.
But Bill Ackman tweeted up these 2 things today, which is that if you fan of the pod, brilliant investor, by the way, great human being, brilliant investor. two very specific things. He actually called out something that we've we also mentioned before, which is that CPI is horribly calculated. and it's really imprecise. And if you unpack CPI,
there's something price index,
the consumer price index. There's something in there, a component of it That's very important which is called the owner's equivalent rent. Right? How much can somebody basically charge rent to other people? The way that they calculate that, which is 30% of the
30%
of the calculation, is they just survey a handful of people. The problem is you don't need to survey because the actual exact data is available from single family rentals that report this number. So their survey showed basically a a much, much smaller increase than what the actual increase is. And let me just give it so the largest owners of nation wide single rentals are reporting a 17% year over year rent increase. Wow.
The the OER that we calculated quote unquote by survey and the CPI was
3.5%.
If you flow that through, it means that core CPI actually went from 4.9% today to actually 9%. And the CPI print which was
6.8%
was actually
10.1%.
So it just goes to show you we have sources of data that the government is not in a position to collect or measure we have horribly inaccurate, econometric models that we use. You know you know that phrase sort of shit in, shit out, unfortunately, you get very bad usage. You get very bad crappy data. And now all of a sudden, we're printing numbers. We're supposed to make policy against those numbers But the numbers that underlie this decision making is fundamentally flawed, and it's flawed in the wrong direction.
Okay. Let's bring Freiberg and Freiberg. What what do you think is happening here? Visibly, also the creation of companies and entrepreneurship. Because one of the weird things that's occurring is we're starting to hit a record number of LLCs, s corp, c corps being created It seems like a lot of people are becoming freelance nation.
100 of 1000 of new companies during the pandemic were started.
That is probably one of many places where the water is flowing when you fill my cup and it shall overflow it. I was talking to a guy this week
who -- Jesus Malay.
No. It's not that accent. Yeah.
Was that
that person?
--
much about -- Yeah. Put the wine down.
No. No. Let him drink wine. -- freeburg.
And -- We traded fast. This guy has a multi $1,000,000,000 consumer credit portfolio and subprime. which means, you know, he's got the a bunch of consumers owe him money that, generally, there's gonna be a high default rate. And his
No comment.
Not and he said that this year, the portfolio performed beyond, like, the 1 percentile of the model distribution of what they expected to happen, they they had the yield on the portfolio be 40% higher than they thought it would be because there's so much liquidity in the hands of individuals. And so I think, you know, Jason, while you might make the argument that companies and jobs are being created that is one of many places where, like, you know, you overflow a river and lots of streams start to flow. You know, we're seeing asset bubbles everywhere. in NFTs, in crypto, in startups, in new startups, in new ideas, in home prices, and everything.
--
Now the problem with inflation is, you know, it's a definition. Like, we all use this term and we throw it about, but, like, inflation is really the measure of price going up over a period of time. And, generally, you wanna have inflation of some amount that allows you to see economic growth and expansion that allows you to fund the debt that you used to create that growth in the first place. And so without in without some sort of an inflationary pressure, which is the output of economic growth, you end up, you know, being unable to meet your debt obligations, and then things get really ugly and the system as it was constructed because most of these governments and systems like we have today are funded by debt. So, you know, to Ruckerckenmiller gave a good interview in q 2.
He was kind of on a roadshow, you know, sounding the alarm bells around what was going on. He was saying the market is not speaking right now. because, basically, the Fed kept canceling the market signals with their with their interest rate policy. And by canceling those market signals, it seemed like we had a free for all at the government level to keep spending. And so I I do think that these 2 are pretty interrelated.
The fact that we've kept interest it's low have allowed policymakers to say, you know what? The cost of debt for this government is 0. We can do anything we want. Just like consumers are saying, we can do anything we want. We can buy anything we want.
We can spend any way we want. And as a result, we're kind of seeing this, you know, inflationary pressure persist. Now the problem is if you then raise rates and you can't borrow that money, and suddenly people have to start to pay that debt down with without economic growth having occurred, the business goes the the whole system goes bankrupt route. So the challenge that the Fed has is how do we raise rates without triggering an economic recession. And if people are now have overspended and are over levered once again and rates go up, it's gonna get really ugly, really fast.
And so the the the the this is a first derivative balancing act. And it and, yeah, it there's there's no simple and easy solution. Unfortunately, Meanwhile, technology is causing deflationary pressures, which is exactly, you know, maybe what you don't wanna see happen when you're trying to realize economic growth. And that's yeah.
§03Segment 3
The other thing that we talked about is that the the Fed basically changed the or the the government changed the rules on the percentage. Basically, what qualifies as a conforming mortgage. Remember that? And so now that basically at a at a $1,000,000. And if you think about it, most Americans, you know, 80 to 90% of their true underlying wealth is their home.
to the extent that they built, you know, a positive net worth. And if you all of a sudden, you know, push up the upper bound on what a conforming mortgage is to a a $1,000,000, that effectively means it's and it it's roughly about 20%. That effectively means that you're moving people's net worth up by about 4 or
5%.
But that's right.
And so and so if they take that and then they take that money out of their home via a HELOC or an equity line of credit. Right? Oh, equity line of credit. And then, you know, to your point, Friedberg, they spend it, or they invest it, or they you know, it could be a real disaster scenario in 5 or
6
years -- By
the way, No.
No. This is more like 1929 kind of group.
By the way, if you go back to the remember when we were in, like, the depths of the mark at collapsing and everything when basically the economy shutdown with lockdowns when COVID started. And I was speaking to a senior banker at that like, that day. And he told me, look, it's pretty simple what's gonna happen. The Fed's gonna drop interest rates to
0,
and they're gonna pump money into the system. because that's the only way you're gonna be able to keep asset prices from collapsing. And we're gonna artificially inflate asset prices, and we're gonna do it for a long time. Because then people look at the stock market and they say, oh my gosh. Stocks are going up.
Oh my gosh. Revenue is going up. Everything gets inflated by pumping money into the system. And the problem is while there's, you know, a perceived, you you keep saying the home price goes up, and I keep saying stocks go up. But they the purchasing power that arises When the inflation is higher than what those things are going up, that indicates economic recession underlying that inflationary bubble.
And the circumstance needs to be analyzed, unfortunately, a little bit more deeper than that, which is it's not just about inflation. It's about have we pumped enough money into trigger economic growth that we can come to balance where the growth can outpace the inflation. And we're not there. Well, superimposed on this because -- Like, think about it. Sorry.
Let me just say let me just say one simple analogy. Let's say I've got 50 clamps And, you know, there's suddenly a bunch of clamps come into the clam market. Now I got a 100 clamps. And if the number of clamps has gone up by 3 x, my purchasing power has actually gone down by a third. While it might look like I've now got twice as many clamps, I can only buy one third as much as I could buy before because there's so many more clamps floating around.
And that's the problem. I love clamps. Oh, you love clamps.
Clamps, because you know the big clamps. So you like them just alright. Listen. I did a little bit of math. I've been watching the price to sales ratios of some of the top companies.
We can pull this up on the screen. And The price to sales of companies including Zoom, obviously, was ridiculous. during the pandemic. That was a pandemic stock. So on top of all of this money being printed in the system, you had the participation of a bunch of stock traders you know, in that whole movement, buying up meme stocks or others, we had the price sales ratio of Zoom, in other words, the value of the enterprise versus their actual sales was at a 123.
It's now at 14.7. Peloton was another one of those at 23 now down to 3x. down 87 percent Coinbase Square also. It drops up pretty significantly here. But you can also we looked at the peak price to sales and how much larger it is then.
And so some of these are now off 8 x, 4 x, and then it drops off to 2 x, 1 x. But it quite a I I don't know if you guys are looking at the numbers or if you have any thoughts on this, but we're re it seems like There was a mispricing of certain equities.
There wasn't a mispricing. The Federal Reserve forced a lot of institutional investors to be out as long dated as possible in buying earnings. Because if you if you have to remember. It's not just that real rate were effectively 0. But if you wanted to own inflation protected securities, it was actually a negative yield.
So we were destroying people's savings and There are a lot of individuals. Sorry. Well, not individuals. Institutions that must own some of these inflation protected assets. So we were already in a negative yield environment.
What are those folks supposed to do if they have to fund an 8% return a year to pay the pensions of, you know, good people, firefighters, teachers, you know, it's you name it, policeman, etcetera. Right? They were forced to invest in the kinds of funds that would then go out further and further out into the future to buy the promise of future cash flows. And when all of a sudden, a whole bunch of other assets that that they held, which were supposed to be safe implodes on them, Right? Because all of a sudden inflation changes and the front end of the yield curve goes, and all of a sudden, all these assets when yields go up, prices go down.
Now the fireman's pension is like, oh my gosh. We just lost all this money. We never thought we were gonna lose and were long all these you know, crazy tech stocks and so then they're forced to sell so that their overall exposure goes down. That's called degrossing. Okay?
And we've been going through a very painful process of this degrossing. Hedge funds are doing it in droves
I ask you a question then, Shamal? I'm sorry to interrupt. But should they not have looked at these multiples and said, you know what? maybe this one's out of whack and I should buy the ones that are not as out of whack because this to me seems
Not really. Because for the last 15 years, if you had you know, the the problem with being a value investor over the last 15 years since 2008 is you were basically a dumpster diver. And you got paid absolutely you know, you didn't make anything because because they misunderstood what value was. Value isn't necessarily things that are cheap. Value is things that are things that are valuable.
And over the last 15 or 20 years, what was once a question is now definitive, which is that the things that are valuable tend to be technological. because they're super high margin. They grow really quickly. They compound. They create enormous cash flows at scale.
So agree. The point is you couldn't own that stuff. And if you sat on the sidelines, you weren't meeting your 8% hurdle. You were all of a sudden looking at some risk of defaulting on your pension obligations, So this is how this whole cycle brought us to today.
nowhere what you're saying is if I can summarize. There was nowhere else for them to put their money. Saks price matters, though. So is this just bad capital allocation people weren't thinking about the the entry price of their investments? We're giving too much credit.
Well, I think I think what happened is that you had a liquidity fueled boom going on. So what we've seen over the past 4, 5 weeks, about the 1st week in November, most the market basically peaked and at least grow stocks did and SaaS companies did. If you look kind of November 8th was sort of the beginning of the downturn. And since then, most of these growth stocks are down about 30% plus. Crypto is down now.
I mean, it's sliding as we speak. 30, 40%, off a off a peak around the same time. What happened around the 1st week of November? Well, you had 3 Fed governors come out and make very hawkish statements about the fact that the Fed was gonna need to double the speed of its taper and that you're gonna have 2 to 3 rate increases next year. And so, basically, we went from being in a low rate environment, which has been the case.
Not only just low interest rate environment, low interest rates with massive stimulus and pumping out of Washington by both the Fed and by by Congress. Okay? And so you went from that environment to all of a sudden an environment if now we're expecting to have rate increases, and that's gonna suck the liquidity out of the system. The the amazing thing that I'm seeing right now is that every invest I know is having the same conversation. It doesn't matter whether you're a SaaS investor or a real estate investor or a crypto investor.
They're all having the same conversation, which is what are interest rates gonna do? How much liquidity is that gonna suck out of the system? And how much of the boom that we've experienced over the last couple of years has been because of this unnatural liquidity has been pumped into the system. And so I've never seen I've never seen it be the case that investors across every asset category are having that macro conversation as opposed to talking about, like, micro stuff. Right?
Like -- The specific company, the earnings, the product, who they're beating, the market share.
Nobody talking about that, like what building do I buy or what SaaS can we not invest in. It's all about what what is happening in the macro picture, and this is where I think what Biden is doing is so unbelievably off base is okay. Look. He didn't start $1,000,000,000,000,000 deficits you know, that happened on the previous president. I'm not saying that was good.
But but now what we have is a situation here of of the Fed is getting extremely hawkish of tightening. We're seeing inflation now out of control. And yet there's been no adjustment whatsoever Nobody -- On a policy basis.
Yeah. Can we just nobody's having the breaks.
Right? Wait. Let's just let's just call let's just call a spade a spade at this point because
I think we can. I think and I think Biden was is and will ever be a really moderate down the middle centrist. I don't think there has ever been an extreme bone in that man's body. He has always come off at like, you know, the word that I think when I've always thought of Biden even now is equanimity. The guy is a really down the middle person, he's not an extreme individual.
I think that's the only kind of personality, by the way, that could have thrive for 8 years as a VP with Obama and had been in every room and every meeting. The problem, Sax, and tell me if you think this is totally off base, is that There was a head fake after he won the presidency where there was this fake lurch to the progressive left. And it turned out that it was a complete head fake because that whole cohort of people just totally jumped the shark because all that rhetoric then unfortunately turned out to be not worth much. It started to blow up in their face in every single election that's happened since then. At the local level in cities, at the state level in places like Virginia, And in the middle of all of that, I actually think what happened was that faction tried
§04Segment 4
to push an
extremely aggressive legislative agenda to paint Biden as the next Roosevelt, which maybe he didn't even have the the desire to be because I I think that he seems a very low ego kind of person. And now we're actually realizing, oh my gosh. This makes no sense. And so the part of why I think the markets are are kind of like handdringing is you would expect at this point the Federal bureaucracy to actually step in, but I think there's like a real lack of confidence because for for example today, when there's a CPI print of somewhere between
7 10%.
The only Democratic sounding, you know, the talking point was one of the squad proposing a 4 day work week.
I mean
--
Right. -- that is insane. That guy -- You're in crazy debt, and you're like, nope. We should do -- -- guys.
--
we should spend more money and work less. When the
CTO says we're about to go 3 more trillion into debt, The solution isn't default well, it's
I I actually think if
you wanna work less, work less. You know, maybe your and your boomer parents can give you money, but there's a bunch of us like me who had to grind. I didn't have anybody to fall back on. And if you all of a sudden passed the law, That said, hey, Jamouth. You can only work 4 days a week.
I would be really angry because you're depriving me of 20% more of a chance to beat all those other soft candy asses that went to all those fancy schools that weren't willing to work.
Yeah. Ignore. That's a stupidest suggestion. Me work.
So I think I think this this proposal that came out to basically, this was a new proposal that they were gonna limit the work week to 4 days a week when let people work 5 days a week. The reason why it's well, it's a bad idea in general, but it's a particularly sort of a brain dead idea to propose during a high you serve this inflationary period because, again, inflation is caused by too much money chasing too few goods. Well, so that you have a demand component from the pumping and the stimulus. But you also have the supply component, which is we don't have enough goods and services. Why?
because we've been, you know, passing out these STEMY checks that per that disincentivize people from working. We have problems with the ports. We have these COVID restrict have all gotten -- Restaurants
are closing 3 days a week because they
can't buy a shortage of so we've had a shortage of goods and services. So the last thing we need is a 20% reduction in the number of workdays or work hours that are available. So it just shows like how out of touch these progressives are, but look to Chermont, to to your point about Biden, I I look. I I don't know, you know, exactly what's in Biden's heart. To me, it doesn't really matter.
I think I actually think he's pretty liberal. I he's not all the way out to where, you know, AOC is fine, fair enough. But look, at the end of the day, I think, you know, this idea of Biden being a moderate, you know, it moderate is as moderate moderate does. He is not governed like a moderate, whether that's because you know, this moderate thing was just a marketing shtick on his part, and he's actually more liberal or whether he's been clocked and taken over by the progressives. I don't really care what the reason is.
The fact of the matter is he has not governed like
--
Unless we pull back the span, David. I mean, the span is gonna be -- -- pull
back spend.
Well, no. No. No. The original remember the original
--
No. -- bill was maybe 2 or 3 times. We just loaded the we put the bullet in the chamber and loaded it for man. Should this bill not gonna happen, David, with the $23,000,000 deficit increase.
Oh, it's not. I mean, but but the point is that look. If if if people like us don't speak up and say, this is a reckless
--
Pump the break.
Yes. Exactly. Then it it could happen.
--
fly the plane so fast before the wings come off. This is too much speed for the airframe, let's go to a clip of our friend Elon
talking -- -- $5,000,000,000,000 bill.
Let's go to this clip
of Elon talking about capital allocation. It's a couple of it's, like, 30 seconds and then Friedberg elected to comment on the other side. Let's go.
You know, at some point, really, what you're doing is capital allocation. So you're not it's not money for personal expenditures. It's it's what you're doing is is capital allocation. And it does not make sense to take the the job of capital allocation away from people who have demonstrated great skill in capital allocation and give it to you know, an entity that has demonstrated very core skill in in capital allocation, which is the government.
Yeah. Friedberg, your thoughts
on -- I've I've I've said it in the past,
This is at a Wall Street Journal conference by the way.
You you can think of a government or a nonprofit or a corporation as an organism as a living organism. And each living organism wants to eat and grow. And there there is no such thing as an organism that says, over time, I want to shrink and shrivel away and die. So the organizing principle of the people in the government is to do more for their constituents. for their owners, which are what they believe to be the taxpayers or their or their, you know, the folks that elected them to office.
The the politicians themselves, I would argue, are more actors in the Ouija board of behavior that's going on here and, you know, less kind of, you know, the the mental designer of assist that they're trying to use to infiltrate change in the world individually and conquer and gain individual power. There may be some degree of motivation there, but I think largely it's more about the fact that that organism, that government, wants to grow, wants to spend more, wants to do more over time, not less. And this is true of any business. Every business wants to grow. If you're not growing, you're dying.
And every nonprofit, there's no thing as a nonprofit that says, let's not fundraise and let's spend all our money and then shut down. And so I just think, like, you know, as much as we wanna kind of sit here and rationalize a way to better politicians that are gonna better serve us that are gonna think smarter. The reality is every government, every, you know, institution of government in the history of of humankind has tried to grow and eventually they cycle back, you know, the United States, like I said last year, you know, maybe kind of going out with with a little bit of a whimper or less of a bang, and that's gonna, you know, be a function of the devaluation currency or, you know, having less of a place in the in the global stage and so on. But I think Elon's right. Like, you know, he feels and many people in business feel like they're in competition with the government for capital.
So and yeah.
Yeah. And that that capital is the the the only difference is that the government can force that capital and can
force that
revenue and and no business can't. And so they've got an unfair advantage in that in that that stage of playing for capital. And this is where, you know, Bitcoin feels to a lot of people like a great equalizer. And, yeah, I'm not a bit I'm not a huge, like I'm not not a Bitcoin maximalist or anything, but I think there that's where the appeal arises, which is you know, as Jefferson said, like, every generation needs a revolution. And I think that this is the revolution that folks are looking for which is how do we get this big monopolistic player off the playing field to let us do what we wanna do?
Well, I mean, it's so easy. I mean, all Biden has to do is what he was to do. You never had a mandate for this $10,000,000,000,000 of spending. I mean, the guy ran a basement campaign. I mean, his he was elected to not be Trump.
Okay? He was elected to stop with chaos. Not yeah. Not to not to engage this potential leader. Progressive agenda.
you know, Elon, I think, made a a really good point about the capital allocation there. You know, people think, okay, Elon's got all this money. So he must be enjoying this, like, incredible livestock. Look. He's right.
That one once you have that much money, you can't spend it all on personal consumption, you invest it. And so the question is who's gonna make that investment? Is who's gonna be better at it. Elon or the federal government. We know Elon is better at it.
He creates incredible innovations. He's gonna put people on Mars. I mean, he can do incredible things with that capital. A
1,000,000
acts of vehicles. -- desponders it. You know? There's another Elon on another really good I think Elon actually understands economics at a at a macro level really well. He had a really good there's a equally good snippet of him on the Rogan show.
You know, Coronavante. Yeah. Coronavante. where he says, look, there's a lot of people out there who think the economy is just like this war in a plenty that produces all these goods. And the goods just magically appear no matter what we do.
Okay? And so if some people have more goods than others, it's just because they stole them from the whole point of plenty. What he act what he said is, no. This is not the way the economy works. People actually have to make the stuff.
You know, if people don't make this stuff, there is no stuff. Okay? This stuff doesn't just magically appear. And the way the stuff gets made is you have people making smart capital allocation decisions and engaging in hard work, and that's what actually produces the stuff. And it's not a 0 sum game.
So If you think about, like, this agenda that we have in Washington, it really flips this on its head. It it's doing everything it can to stop the production of the stuff. Whether it's the STEMI checks or the COVID lockdowns or, you know -- Oh,
and it's unemployment, extend that
or we're just confiscating the earnings of people so that they can spend it on whatever they want.
Right. Exactly. It's it it's actually it's actually putting constraints on the production on the supply of the stuff. And then meanwhile, it's just printing all this money. So then we wonder Where does the inflation come from?
Well, obviously, it's coming from printing more money for fewer goods. That's that's basically the the problem with the agenda we have in Washington right now.
The increase in the deficit is just getting stunning. If you look back on the 5 or 6 last presidents Reagan, a 142% increase. He got us up to 1,420,000,000,000. He had to obviously combat what happened under Jimmy Carter. George Bush, George H W Bush, 30% 36% increase.
§05Segment 5
President Bill Clinton, a 1% decrease. The first time we've had a stimulus I'm sorry, a surplus in a long time, and then push the second, 57% increase.
the economic results under Bill Clinton were amazing after
they've talked about
on the show before. -- say he's a goat.
Yeah. But, I mean, at the time, what was very interesting is politicians actually took this issue a balancing the budget very seriously. Seriously, seriously. And thinking about how we would pay for things, and now we don't seem to think about who is gonna pay for these things
--
Yes.
--
which is gonna screw our children.
Okay. So you have to remember that Bill Clinton was the president who said the era of big government is over. And when he left office, he actually bragged about reducing the federal government's share of the economy from 22% to 18 a half percent. You would never hear a Democratic president.
They'll never happen again.
You'll never hear a Democratic president well, first of all, they wouldn't do it. But second, they wouldn't brag about it. You know? You can't even say something like that. It would be cheap.
--
on saying. Let me ask you, do you think
a Republican president would? because I'm not convinced that any party matters at this point. It feels to me like the incentive structure is such that the individuals who are representing constituents who get them elected and they can pass more dollars back to those constituents, drives a systemic model of growth for the government, and therefore the government is complete competing as a monopoly on the field for capital.
Yeah. Look. I think Eddie got point.
We we you thought Trump was gonna be this guy, and Trump came in, and he ended up spending more. And I recognize they were extenuating circumstances and so on thought he was gonna go in. I thought the the premise was blow up the government, you know, cut all this nonsense, and the deficit kind of shot up.
You're you're right. that Republicans have a very spotty record on on government spending. And we did have $1,000,000,000,000 deficit pre COVID under Trump, and that was not that was not good. But what Biden is doing now in the in the face of inflation is worse. And look, I mean, historically, the best The the the only times that you really have it seems like fiscal responsibility is when you actually have the the best track records have been when you have demo presidents or Republican congresses, and the Republicans suddenly find their principles on spending when there's a Democrat in the White House.
You're right that when Trump was in office and had congress, and George W Bush, you know, had congress. So Republicans spent a lot of money too. So it's absolutely a bipartisan problem. But what's happening now in Washington is under Biden is is unprecedented. It is a breaking of the bank.
They're talking about minting $1,000,000,000,000 coins. So, yes, it was a problem under Republicans, but this is even worse. And here here here's another thing is the Fed is now saying that they're projecting 2 to 3 rate increases next year. So let's call that 75 basis points. Multiply that by the close to 30,000,000,000,000 of government debt that you're talking about, Jason.
That's about a 150,000,000,000 a year of interest payments on the debt of debt service. Okay. A
150 --
Extra extra extra extra.
That doesn't exist today.
--
fixed rate, by the way. This is what I heard before.
--
rates. It's all short term rates because Yes. So so you're looking a 150,000,000,000 of incremental debt service cost. Right? So multiply that over 10 years.
That's 1,500,000,000,000 over 10 years. That's your buildback better right there. Where is this money for buildback better gonna come from? We have
1,500,000,000,000
of increased interest rate costs starting next year.
And and how do we get the cycle of people wanting to go back to work and be productive. It feels to me like this could be a challenge, which is what's happening, but people are still not going back to work. Have you been
--
offering $70,000 to be a manager of a Taco Bell, and people would
need a job. Well, then you offer
75,000.
I still don't think they fill it.
No. I I think I think I think that model's dead. I think low cost labor's inevitably be -- Well,
some low cost if they're making
75
bucks a year. I think the in order for for people to buy the function
--
I don't think I don't need labor, but it's not cost -- -- Taco Bell is gonna sell burritos if they cost
$6.
So if they're gonna have to raise labor cost. People aren't gonna be buying Taco Bell. They're gonna go somewhere else. So the low cost model of consumerism in the United States, which has been a stronghold for our economy, for a 100 years at this point may be coming to an end, or it will accelerate the implementation of automation across that sector of the economy. Yeah.
That's what's -- I think that's more likely.
That's more like that. Yeah. By the way, one of the if you read the press release for the 4 days a week -- I'd pay
$40
for talking about Brito, though.
gobbledygook. In the 4 days a week thing, it said workers for far too long have been forced to work very long hours and not get paid. And wait. Wait. They were not paid.
And so the idea is just, like, you know, opt out, but then if you opt out, you'll make even less. No. in a moment where you can actually make more.
Yeah. These idiots who are coming up with these ideas
--
The the Chinese must be looking
--
The Chinese is licking their jobs.
--
looking at
jobs. this buys ours directly in the American economy.
Oh my god. In terms of in terms of well, they
--
They don't need to do anything.
We're destroying it from the inside.
Exactly. So just just in terms of what we should do here, actually think there's a lot of strength in the economy right now. It's not all negative. I mean, the unemployment rate is down to 4 a half percent. The labor participation rate
Yeah.
I think it's it's quite low. I mean, it it was
3
a half percent before COVID, so we're getting close to where we were before COVID. The labor participation rate's not great. I think it's, 61%. Salary
--
It was 63% before COVID. So we need to get more people working. We could do that by ending the STEMI checks. Okay? But the most important thing we could do right now is a mansion would be do Biden the biggest favor by just putting a bullet in this build back better plan because I actually think there'd be a massive relief rally and the economy would take off like a rocket next year.
If you just got government out of the way, they have printed enough, the the best thing that could happen is they stop this pumping and stimulus And then the Fed doesn't have to raise races aggressively next year. And we could let things have more of a soft landing as opposed to this sudden austerity, which is whipsawing the economy.
So just slow the plane down and then maybe break this bell into 20 component parts and and just try to get Just stop. He'll spend all
the money. He's all the money. It's spent.
I mean, this is a bender of all benders. And if people are refusing to go back to work, we're gonna have to we talked about it in the last episode. We're gonna have to think about medical hazard. Jason, I
think it's a generalization to say people refuse to go back to work. I think the jobs that people had when when their options open up to them, you know, may not be jobs they wanna go it. Correct.
I am.
I think that there's gonna be a larger significant growth in a services economy that didn't exist before. Think about how many yoga and there are today that didn't exist 20 years ago? How many, you know, people doing there?
--
creators. YouTube creators. Creator the creator the creator economy alone. Right? like Hollywood no longer has a monopoly on content, and people are spending more time consuming content than ever before.
So, you know, there's a services economy I don't think we really predicted or modeled. And we all assumed, oh my god. We're not gonna no one's going back to work. It's like, guess what? People are spending money, and they're gonna spend money on new stuff.
And these new industries are gonna emerge. We know creators, and those creators are gonna create jobs around them. You know, one amazing creator will hire a hundred people to, you know, staff his videos and make his music and edit stuff and, you know, run his business and so on. Like, it's just it's just the way that the economy shifts. There's been a moment here that is like a Cambrian explosion of new species of industry where, you know, this meteorite of COVID came and hit planet Earth, there was an eradication of the old species, you know, minimum wage jobs for crappy labor work that people don't wanna do.
And all of a sudden, the sun came out, and new stuff is emerging, and new life forms are emerging, new they're emerging. And I think we just we're we're going through a really ugly transitory period, but I think it like like Zach said, it could be really great on the other side. And there's also an yeah. Sorry. There's one more argument to be made, which is our friend, Brad Gersner, sent me an note today saying, I know you guys are gonna ramp on your all in pod today at inflation.
I wanna remind you about the deflationary effect of technology, and it is really being felt in the economy. I think we all see it how software alone can reduce the operating cost and the labor cost of businesses drive up margins, increase growth. And so, you know, there's a number of tailwinds here. But I think Saks is right. There's a masking going on with respect to the capital that's just being bandied about right now.
And it it's it's a it's a risky, nasty kind of, you know, maelstrom of a of a c we're trying to cross right now.
I wanna point out 2 positive things. to build on Saks's positivity. Number 1, I don't know if you guys are following Omicron in the UK. They have record cases right now, but deaths And they have they're also done great with the vaccine, obviously, a small country with a lot of resources. So they're hitting record cases for this last cycle But deaths and hospitalizations are down, and they say upper 25, 50% is part is now moved to Omicron and it seems like that this could be the end game maybe.
And
Did you ever see the the end of was it outbreak where they, like, dropped that bomb, and it was, like, the massive bomb that takes all the air out of the room and, like, shock shocks everything. And then they're like, okay. It's over. You know, there could be this thing happening where Obama is the, you know, the the air bomb that gets dropped, clears the room, and then it's all over. You know?
Well and then here's the other thing. The -- We don't know. I'm seeing the salaries going up faster than inflation. People are raising people's salaries, you know, in double digits to try to get them to come to these jobs. So the people who are choosing to go back to work and people are eventually choosing that and switching jobs to Tremont's point.
I think they're gonna be making more money and they're gonna be more resilient, and they are gonna be a little more empowered. And that could end up being a great thing. And then finally, In terms of technology, I have one robotic company that serves coffee, and they had a record week, Puppet Pitt, Pump it. Pump it, but they kept it. I wouldn't say the name out there.
Pump it. No. No. They they broke
$11,000,
and people ordering from a robotic coffee machine previously, the record was, like, 7 k a week. So people are getting years
--
Tell your stupid lady friend. I have an $11,000 sweater.
Oh, no. please. Stop it. Stop it. Alright.
Listen. I don't know if you guys saw this better dotcom layoffs viral video, but It can you can
§06Segment 6
you break this down, Jake Hall? I wasn't not following this.
Alright. Very simple. There's a company called better.com. They get rid of origination fees or whatever in commissions. They try to get you faster mortgages, insurance, whatever.
They were gonna stack. SoftBank was gonna put in 1,500,000,000 in the pipe. Everything was going according to plan.
SoftBank was already in the company. Right? So they were trying to get their own company out. Yeah.
So, obviously, the market corrects. Everybody always asks us as a group. What happens when the market corrects? We'll hear you're about to see it. this guy decides I gotta cut 10% of the company instead of having his managers go to each group and have a logical small discussion about how they're gonna things and maybe some sort of thoughtful process.
He decides he's gonna get on Zoom to the entire
900
people who are fired And in a very bizarre way
--
So I said 9900 people were fine.
--
hundred people, but -- Over Zoom.
--
over Zoom, how big is this company?
10,000
employees. And he says to them that the last time I had
to do this, I laid people off, I was I cried, and I'm gonna try to do better this time. But if you are on this call, affect of immediately you're fired. It's it's just another one of these crazy clips we have. I wanna see it. 30 seconds, Tremoth can be your thoughts on the outside.
Thank you for joining. I come to you with not great news. The market has changed as you No. And we have to move with it in order to survive so that, hopefully, we can continue to thrive and deliver on a mission. This is a news that you're gonna wanna hear, but, ultimately, it was my decision and I wanted you to hear from me.
It's been a really, really challenging decision to make. This is the second time in my career. I'm doing this, and I do not do not wanna do this. The last time I did it, I cried. This time I hope to be stronger.
Okay. And then here's the second clip where he basically tells everybody over Zoom that you're not gonna be able to log in and you got 2 weeks severance, 3 weeks before a month severance, and it's, like, 3 weeks before Christmas. Go ahead.
We are laying off about 15% of the company
--
number of reasons. The market efficiency and performances and productivity. If you're on this call, you are part of the unlucky group. You do. That is being laid off.
Your employment here is terminated effective immediately.
Are you kidding me?
What does this mean for what's next? You're gonna get an email from hraskhr@better.com
to your
personal email address according to details of your severance. and your benefits for all US employees. We're providing 4 weeks of severance, 1 month of full benefits, and 2 months of COBRA for which we will pay the premium. So 3 months total benefits, if you elect for COBRA.
Alright. I mean, for we've all operated business before. I mean, does anybody
--
I've had to do layoffs before. It is the most fucking brutal
thing.
Yeah. This is the exact wrong way to do it, though. Terrible. I I remember it AOL.
--
right way to do it, but I think the question with this guy is to examine you know, the growth incentive that got him to this point. He took SoftBank money. SoftBank, as you guys as we all know, creates a very strong incentive and capitalizes businesses to go after kind of ultra perhaps unnatural growth. And there's almost always shock that occur after they do that. And the the circumstance, I think, could have been avoided.
Maybe he built a business a little more steady, but then his valuation would have been lower, and he wouldn't have been able to access as much capital. And so, you know, unfortunately, the loss of jobs is the cost of capital with these ultra high growth incentives that are kind of being structurally built into the fundraising in these later stage deals lately. I don't
know if you guys agree, but it's it's Saks and then Shamoff.
Okay. So
--
How would you do this, Saks? You're an operator.
Yeah. I mean so I've had to lay people off before, but never in this era of COVID remote work. So the question and and look, it is miserable and I think that it is the right thing to do for him to take responsibility if if there if this restructuring was caused by a strategy that was, you know, overly prioritized growth. I think he could say something like, look. This is my fault.
The company's fault. You know? Not your fault. So I think he
could've Exactly.
I think he could couch that. I think he could've taken responsibility. That being said, I don't think he owed the groveling apology that he was forced to make because Look. Here's the thing. How do you lay 900 people off in this era of remote work?
I mean, they're all working from home. There's no office for them to go into where you could sit them down one on one like a human like you used to be able to do and have a conversation. So they are laying people off by Zoom now, and it's unfortunate, but I think it's just this new world that we're in, and I don't know that there's a much better way to do this. I think the words could've been better. Maybe it could've been more organized But how do you lay off people who are
working from home? I have an idea, but, Jamal, let me let you go first. Any thoughts? You wanna add? And I'll tell you how I would have done it.
I remember when I had to do my first layoff at at AOL.
North of
1
AM there.
And and there was a lot of those rifts. And I remember the first one I was in my early to mid twenties as a manager. and we had three or four people or whatever. And I remembered distinctly that AOL had this policy at the time because I guess they had maybe, like, better. Like, tens of thousands of people, employees, lots of call center as an example, and they've had to have rifts before.
They would have security guards, and there would be a security guard outside the meeting room where you would bring somebody in and talk to them. And I just remember being seared in my mind because having done it before, I was, like, sweating profusely, really nervous. I didn't know what to say. I felt really bad. I felt very guilty.
And then you learn how to do these things, and there is a very humane way to try to do these things. It's never the best thing to do, but you try to give people a fair exit package and all of these things. Let me put that aside because I think what Friedberg said is so good and so important. The root cause of why this is here as far as I can tell is not a company that doesn't have consumer demand. It's a company that may have been mismanaged for growth to meet the consumer demand because of too much money.
and this is a thing that is an avoidable mistake. And this is where you have to figure out How much you wanna basically swim with the tide and be like everybody else, which is to be able to go to the dinner party, say I raised x amount of dollars at y valuation and just keep taking it up and taking it up or to actually have the discipline to hit the brakes and say, I don't need it. I don't know what to do with it. I'm not ready to take it. I need to figure out my business model.
Those are 2 different kinds of decisions. There's gonna be layoffs in both. But if he actually came at it from the perspective of Listen, guys, we've been growing methodically and there's just been a structural change. Or, for example, rates are ticking up. There's a lot less demand and we have to right size the company.
That's a very different statement than maybe we overgrew because we were drunk on free money. And now we have to realize that we actually have too much capacity for the demand that actually exists. And those are avoidable mistakes, frankly.
Yeah. I've had to do layoffs. Obviously, it's it's not fun. This was executed terribly, to your point, Sachs, I think a much easier way to do this would have been to go to the leaders in each group and say, hey. Listen.
We're gonna have to do these layoffs. It's gonna affect different groups. So you take your group into a subset of Zoom. You explain to those people and you do it, hey. Listen.
we are reorganizing because of these reasons, Shamalff had some good language there that people did. But this idea of mass firing nine hundred people with
--
Right.
--
per something, that's the critical area here.
It it would need
you -- That's
either that's a little megalomaniacal. That's really insane.
--
almost like he wanted to talk about himself in this as opposed to taking responsibility to unpack it, obviously, when something like this happens, then or the floodgates open, Forbes got a 2020 email leak where He called his own employees dumbed dolphins. In the email that's been leaked since this came out, you are cap locks on too damn slow. You are a bunch of dolphins and dumb dolphins get caught in nets and eaten by sharks. So stop it. Cap Lock's on.
Stop it. Stop it. Right you are messaging me.
This is the pile on. This is the pile on.
We're in that now for 24 hours. Yeah.
No. For 24 hours, he's the incarnation of evil and the of the media, and then they're gonna move on to a new person in a couple of days. So, I mean, look, I
think -- Have you ever wrote in that to employees? Do we have an coming out from you.
--
all caps guys, I I quit the group chat for a day.
I I I all caps
I all caps you guys this week. -- hilarious.
rage quit.
But can can I connect with something Shamas said about -- Sure.
--
about okay. So that you have this this this larger question about our did the company grow too fast and our founders asking the right questions about growing too fast? Let me connect that with the first conversation we had about the macroeconomic situation I think, you know, every startup board right now probably needs to be having a conversation about the macro picture because there's one of 2 possibilities happening right now. We've already seen in the past 5 weeks, we've seen 30 to
40%
correction in the public markets for growth stocks and SaaS companies. That is absolutely gonna trickle down to venture valuations. I think it already has. If you look at the crossover guys like Tiger and Coteau and d 1, I guarantee you, They're all updating their models or valuation models based on the public comps. So, you know, we are now in a slightly different environment.
I don't know that a hundred times ARR is is is the metric anymore as it was, you know, say, 2 months ago. I don't know where the new metric is gonna land. We were gonna have to see some deals get done post correction. But, you know, we could be in a very different environment here. And I think I think there's 2 possibilities either.
The the rate increases that are coming next year are now priced in. and we're gonna go back into, you know, a a mode of going back up into the right. And especially, I think, if this BBB built gets killed, we'll go back and up to the right. Or this could be getting be the beginning of a protracted slide as, you know, more and more market participants realize that we're in a very different kind of environment and we may not have seen the bottom yet.
§07Segment 7
If you were running a company, Saks, and you had just raised that $100,000,000 crazy round at a hundred times, What do you do? If you were running a SaaS company, what would you do?
I just had this conversation with one of our SaaS founders. It is closed most around at a great valuation. and I literally a few weeks ago, and they have some interest for more people wanting to get into the round. And I just pointed out, listen, you know, we may be going into a very different environment. And I think the company is worth evaluation we got.
But, you know, the if you just look at the public comps, valuations are down 30, 40%. So if we were to take more money into the round at the same valuation, that's kind of a good deal for the company, and it gives us more runway gives us more insurance.
Secure the bag. No. Notion. Secure yeah.
So we those are the types of conversations I think is prudent to be having right now. And, frankly, is a lot of investors and certainly a lot of founders who never lived through the dotcom crash and down markets, and they don't know how bad it can get They've only seen
good times. Right? What? 18 months of nuclear winter? No no checks being written?
Yeah. I mean -- What
have you whatever food you have in
the cupboard is what you're eating for the next
18
months. To 2003, you had 3 years of nuclear winter pretty much. But, you know, in 2008, 2009, it was about 18 months of nuclear winter. I mean -- Yeah.
--
it's just
--
It wasn't even it wasn't even that cold, but
You wanna hear a great 2008, 2009 fundraising story?
Sure.
I'm at Facebook. Market just implodes. And we need we decide that we need to raise some insurance just a little in you know, a little insurance policy. A little money. A little downside protection.
And I remember that we were having all these conversations with TCV. And, you know, they're they're a really good firm, very smart. And, basically, you know, we we told them what the price was. I think it was like,
$7,000,000,000
pre. Right? Like $7,000,000,000, we wanna raise 500,000,000 just please just do it. We we we just wanted to need a little margin of safety. And they came back with their model and they updated their model, David, to your point, and they came back at, like, 6.8or6.7 something like that.
6.5
And we were like, my god. What the fuck is this? Like, this is not 7. We just, like, we just wanna raise some money at 7. And 7 was round because we had already taken money from Microsoft at
15,000,000,000.
Not 15. So we had thought we had hit the jackpot when a year ago, you know, a year earlier, we raised
249 $1,000,000
from Microsoft. Now, by the way, why 249? Because at 250,000,000, Balmer would have to go to the board. So he goes 11,000,000 under the number where Bomer can sign the check himself. So we get Bomer in for
249@15000000000.
A year later, the great financial crisis happens. We are raising money. We tell TCV, please just give us 500,000,000 at 7 or 8, some number. They come in 700,000,000 under because their models is whatever. And I will never forget this.
It was a Saturday afternoon. I was on the phone, and I it was with, like, Ted Elliott, our general counsel at the time. And we got an a term sheet from a certain person Yuri Milner at DST. And Yuri came in, he he throws the high heater at, like, 8a half or 9. No board seat.
All common. I mean, a completely disruptive mood and move. And all I just remember asking Ted Elliott was does he vet Meaning, like, will the buyer clear? Will justice let the money come into the United States? Not knowing.
Right? because we had heard, you know, Anyways, the money cleared. We took the check and the rest is history.
I have a good story about that.
When you are when you are facing An enormous downturn. You have a fiduciary responsibility, David, to your point, to make sure you're well capitalized But then on the other side, you have a really important fiduciary responsibility to you and all the employees and everybody else to run this thing properly. and you cannot get confused that value and valuation are not the same thing.
Absolutely not. Yeah.
And so the minute you conflate the
2,
and you're like, I'm an x $1,000,000,000 company and start behaving that way, you're dead.
by the way, there's a big difference. I think it's important to note. I know it's been said many times before, but I'll I'll say it again. There's a difference between what your responsibility is as a board and as a fiduciary to the shareholders of that individual company and what the incentives and motivations are for the big investor that just put all this money into your company for their portfolio as a whole. For their portfolio as a whole, they would rather tell everyone go hard, go fast, spend as much money as you can, and they hope that 1 out of 10 companies becomes a 100 x from there.
And it's okay if 9 out of 10 die. So they don't care if you die. They care if 1 out of 10 companies goes a 100 x. Yep. You have a incentive and a different motivation.
Because if the company dies, your shareholders, you as an entrepreneur, your team lose out. And that tension needs to be understood really clearly by entrepreneurs and executives that are taking money under these conditions. Tiger Global, SoftBank, Code 2. They're great people. There's good people investing there, but the incentive for them is quite different than it is for you.
They're betting on a big winner Yes.
And do not do not expect that just because they're betting on a big winner, that they're expecting you will be the big winner.
It's they're indifferent As long as they have 1, go a 100 x, it's fine. When I
-- --
matter what happens to you.
When I met Yuri Milner, he came to a certain poker game. Not to play, but just to say hi. And I said to him, I said, you put all that money into Facebook. There's, like, a week or 2 after it happened. He said, why didn't you take a a board seat that's never happened?
And he looked at me and he goes, just in Calacanis, you don't need to have a board seat to be influential. He was like, he can he can keep a go. I I think this guy's gonna, like, whack me any minute. The reason the rest is history. Lord ever heard.
You do not need board seat to be influential. I was like
--
What do they use? The Compermat?
What a
I don't I don't wanna know. Compermat. Compermat. He's got guys. And someday I'll tell the story of the 3 hour lunch I have with your remelder.
Alright. Listen. For I I I don't know if we have anything else to clean up here.
Josie Smollet. Yeah. Were you talking about juicy Smollet?
famous French actress
--
Is it Jesse or listen. They're famous French actors.
As Dave Chappell calls him, the famous French actor, juicy Spole. Alright.
Listen. I don't even wanna go there, but I there is a person who pretend this I mean, I think it's actually worth talking about since we do go
to -- Yeah.
--
the we do talk about race sometimes. There's an actor who faked that he was attacked in a bias attack. He was found guilty of doing this. it's deranged. It's sad.
The personal mental issues.
I'm hey. I'm not interested in I'm not interested in the gossipy stories. You guys have a good You got that later.
Wait. Wait. Okay. Let's move. What what else do we got on the docket?
I don't wanna lose free bricks over. I don't wanna lose free bricks over there.
I don't I miss Friedberg.
Like, I'm gonna are
you gonna come to the park tomorrow? I want a hug Friedberg bony body.
Why don't you come to the park tomorrow?
--
coming. What are you rip what are you gonna draw beside your John Lewis?
boys, I was in I did the thing with the thing of
the film. I can touch that. It's fine. It's okay.
And then I was in
--
doing another thing. Alright. That's all good. Okay. So don't show up.
Jake L
said he was gonna go you go skiing. Have a good time.
No. I'm showing
up for your message.
This is like The Beatles. And you know what? Shamat's turning it to to John Lennon. He's gonna hang out. got some -- We got
we got some buddies there. We got -- -- show up. Will it
Rick and teasing these days? Sachs are going?
Guys, you do know how far it is from where I live
for me.
I know because I play I come to you.
How many, like, minutes he comes to
your house every week? Dude, it's it's late.
And I love
you for that. And I love you for
that. Yeah.
Are you gonna go, Saks?
What's the chance the Saks shows up? The RSVP, are you gonna go, Saks, should I throw it by the way?
The RSVP, he didn't even do this. One of his
Oh, for
a free bird's holiday party? Yeah. Well, I have a conflict.
--
your birth. Oh, you have a goal. Oh my god. What is the conflict? You need to drink some happy
all. They probably tomorrow night. So -- Oh
my -- -- wait -- let's go. You're going down to
--
for his party. Can I go? I'll skip Friedberg for that.
Yeah. Yeah. You're alright.
Fine. Sorry for everybody. It's okay. we're selling you up. Wait.
Why are you go -- It's all good, besties. Why are you wait a second. You're picking -- over Friedberg.
I mean, I've gone a all day party for, like, the last 5 years or whatever
it is. Number, maybe more years than that. It's always
a great party. Tell us what this
is a -- Good party.
When you see
him, do you look him in the eyes and say, what have you done for me lately? Did 2 of them never
did did 2 of them haven't looked each other in the eyes? Never looked at the eyes. They never looked at the eyes. It was an accident thing when when they first met they accidentally.
Okay. I gotta run.
What wait. No. Wait. Wait.
Wait. Wait. Wait. Wait. Anything else?
--
do the Jussie small eth thing quickly. No.
We do it last because you don't wanna talk about it. Better
than last thing.
We've been
that's over an hour. New bank IPO was huge. Schuchar.
Plus feed IPO was a complete disaster. 80% of people already in their spec. Buzz feet is circling the drain, what a disaster, the end. Thank you for tuning in to the all in podcast.
That's all we have on the docket today?
Chamonte is ready, man. -- only Chamonte. Chamonte's a loose
loosey goosey.
He's a little loosey.
He wants to go fry. I've been working I've been working so I am working hard. I know.
I am white then this week. I was traveling all
week. I'm exhausted.
I got people in town. I gotta run.
Okay. That's terrific.
--
free burger. We'll just go for 5 more minutes. I'm gonna go tomorrow, free burger. I'm not selling you out like these other
2.
I love you, Jake.
--
and -- Love you, Friedberg,
love you guys. You'll see you later.
Bye. -- over here. I'm gonna give you a call tomorrow. Did I tell you about my poker game on Monday? Oh my god.
You went back to poker game? Thanks for the invite.
Oh my god.
You went big?
it. We lost our minds.
Oh, no. No. And there was there was some
--
These are big out story?
There was some enormous carnage Oof. Wires were initiated today, so everything is settled. I -- Were you carnage? Nope. Oh.
§08Segment 8
I did a little bit of the I do a little chewing of the carcasses.
You're like one of those was there a whale and you're just like a great white shark just taking bites after the whales dead of the clubber.
We quit at 3 AM, and it was it was nice.
That is crazy. Alright. So we're just too small. And now that Friedberg. You want -- Yeah.
It's just a small life.
I mean, it's just very weird. I mean, I think on a race issue, this is, like, the worst possible thing to happen. Because we do have instances of Asian hate, of, you know, people being beaten up before the color of their skin, for their sexual preference, whatever it is, And then this person is so mentally deranged that they set up a bias race attack Apparently, am I correct that he did this in order to get sympathy so that his acting career would do better, or do we not
--
Apparently, he was in, like, negotiating his contract, and he says
--
He's worried
about cut from the show. What? He he was on the show empire, and he was worried about getting cut from cut from the show. But look. I I to me -- So
this hold on. Explain that to me. He's worried about getting cut from the show, so the jump is if I had a race attack they can't fire me?
No. He played the sympathy card.
sympathy card. I got it. Yeah. But I just wanna make sure I'm understanding it, and I'm not crazy.
He he made himself into a call celeb of the woke left.
This is in early 2019 when everyone was worried about, you know, Trump.
So he claimed that he was beaten by
2
MAGA, you know, haters who tied a noose around his neck and poured bleach on him. I'm not sure what the bleach was about.
I think maybe that was -- No. No. No. No. No.
No. No. No.
No. No. You don't really give him what
you're saying.
--
something. He said -- Is that
what it was?
-- 2
white dudes. Okay? And then and then at one point, he in the you when they the interrogators or the investigators were pressing, are you sure they were white? He said, well, you know, I don't wanna be racist. life.
And then it turned out the 2 dudes were black. Like, I mean, like, from Nigeria.
Yeah. He hired them. He hired them, and he paid them by check. So this is not like a master criminal.
There's no Lex Luther.
No. No. But but but look. I I I I think this story what it's really about is not a story about one sociopath doing this crazy thing. It's really more a media story.
This is about how the media covered it. They loved it. And I think this
Wall to Wallman.
Wall to walk coverage, and I think this reflects all the worst qualities of the media. Number 1, rushed to judgment. They immediately bought into the story, and they were attacking. the Trump administration for creating the hate and the MAGA people. So there was a feeding frenzy.
Number 2, there was no and this goes with the Russia judgment. They didn't do any fact checking whatsoever. Right? Because the story was too good. It fit all their priors just like the Rolling Stone, ivermectin hoax, about you know, the MAGA people, you know, in Oklahoma hospitals or whatever.
That story was too good and Rolling Stone and Rachel Maddow bought
the -- No fact checking.
--
bought the hoax hook line sinker because they didn't do the fact checking. And then number
3,
no corrections. None of these sources ever apologized did the May of Culpa issued a correction there's just an eerie silence coming out of all the sources who pumped the story like Raiser.
You have to Nick, please put it in the show notes. The there's gotta be a YouTube clip of the Chappelle joke around juicy Smollett. And the basic joke is, like, every colored person stayed silent. all the blacks, all the browns. And the joke the punch side of the joke is because we were all like, he's probably did it.
You know, like, why aren't you defending juicy Spillay? And the whole point
is, why? It looks kinda guilty to us. Well, I mean, hold on.
--
incredibly funny. If you Let's just play 15 seconds of this, a deep link to his first interview. I think this is his first full interview. Just play 10 seconds of that because this is of Joyce off my leg? Yeah.
I noticed the rope around my neck, and I started screaming. And I said, there's a rope around my neck.
Did you get any kind of description of the attack.
I gave a body description and I you know, because I saw this, but and, you know, right here or whatever, but I didn't see I can't tell you what color eyes were, I can tell you. And I did not see anything except the second person I saw running away. And the first person, yeah, I saw saw his stature. I gave the description as best as I could. You have to understand also that it's Chicago in winter.
people can wear ski masks, and nobody's gonna question that.
It's just so deranged. I mean, the the poker towels are flying off of him. He's like thinking.
Does this make him a bad actor or a conductor? I just wanna know David as a producer. Are you hiring him now or not? Yeah.
May maybe. Maybe I will hire him.
probably got
his end.
Oh my god. Sorry too soon.
But the crazy thing here is that a lot of people all the Liberal elites basically fell for this hook line sinker, president Biden, vice president, Meredith
--
Here's the thing. The
lesson is
--
They all jumped the gun on this and we're basically denouncing they bought into the story. They were denouncing this racist attack and blaming Trump and the administration for it.
--
a new policy. I wait until the court case is over to comment on these crazy things. I don't wanna comment on a Twitter. I don't wanna like it or retweet it. We have a justice system.
If this stuff is hitting the justice system, just let the process happen because
--
Right.
--
the velocity of social media is such that, and we talk about algorithms all the time, that if something like this happens, it's going to become the number one Soren, a billion people are gonna see it. And then there's fallout. And the fallout here is he just divides the guy oh, just everybody showed up and wait.
The same thing happened on the written house case. Right?
Absolutely. Just wait.
--
rush to judgment. They accuse his kid at being a wide supremacist attacker who, basically, like, a school shooter, it turned out to be totally false. But, you know, the court systems have been doing an amazing job. When you think about the cases, I think the courts have been on quite a run-in, I think, contradistinction to the media keeps getting it wrong. Right?
So you think about it. So Derek Chauvin convicted. Josie Smollett convicted. the the 3 killers of ahmaud Arbery convicted.
It's okay. Hopefully so.
But Cowrin House, not guilty, Kenneth Walker, not guilty. This was Breonna Taylor's boyfriend who killed a cop when they killed her. Remember when they busted the apartment. He basically pledged his case, he pledged self defense because he he didn't know who was shooting at them. And he he got off just -- -- not warrant.
Yeah. He got off just like how Rittenhouse did. So, you know, people I think are jumping the gun on all these cases.
There's actually an enormous amount of justice. America is an incredible country
--
We don't get enough credit for that yet.
--
mostly finds a way to get to the right place. Obviously, there are moments where we completely get it wrong. But, David, to your point, those are some really powerful examples in modern history with a lot of scrutiny where our peers, American jurors found the way to get to the right answer.
Yeah. Feels great.
Yeah. Bravo to America. Bravo to those folks.
Good job. Good job, man. By the way, the
Breonna Taylor example is really wonderful example. And the amount arboring thing was really important to me as well. Thank you for bringing it up. I appreciate
it. Well, you know, because because I think, you know, when when the Rittenhouse Verde came down, a lot of people were saying, well, look, if if Kyle Rittenhouse had been black, he wouldn't have gotten this self defense just as well. Kenneth Walker, actually, that case was a self defense case, and he killed a
cut -- -- a single article in the mainstream media to basically actually defend Kenneth Walker.
Yeah. And he he actually shot a cop. Right? And -- Yeah. -- but and he still got off because when they bust into that department, the jury thought it was reasonable.
Very very tragic. -- self defense.
Very tragic that that that that the officer died, and I'm sorry for the family. But but I really hope that Kenneth Walker has a a really amazing productive life from here.
Yeah. I mean, in this -- It's a terrible situation around.
--
of, like, are these no knock war warrants even warranted. Like, what what are we doing?
Like, is that necessary? If Kenneth Walker lives a productive life and does good in the world from here, He does a small amount to kind of make up for that injustice of Breonna Taylor and probably you know, kind of create some positive karma for the family of the officer that passed away. And that's the best that you can do.
Would it just be great if it as Americans, we could start looking at these issues and saying, like, justice is worth pursuing. The truth is worth pursuing. And we're all in it together. The United States like, we talked about today, and they kinda
make -- Also, we got it right. in places that the elite coasts kinda point to and look down on. We got it right in places like Georgia and deep parts of Georgia. You know? And and and and I think that that's something for us to also think about.
It it is the A virulent strain of the liberal elite that really do judge the rest of the country for being in a way that is actually not true. They got it they got it right in Kenosha, Georgia, Kentucky, Illinois just to be just to put it on the record.
We'll see you all next time on the Olin podcast for the dictator Rainman and the queen of Kinois. See you all next time. Bye bye.
We'll let your winners ride.
Rainman David Sanders.
And I said -- We open source it to
the fans, and they've just gone crazy like that.
besties are gone.
We should all just get a room and just have one big huge ordeal because they're all just useless. It's like it's like sexual friendship that they just need to release somehow.
What? You're beef. What? What? What?
Where did you get Mercies are back?