First principle politics, China chaos & outlook, state of private/public markets & more
Full transcript · Read the full conversation in order, with its original context.
§01Segment 1
2 days ago -- Here we go. -- in the pizza, I got into a fight.
You got into a fight.
I got into a fight.
Like a physical altercation.
The physical altercation.
Really?
This chick shows up wearing a white wife beater talking all kinds of shit. And I said, listen, lady. You zip it. And she just kept jying and enjoying. And here she is again.
She's back for more. And so I was like, listen. Have you ever seen this year? Have you ever seen a a one a onesie wife theater? Look at that little sweetie off.
I'm just gonna open you. And you feel sure you sit there, and then you just sit there. And then look. There's your cold open, everybody. That's the good stuff
right there.
-- everybody. I know I'm not a beagle. I know I'm not a beagle, but I'm even better.
I have my own thoughts. Sacks, what you're seeing here is called affection between a parent and a child. Just
let me know when it's over.
Just let me know when it's over.
You're the worst human being in the world.
I don't need to watch Jamoth boost his Q rating by using his kits as props. Okay?
Oh, Freeburg, where is your puppy that you saved from being tortured with Kim Kardashian's lip gloss? Nick, we gotta get this guy in because
he hasn't been in the show in a while. There he is. There he is.
Oh, Monty. Oh, your belly rub.
Got that pops out of the shot.
Let your winner ride. Rainman
David Sachs.
And I said -- We open source it to the fans and make discoveries. Love US Ice Cream.
Sachs, what's up with JD Vance in Ohio? Is he gonna pull this thing off, or is he getting beat up? I read an article about him. getting beat up with the Peter Teal connection being
--
He got physically beat up? No. No. No. Like, in the polls.
No. No. No.
No. No.
I think JD should win.
He's gonna win. Right?
Yeah. I think so.
And what about Blake Masters? These are the two guys that TL is backing.
Should we start the show?
We kinda did. Yeah.
Can I ask you a question? if any of us entered porn, wouldn't one of our names be Blake Masters? Like, it's just wouldn't it be on the list? Like, doesn't it sound like a great
see it.
Isn't it a great name for porn? It's a great name.
Blake Masters. It's a great name. And and JD Steel I'm sorry, Vance. Go ahead. Explain what's going on with this mentoring candidate.
Would you would you would you would you accuse him of without any evidence? What would you say?
I'm not using anybody of anything. I'm just saying, tell us about your mentoring candidates. Go ahead.
Well, so JD's already won the primaries, and I expect he will win. I mean, it's gonna be think, a red wave in November. And Ohio is a pretty red state these days. Blake's also won the primary in Arizona. a little bit more of a toss-up, but I think he'll do well.
Alright.
Well, I
had a follow-up question, but I'm I'm not allowed to mention the t word. So let's just get started.
Why is it such a big deal that, like Peter or sports candidate. So you got all these, like, crazy left wing rabbit holes.
It's interesting.
Soros gives unlimited amounts of money to, you know, crazy progressives. like Gascon in LA and a zillion others? I mean, why why is this such an obsession that we have to focus on who Peter supports?
No. No. I just think it's fascinating that he
--
Figures articulated his rationale for supporting these candidates and his objective for, you know, changing government in a way that he would benefit the country.
And Peter's been generally right.
What is the thesis rework?
I think a part of if you watched his speech from the RNC during the the last Trump cycle, I think he did a good job kind of articulating that there's a lot of inefficiencies in government, and there's a lot of, call it, accumulated fat And we need someone to go in, and we need people to go in and really cut this up because so much of politics is driven by what else I'm gonna give you, not about what I'm gonna fix already being spent in in an in an efficient way. And as a result, we see debt climb. We see taxes climb. We see efficiency continue to decline up to every dollar invested by the government. And I think that's a really important thesis to see someone actually try and execute against because -- More personally
-- --
very few people are in the position that he's in. to actually be able to, like, make that sort of statement. Everyone wants something more from their government versus trying to fix the government.
I think his views are more extreme than that. I think his views are more that orthodoxy is ruining in America. And so you need forms of heterodoxy to basically reset Totally fair enough. -- quote.
And I
and I think that's what he believes more than what you just said. I think that you need a wholesale reset. And in order to have a wholesale reset, you need to have these very disruptive candidates that basically start to change the norms. I mean, if you if you think about what Trump did in one election site, goal is he's completely sucked an entire cohort of people, Hispanics, and, you know, moderates and now, you know, a lot of immigrants towards the right because the Democrats have vacated all of that space in having this massive Trump derangement syndrome and tacking extremely to the left. And even if Peter will never know.
believed in Trump or didn't believe in Trump. It didn't matter, but the process of him getting that candidate elected over the long arc of history may actually serve to pull America back to the center. Pretty good. How?
Yeah. Look. The the reason why I support JD and Blake for that matter is they are they represent this more populist working class wing of their Republican party, and they're dragging their Republican party in a more working class direction. I think that's the future of the party. I think that's the opportunity for the party.
To Chamas point, The Democrats have ceded all the sort of this working class territory by becoming this elite progressive party. And the face of the party right now, the democratic party is Paul Pelosi. You know, let's talk about this. It's blatant it out in the open. He's trading on chip stocks like NVIDIA and Intel and so forth.
Like the week before, the house is gonna vote on a
$52,000,000,000
subsidy For children
No. No. Be more precise. The week before his wife decides then critical legislation goes to the floor of the house to be voted upon. So you have the speaker of the house who's the 3rd most important person in government.
Introducing legislation on her timetable Her husband trades in those specific equities, days and maybe even the same day --
So gross.
-- of that, They make three times her annual salary just in one day and then she and her husband decide to then fly not asked by the United States government or the state department. To Taiwan, to then talk about god knows what, which would have created an international uproar. The Biden administration and Tony Blinken had to basically call her and say, stand down, you should not go. We are not asking you to go. It is not on the United States agenda for you to go.
And all that would have happened is an entire process and loop where she controls the legislative agenda. Her husband controls their private stock account and He -- It's such a great -- -- in the names. Yeah. And then they go to Taiwan to whip up the fuhrer, which would have actually positively impacted those same names even more. it's inexcusable that kind of behavior.
I mean, after 40 years, she is so past the line and she doesn't realize it. And by the way, sorry. Let me just wait. Hold on. And then on top of that, Jason, the mainstream media doesn't say shit.
Now by the way, I'm not a Trump supporter. I think he's a complete goofball. But if Trump had tried to pull this stuff in 2016 or 2017 or 2018, Could you imagine how much media coverage there would be? And today, how much of that is covered by the mainstream media? 0.
Was it mentioned on MSNBC? Nope. Was it mentioned in any of the press? Nope.
Let me just set
the stage so people don't know what we're talking about. So on Tuesday, the senate advance, a slimmed down version of the original chips bill, if you don't know what that is. It's basically a bill that's gonna provide $52,000,000,000 in subsidies to move chip manufacturing here to the United States, something we really need to do. It's a bipartisan bill. Everybody kind of agrees on this.
But this is been kinda stuck in committee for a little bit. It comes a year after the center first approved the
$250,000,000,000
ill, to reinforce she was chip making to compete with China.
The reason why this is strategically important is because we have a huge chip dependency on Taiwan, which is under threat from China. So if chips are the new oil, you know, Taiwan is the new Middle East or the new Persian Gulf and it is a very dangerous situation for us to be completely dependent on Taiwan. Well, not completely, but, like, for over half our chips. So on shoring, advanced chip manufacturing makes sense. But I think this is an example of how you you start with a legitimate objective in Washington And very rapidly, it turns into corporate welfare and graph by politicians.
I mean Yeah.
It's gross.
Yeah. I mean, just because we need to answer manufacturing, doesn't mean that you give Intel and NVIDIA Giant handouts. And then you got Paul Pelosi making millions trading in video options. Yeah. And this is something
that is all getting done, sex. To support on shoring of semiconductor manufacturing, who would you give the money to, and how would it be kinda dulled out? What would the terms of it be?
I don't
know that you just give these companies I mean, I think maybe what you do is you give them tax breaks or various kinds of breaks, but I you know, I don't like jackets.
They need capital to support that investment because You know, if you look at the kind of ROIC on these companies, I would I haven't looked, but I'm guessing they're in the high teens or something mid to high teens. And they're not gonna be able to invest in some newfangled, you know, fab project that may or may not actually have customers at the end of the day. Their their board would never approve that on independent They
need capital. -- ROIC, Friedberg.
Return on invested capital. So if you're a big industrial business, you know, one of the key metrics that your shareholders look at is the the the ultimate kind of profit profits that are generated from a big investment you might make. And so, you know, you kind of look at that over time, you look at the invested money over time and the cash and return over time, and you come up with this metric. And so it's a key metric for particularly capital intensive businesses. And so a business like Intel or NVIDIA, I would imagine is gonna have a pretty tough time selling their board on some speculative onshoring fab project there really does need to be capital and acceleration of capital.
Hubert, who who feeds you this bullshit propaganda? Intel, In 2020, approved a share purchase plan where these guys had a hold of a $110,000,000,000 and have spent all of it except for 7,200,000,000. They have 6,000,000,000 left on the balance sheet.
get it, but they're not gonna put that money at risk. Right? Like like, to mark, imagine you're on the board of Intel, and they're like, hey. We
wanna -- -- government?
Okay. So, basically, hold on. I make a ton of money
for the yeah, this is where it all comes from. Right?
I make a ton of money. I have no better ideas of how to do it, including theoretically building a chip factory, So I'm gonna go to the government for a handout. Meanwhile, I'm gonna take all the money that I had, which I could have used to fund this thing, and I'm gonna give it away to people. who I don't know what they're gonna do with it.
I would reframe it. I would say that the government wants to see our industry, onshore, semiconductor manufacturing. and they are going to the companies, not the companies going to the government. They're saying, we want you to onshore semiconductor manufacturing. Do that for us now.
Like, In World War 2, we went to the automobile manufacturers and said the government said, we want you to make airplanes. Here's a bunch of money make airplanes. And that's But you
do know this, but
who does that put -- -- go who else would you give that money to besides the 2 best chipmakers in the world
-- David's right. -- based. If you just give us a CapEx subsidy, that's a one time effect that helps you in a moment. It doesn't help your business. Any reasonable investor who can actually use a simple calculator sees through that nonsense.
So what David's right is if you had given them sustained tax breaks, for being able to build the business line that then supplies things for the duration, you know, tens of years. You're absolutely right. Investors would laud it. would make a ton of sense. They would be over earning over a long enough period of time where people would have to bake that into their cash flow estimates.
where when you discounted it back, it would make the enterprise of Intel and NVIDIA worth more, and then people would then wanna own that stock more. Giving a CapEx subsidy is a meaningless way in which you basically hand out good money to organizations who have otherwise misallocated the money that they've already had.
Yeah. There is a much simpler solution to to Saks's point of, like, how do you do this? And giving free money is not the way to do it. The best way to do is to give an incredibly low interest rate loan, like a 30, 40, 50 year loan. that maybe has some warrants in it just like a, you know, a Silicon Valley Bank or a Comerica might give in a venture debt loan where the government actually could make money from this And then you incent them with something that is just too good not to take.
§02Segment 2
A 50 year loan of $5,000,000,000 to build factories, you have to use it for that. so it's use it or lose it. And then you slowly pay the government back, and then maybe we get some warrants in Intel or whoever give the money to. This is something that Obama did with Selandra Selindra, which didn't work out, but he also did it with Tesla, and Tesla paid all that money back early. So these loans that the Department of Energy did really did and and you gotta give Barack Obama a lot of credit for this.
It really did help drive even though it wasn't perfect.
By the way, when --
It did drive a lot of AV ad adoption. It did really help Tesla become the company it is today.
Sorry. Let me just respond because, you know, I I don't know how much we've we've gone through the details of the bill, but there are several components to this bill including and and I just wanna highlight, if I'm a on the board of Intel, I'm not gonna make a $10,000,000,000 fab investment because, you know, there's there may or may not be, you know, profits down the road to justify that size of an investment. So if the government comes along and says, we will support. We will cover x percent of that investment, I can take on more risk, and I am more willing to make that investment. And, theoretically, I can afford to pay people a higher wage or a higher salary because I now have more capital freed up to support to do that.
And so there is an effect that that arises by having the government come in put some money into these projects, accelerate their outcomes, and it gives the the business more freedom.
Should it be freeburg, free money, or in the form of a loan? So what should that financial device b, I think, is the question that you asked Saxx if I'm interpreting correctly.
Yeah. I'm not sure that the loan because the loan doesn't resolve the fact that they're having to put up money. Right? And so they're not necessarily gonna make this onshoring investment. The the the rational capitalist decision is to offshore manufacturing for Intel.
It is irrational. for them, from a business perspective, from a board perspective, from fiduciary perspective to onshore manufacturing. So the reason they're gonna do it is not because they're getting a loan where the Interest rate is low, that doesn't really solve the problem. It's the government saying we're gonna put a $10,000,000,000 facility. We want you to build it and manage it for us.
and that's effectively what's happening. And now by building this $10,000,000,000 facility, we've created security for the rest of the US industry. It's worth it to the government to put that money up. It creates security. for our economy.
No. It won't. Wait. Why wouldn't it create security if we if we have more onshoring of chips
so either
way it creates more security? I'll say
one more thing. There's also an investment credit built into this bill sacks, which does provide over time a bunch of incentives to continue to support and drive the on shoring work. That's proposed in the bill.
If you want the United States
Point of personal privilege, can I request that Shamoff I I add this one button to shirt.
Yeah. It's fun.
It's just I need to choose a
strapping for you.
You can't think you're on the idea there, Big glare. You just want to hear your
Ugh. First, I had to watch Jason do the gun show. Now I gotta watch Chamath, you know.
Show us your guns. Come on. Pull up that sleeve and show us what you Alright.
Let's move on. Let's move on.
wanna say one more thing about the Pelosi stuff. So here's the data. I don't know if you guys have looked at the full history of the Pelosi trading data. Here's the link.
This is all
the trading that's happened over the last couple of years.
So
--
And over the past year, he has bought NVIDIA 4 different times each time in the same kind of volume range. So the timing certainly may appear a suspect, and it's certainly a terrible kind of thing to see. He's also bought Apple in the last month. Microsoft sorry. He sold Apple.
He bought Microsoft. He bought AllianceBernstein early in the year. He's made a few trades this year. NVIDIA, he's actually bought on 4 different occasions over the past 12 months for whatever that's worth. Right?
I'm not not trying to defend it, but I think we should be intellectually honest about the fact that this guy you know, does take points of view in certain companies. He prides in a handful of companies.
Are we are we only to be intellectually honest enough to think that a husband talks to his wife? and vice versa. Yeah. Or does that not happen anymore?
Depends on the husband and wife. But yeah.
I think this is blatting and out in the open. I mean, it looks really at
at a
minimum, the appearance is of graft and corruption.
Yeah. The appearance of impropriety is impropriety They shouldn't be allowed to trade. They should have to put their stuff into blind trusts, or they should maybe trade once a year, and they should have to announce their trades before the trades happen. Hey. Here's what I'm planning on doing.
Just like a CEO is planning on doing this stuff. It it's ridiculous that they can do this. And if you
decide -- -- the mainstream media cover this? They have. And Jason and Jason, do you think --
They have.
-- think that if Trump if it this had happened during Trump, we it would have a lot more coverage than this pillow. Do you
remember a lot of coverage on Trump
it really doesn't get covered. I mean, if you just search for it today, you'll see basically the only media outlets covering it are like Fox News and then 0 hedge. You know, that's it. I mean, that's how I find out about it is like the 0 hedge tweets about it.
Me too. So Daily Beast you know, headline
--
You can go through it.
-- 7
hours ago. Dams quietly Friedberg jam Pelosi on stock trading ban. But if you're asking me, you ask me a question. Chamath, is the media largely biased against Trump and gives a free pass to the dems? Yes.
I would say that that is the trend. Yes.
think that is intellectually honest of you.
Well, no. I I mean, I think the media is bankrupt. They're just going for clicks, and I think, you know, we've talked about this before. they saw Trump as an existential risk, and they just did whatever it took to get him out of office even putting up But in doing so,
they completely burned all of their credibility. They lost a
lot of credibility.
And now the dems are starting to become increasingly detached and out of touch and maybe hated But then the result is that the mainstream media is just no longer trusted.
The media and the democratic party both have the same problem, which is they suffer from what the Democratic political scientist Roy Toucher is called Professional Class of Gemini. I mean, they are populated by college graduates with degrees who basically have this very elitist progressive agenda. And that is what is causing the democratic the working class to defect from the Democratic party, their historical base, in droves, look at Hispanics. Well, first of all, if you go to the latest Biden polling numbers, he's down to 31% approval, 60% disapproved, Okay. So the trend is getting worse there.
But you look at Hispanics, it's down to 19% approval, 70% disapproval. It's an even more intense version of the same problem. You had Myra Flores get elected in that Texas seat. This is a district that went. It's basically a predominantly Mexican American district, they went for Biden by 18 points just, you know, 2 years ago and now they're voting for her by over 10 points.
So you're Republicans winning that seat for the first time. So you have these huge defections. Now why why is that happening? Because the Democrats are appealing to the donor class on issues like border, on issues like crime, and on issues like CRT and schools. I mean, you know, the working class people in this country, they don't wanna open borders, they want crime to be prosecuted and cracked down on -- Yep.
--
and they do not want an ideological education for their kids. Okay? It's very simple. But that basically is why the Nobel Credit Party is losing losing votes. Now, let me give you a call other examples of the Democrats cynically appealing to this sort of doughnut class.
So, recently there's a article about the Democrats have spent
$44,000,000
to this election cycle, basically running ads in favor of the crazy MAGA candidate in primaries. There's been a bunch of reports of this where in competitive Republican primaries, the Democrats will actually spend money on behalf of the sort of the more perceived crazy Republican -- The crazy Trump,
the magazine.
--
election and iron and so forth. Yeah. Because of the perception that they'll be easier to beat in the general. But I think this is a case to be careful what you wish for because you know, if we have a red wave in November, you're going to end up with more of these candidates basically winning. So it's a very cynical strategy.
The other example I think of a very cynical strategy is you saw there was a vote in the house this past week on gay marriage. And the House voted to repeal Doma, the Defense of Marriage Act, and support basically codify Oburgiaphil. Right? The Supreme Court's decision on on gay marriage. Something like, you know, 60 Republicans voted for it.
Look. I would have liked to have seen more Republicans vote for this. I think it should be like, you know, majority of the Republican Party should be voting for this. But the point is that is there any intention of the Democrats to bring this up in the Senate and pass it and codify O'Burg fell when they have a chance. I think the answer is no.
Why? Because the Democrats would rather fundraise off this issue. The same thing was true about Roe. The Democrats had super majorities in the Senate, under Obama, they could have codified Roe. They never took the chance.
Why? Because they would rather fundraise off this issue, from Progressive elites, the donor class in California and New York. So this is why they're not gonna qualify the virtual app Absolutely.
Obama said it on on the record. Obama was asked why will you not? He campaigned on codifying Roe v Wade. And then very quickly into it, he was asked when he had the super majority and built the house in the senate, will you act on Roeby way to go, no. It is not a priority anymore.
That's a quote.
It absolutely could have been codified. Just like a a Birch fell could be codified tomorrow.
Tomorrow The
senate look. There are there are 10 Republican votes. There are 10 Republican votes at least for this in the senate. You have a a filibuster proof super majority in the senate who would support this. The same Republicans who supported the gun restriction bill that Biden just signed and that supported the infrastructure bill.
You think they could codify abortion rights in this country right now if they want
it? No. No. No. No.
that that moment has passed. That moment has passed. I'm not saying
--
Republicans would never give women the right. No.
No. No. Look. There's not some majority if you send it anymore for a codifying role. There is a super majority right now for codifyingo Berginafil.
Alright.
They could do that right now, and they're not.
Jamak, you've been a donor to the Democratic Party. Do you believe that Really? Do do you believe that the the abortion issue drove you and others to put more money in and that maybe Not No.
Because because the leadership of the Democratic Party focused on Trump in the last big cycle. It was all Trump Trump Trump Trump Trump. Do I think that more grassroots fundraising focuses on that or gun rights or
But you can reach back to saying it's true that they actually held off on trying to codify Roe so that they could continue to support
member there. I'm just gonna give you the quote. because it there's there's no opinion needed. Okay? April 29 2009.
President Barack Obama says on Wednesday, He favored abortion rights for women, but that passing a law guaranteeing these rights were not as top top priority. I believe that women should have the right to choose. Obama told a new conference marking his 1st 100 days in office again when he had super majorities in both the House of the Senate. But I think that the most important thing we can do to tamp down some of the angers surrounding this issue is to focus on those areas we can't agree on. So you make a promise.
You get into the seat of power. You have the decision on what your legislative agenda should be. and he made that calculation. And David is right, sadly, that it was in a moment where we had a clear line of sight to codifying many of these rights.
Yeah. But the question, Freeburg Friedberg asking. He's saying, do you think that they specifically did this to keep it as an open issue to raise money off it. I don't think that's believable.
Oh, yeah. Absolutely.
No way. No way. Absolutely. Because -- If you wanna talk about cynicism, Saxx, The truly cynical move was, you know, Trump saying, I am going to get this in evangelical vote to win the primaries to get those 20% who wanna take away the right for women to have an abortion, and I'm gonna stack the Supreme Court to actually achieve
that goal. -- second.
Let let
let let's define job.
all of the political stuff. Okay. Let's let's
define terms.
--
political. And so
--
Hold on a second. Hold on a second. Let let's define terms. So you may be opposed to what Trump did. But there wasn't that wasn't cynical.
He stated what he was gonna do when he ran for office, and then he did it. He lived up to his promise.
Somebody -- He did not hate
what he did.
He did not believe in that. He did it specifically to get those votes. We all know he didn't believe in it. We all know he believes that a women's right to choose.
Jason, He he created a platform to get elected.
Yes. That's what I'm saying.
-- was elected, he executed on that platform. I think what David Saks is saying is Obama had a platform to get him elected. And when Obama chose had to choice, he chose to not execute on the platform, and that is also true. And all I'm just saying is, We owe it to ourselves to be intellectually honest about what happened. That is what happened.
Okay?
Right.
Both of these two guys made claims. Hold on one second. Both of these citizens may claim -- --
acting in your own self
interest and that's what Trump did. -- I want this on the record. Both of these two guys made claims to become president. It turns out that Trump actually did execute on most of his claims as abhorrent as they were to some. Yeah.
And Obama on some of the most important issues of our time did not Look.
What Trump did was just simple coalition politics. He thought it was important to win the religious right. He basically appealed to them. He said that if you vote for me, will nominate these judges because of the office, he delivered. He delivered.
§03Segment 3
And he
didn't believe in it himself. Right? So that's matter. It doesn't matter.
At a certain point, it doesn't matter. And that's understandable.
People should for sure at principles. Okay. Look. You're here. You're here.
--
to you that. He does have principles, but I matters to me that people
are present.
But Jason, what does it mean to have the principle of saying that he's going to he's going to pass a codify Roe V Wade and not do it. What is that then?
I think he listen. I I the quote you gave doesn't give why he didn't do it. He didn't make it a priority. It could also hold on. Let me finish.
It could also be that he believed that it would not get overturned, so he should spend his time on Obamacare and other things. I'm saying cynicism is when you believe one thing, and then you do something to act in your own self interest. And that's what I think it's self that's what I think Trump did.
Awesome. We don't need to go back all the way to the Obama administration because the issue I'm talking about today
--
Yeah. -- is that in the past week, they had a vote codifying Obergefell on gay marriage and repealing doma. Okay? Right. So now, listen.
I actually think there were so many Republican votes in the house even though I would have liked seen more, there were enough that that this might shame Schumer into bringing up the vote because it's gonna be so obvious if he doesn't. that he is doing this for a reason. Right? Because they have the votes. They can pass this just like they passed the gun bill a few weeks ago.
Right? Just like they passed the infrastructure bill. So if he if Schumer doesn't bring this up, it's a very cynical move. And -- I
think it's strategically to have that as the issue to phrase funding. I I I get it. If you Of course. And and
and and it's really proof. Listen. I think
that -- Both sides are cynical.
Of course. If both sides engage in politics, however, However, what I'm talking about is the type of cynicism. So I think that there's a lot of issues on which the Democrats would rather appeal to the donor class basically that lives on the coast in New York, California and be able to keep fundraising on that issue and basically scaremonger on that issue instead of just winning the issue. They can just win this issue right now.
Timoth, do you have less interest in supporting the Democratic Party based on the principle you stated that in the past, there have been kind of promises and capital raised against, you know, codify row and then it not happening.
Well, they never made those promises to me, so I never felt like they lied to me. Mhmm. I wanna be very clear. So then nobody and I never asked for that to be a precondition of my donation. Again, my capital was focused on one thing, which is I thought that president Trump was not the right person to lead this country.
And I thought very clearly that the bright Democrat could do a much, much better job. And I am glad that Biden won. And I'm glad that the money that I put in, maybe in no in any small way, but hopefully, in some reasonable nontrivial way, helped. And I'm glad that that money helped even out the senate. I'm glad all of those things happened.
And so I wanna be clear. They've never made those kinds of promises to be nor have I ever asked I make a high level decision on who I think the best candidate should be and support the party that will get that best candidate effective. What I was just trying to make clear to you guys is that sometimes even a democrat, it's important for us to be intellectually honest about what has happened. It's very easy To look at the other guy and find all the ways in which they screwed up or Friedberg screw you or, you know, is is in a lack sympathy or lack sympathy, all of these things It's much harder oftentimes to look at your own team and say, wait a minute. Why didn't decks, y, and z happen?
And the reason I'm bringing up what happened in 2009 is I think David is right. We have a moment in time where the leadership of the Democratic Party can codify rights that should be codified.
And they should have. In hindsight, they should have done it. And then just
to be clear -- No. It is still open. We can do it.
I'm talking about Roe V Wade. And, yes, and for the for the we're talking about now, it should be codified. Absolutely. And just to be clear, I'm an independent. I would vote for a Republican who was socially progressive.
and fiscally conservative. As long as they're for gay marriage, as long as they're pro women's right to choose, and they were fiscally conservative, I would vote for a Republican. I'm a moderate independent. I wanna see less government and more efficient government, and I want people I want the government out of people's personal lives. And I think that's where Saks and I are exactly the same.
We we both want I mean, Sachs, do you want the government involved in people's personal lives? You're a classic Republican.
By the
way, according to the Monmouth poll from a few weeks ago, you represent
4%
of the voting base. I do. That's an yeah. That's an extreme minority. The the the the lowest self identifying quadrant of fiscal conservative versus kind of fiscal liberal, social conservative, social liberal, is the fiscal conservative social liberal.
What are we all here? We're I think we all fit this profile. Fiscally, we want the government to be run conservatively, you know, and with less government, and we want progressive social change. Right? I mean, I think we all feel
that way. Don't put me in
a quandary. Government attitude this person.
I don't
I don't I don't know.
I'm just asking. I missed
you guys if we were all in sync.
I wouldn't define my cultural positions as progressive social change because what the change that progressives are trying to
deteriorate
right now is radical. What I favor is social tolerance. I think we need to be a tolerant
I think we need
to be a tolerant society. America is a very broad diverse country. We need to find ways to live together and find accommodation on issues that are very contentious.
So
That includes tolerance for gay marriage. So Look, I'm on board with that but, you know, this radical progressive agenda of social change which includes upending the the criminal system in favor of
--
Yeah.
No. -- not prosecution. -- favor that. Yeah.
What's happening in the schools with CRT and the sort of high priority ideology education? Look. They should be teaching the basics.
Reading -- Yeah. Leave it up to parents to do the
other stuff. Alright. Exactly. Alright.
Great.
And so on down the line.
Well, maybe progressive is the wrong term because that that now has been co opted less government involved in your personal life and tolerance. I think we all agree on that, and I think we're Tolerance is a great word.
Everybody agrees with tolerance.
it's a privileged position to wanna have less government involved in your life. Right? I mean, many people in the United States have been able to thrive and and survive because of the role that government has played in their lives and there's obviously on one end of the spectrum extreme grift, And on the other end of the spectrum, extreme need that is being met by the wealthiest government in the world. And it is a that that, you know, it is in that middle where all of that
--
Where do you stand free, bro? How would you describe your politics in these two dynamics? Right? Are you are you also in this 4%? Freeberg?
Yeah. Yeah. Yeah. No. I'm I'm here.
I'm trying to be thoughtful about this because -- Yeah.
No. I think it's the idea. Yeah.
I think that the government's role is to support those in need, not those in want. And I think that the government should be held accountable for performing that role. And I think that those of us who can, that are sitting in privileged positions and seats, should enable the government to perform that role well and we should be positive actors meaning we should support, we should pay taxes, and we should help people and and institutions in need and that are, you know, kind of for the greater good. And then we should be holding ourselves, our government, and our our politicians to account for inefficiencies. And the biggest concern I have is less about are the people in need needs being met as much as are we holding our government to account for the performance of its services and duties to the American people?
And I don't think we are.
--
want
I I like this want need concept here. Can you give an example of where the government, like, people need something, but then there's another group that wants something and maybe we're overstretching and and, you know, giving into wants when we should be focused on needs and efficiency. Yeah. I'll give you a pretty
an example. I know reasonably well, which is the Farm Bill passes every 4 years. and the farm bill in order to get it passed in both the house and the senate. It has components that serve both farmers, and support the the food stamp program. So the food stamp program obviously supports millions of Americans that are in need of food, can't afford food, They get EBT cards.
They get support in buying food, and there's a lot of programs and access that are enabled by that program. But in order but that mostly services the needs of urban areas of cities. So it passes that that that element of the bill is attractive and appealing to the representatives of cities found in the house. On the other side, in order to get it passed in the senate, where the majority of senators come from rural states, which are have significant farming populations. The farming subsidies are planted in that same bill.
And as a result, because everyone's getting something, that bill as a whole has now grown to a multi $100,000,000,000 bill that gets passed every few years Because in order for the senate to pass it, the house says, okay. We'll give you all these farm subsidies. In order for the house to pass it, the senate says, well, sorry. It's a and vice versa. Right?
We'll give you all these food stamps. But but both of them now have incredible what do they call it pork or fat or whatever. Yeah. The amount of money that's wasted that isn't actually servicing the original intention and need of either of the parties that are represented by that bill is extraordinary. And I spent a lot of time in the Farm Bill.
I actually went with lobbyists years ago to DC, and I actually met with the senate and house ad committees. I've gone very deep into the bill and some of the programs in that bill. And it's just shocking to me in the same way that Palmer Lucky shared in our all in summit how shocking it is, how defense spending works in this country. It's shocking to me how some of the the programs work in the Farm Bill, how much money and how much waste there is and how much grit there is. And so, yes, we are meeting the needs of populations in need in this country.
but so much more of the bill now is about people wanting more in order to pass the bill, and it's and it's bloated. Alright.
And who's
gonna come in and fix it? because where's the incentive? for anyone to come in and cut that bill up, worth the incentive to fix it.
If both sides are barrelling the grift, then there's no incentive. They're they're they're in a dance to to maximize the grift. So, Shamak, where do you stand now if we if we were to sort of look at politics without the Biden and Trump arrangements syndrome without the the the tribalism? just in terms of 1st principles, I think what we're seeing here is we all wanna see radical competence in the government, social issues, you know, and fiscally how we run the country. Where where do you stand?
How would you describe yourself now?
Look. I mean, I think of things in terms of risk Here's what I see. I see that there are a handful of issues that remain in terms of social policy that just needs to get codified. gay marriage is an example of one. Abortion rights is an example of the other.
Then and and I think, like, those are, like, really To to my perspective, speak about human individual liberty, which I think should trump everything. So everybody should be allowed to kind of pursue the best version of themselves. However, that manifests in the person you married to in in the gender you express. Not these are like things where what you do to be happy, you should be allowed to do. Period end of story.
Then there are issues where I think are much thornier. And as I get older, I become increasingly ambivalent. or confused actually is a better word. And gun control is a perfect example of that where I don't know What my right is to go and adjudicate a change to the constitution that's been there since the founding of this country. That's a much more complicated issue.
And so I think we have to basically devolve that right to the states where individual states will have very different laws and part of how you choose to express where you live will be defined by some of those rules. So that's the social side. Extreme tolerance is really how I would sum it up. economically so but but I think the the risk to America imploding, quote unquote, because of an issue in that surface area in my opinion is extremely limited. If I look on the economic lens, however, I think there are enormous risks to American Leadership in Exceptionalism.
And we need a wholesale reset of how we create incentives of how government should work, of how regulatory capture should work, of how the capital markets work, these rules are way too perverted. and it's creating enormous stress in a system. And, again, I go back to the example I used last episode. The thing that if you look, for example, like, you know, in that example of Sri Lanka, Singapore, Jamaica, and how there were these 3 completely different outcomes. Underneath the most successful outcome was in credibly clear, transparent, and simple financial framework.
§04Segment 4
You cannot spend more than you have You need to invest in long term programs like Education And Health Care. You need to make them broadly available, and then you need to have an absolute free market that gets the best ideas to the top of the funnel. And if you can just incorporate those things, the tax law could be four pages. You know? The the the number of regulations could be fifty pages.
You know, the simple rule that says to the Federal Reserve, you can't just print free money ad hoc. So I'm a much more concerned about the fiscal future of America. I I think that there's so much movement and progress on the social side, including the freedom of movement of people to different states. It it is an important set of issues, but in terms of what drives the outcome and future success for our kids and our kids as kids, people should not sleep on the economy because if we get this wrong, that will be the tinderbox that lights everything on fire.
Sachs, when you hear, you know, everybody sort of explained their basic belief system, how far apart do you think we all are on this podcast? Because I think that's been a an issue we see, a lot of the fans discussing, you and I discussing, it feels like on most of these issues, and I think that's people ask me how I'm friends with you all the time, and I I'm sure you get that question as well. Yeah. And I love you. -- thinking about their and I know I I love Saxx like a brother.
And and anytime we talk about basic issues, we're very much in sync. And then when we talk about politics, it feels like we're super, you know, you know, opposed you know, in in opposition to each other. When you hear that we all have essentially the same stack of fundamental beliefs, how do you interpret this in terms of politics and and America writ large and and and how do we get consensus in this country to be more effective in running the country for the citizens.
I think the media drives a lot of polarization. Right? Because they're feeding us a bunch of bogus narratives. You look at the polling around the trust in the traditional media has absolutely plummeted through the floor. I mean, they basically have instead of just reporting objectively the facts, they I think the audience is recognized that they are activists.
They are basically pushing an agenda, and they're pushing a bunch of bogus narratives. And I think it does drive the polarization. So that's part of it. to go back to, you know, what what are the core issues that motivate me and like who I support Look, I think we could probably agree on a lot of stuff. I want us to pursue more of an internationally cautious, you know, agenda.
less interventionist because it really hasn't worked out for us very well over the last 20 years with all these wars that failed. I want us to be fiscally responsible and promote a healthy economy. to to what Jamal said. And then 3rd, I'd like us to be socially tolerant. Now why does that leave me in this current environment to support Republicans?
Well, on international on on sort of foreign policy, neither party is really very good. Both parties are sort of pushing some version of book bush doctrine light where we're basically over involving ourselves in all these countries all over the world. But the Republicans at least have a faction that's in favor of realism and restraint. So I'm trying to help kinda push that direction within the party. The Democrats just are still very much in this liberal intervention of this mode.
On fiscal issues, both parties are guilty of overspending creating this rudeness federal debt and deficits that we have. However, there's no way to avoid the fact that Democrats are just worse. I mean, Biden wanted an extra
4,000,000,000,000
of spending on this whole build back better on top of the
4,000,000,000,000
he had. So listen, I know the Republicans don't have clean hands on this issue but the progressives are just worse. And as long as the progressives are calling the shots, the Democratic party, they're just worse on spending. And then you got social tolerance. Listen.
On the issues on these sort of key rights issues that have been the kind of the old social issue in the last 50 years, by and large, not on all these things, but by and large, I'm with you guys, that I'm in favor of sort of the the the socially tolerant position. But look at who is pushing social intolerance today. I mean, the progressives are the most intolerant group in America. They're the ones pushing cancel culture. They're the ones trying to shove their positions down the throats of ordinary Americans.
This is what's creating the backlash If you look at issues today like CRT, like the progressive approach on crime, on borders, the progressives are trying to promote I think, a social policy that is fundamentally intolerant and and doesn't accord any respect or room for traditional Americans to live their lives the way they want to. And you have to be tolerant of them as well. We're not gonna have peace in our society without some tolerance of of attritionalists.
Okay. Let's wrap on this, Jamath, and then move to China.
I I sent you guys a this was a a quote by Mike Solana, a tweet from Mike Solana. The caption is I've been wondering how they were going to spin this, and this builds the Holland David just said here. When the quinnipak quinnipiac poll came out and about approve, disapprove, About president Biden, you know, the big outlier was the Hispanic population, 19% approved, 70% disapproved. And the the article in the Washington Post, which tries to kind of sort of like clean this all up in WhiteWash, it says fake news speaks many languages, but it's particularly fond of Spanish, essentially saying that, you know, the the fake news problem in in the Spanish language has basically gotten so bad that, you know, this sort of explains why Hispanics have have moved in droves. And it's like a whole race baiting cheap shot article, but the point of all of this is just to show that the left this is what really does kinda bug me out.
They are they are probably more intolerant than they've ever been.
They are There's a intellectual dishonesty. Like, if Rachel Maddow really wanted to increase her standing in position, she would just start the next program with Nancy Pelosi Strades and say, listen. We all know. Let's call this what it is. It it's not cool, and here's how it should change.
She'll never do it.
know. And that and I I think that's the disappointing part about all this. Okay. So let's shift now. I think we've
--
Well, just just one final thing about this whole thing that we can move on is -- Sure. -- I I think I think if you are sort of purple and centrist, I think the 1st 2 years of the Biden administration were really a missed opportunity because I think there's sort of this conventional wisdom that the parties are so polarized. I can't get anything done. I think we saw, actually, there's enough Republican votes or there were in the in the previous congress. This this current congress.
They got the infrastructure build done. They got the gun build done, you know, with the red flag laws and so forth that we talked about. They can get quantification of gay marriage done if they want to. They could have gone the electoral account act reform So if Biden hadn't gone all the way with his progressive voting rights agenda and just focused on reforming the electoral account act, then you could have prevented a situation like we had on January 6th that that what was happening inside the capital, not outside. So there was a lot of stuff they could have passed and they didn't.
Why? Because the in the in the first half of his administration, Biden's been completely captive to the progressives. There's another thing as well. You could get a child tax credit passed. You could get Romney Wood basically be the floor leader on that in the Senate.
They could pass a child tax credit. That's the most popular part of BBB. Why don't they peel that off and vote on it?
Yeah. No. because they went through the whole thing.
They went through the
whole thing.
--
are holding it hostage saying that we're not gonna give that to you unless you do the whole Anchilada. And, of course, there's no votes for that. So I think there's a and and and and so who ultimately is the culprit for allowing the staff and will partly bind, but also Ron Clayton, the chief of staff? I mean, They've made a a instead of triangulating to the center, they should have realized, hey. We're a 5050 president.
Right? I mean, we have a 5050 senate We should be triangulating. We should be building a centrist coalition. Ron claims that has been letting -- Going moderate to bid. -- Biden
had a clear path to go right to the center pull everybody in, pull the working class in. That's been his supporting base, who's the working class. And so he is. And and he blew it by going too far to the If he wants to save this presidency, he should go straight to the middle and get all the working class behind him
to be reasonable. -- guy that went to some elite you know, East Coast liberal Arts school where he got a masters in, you know, fine arts and his 400,000 in debt. That's not Joe Biden, but he's let all these people run over the lighthouse.
And it's too late now because I think what's gonna happen
is they're
Is it too late? Yeah.
Well, their Republicans are gonna win the house
at least. How much time did we spend talking about canceling student debt for who?
Yeah. No. For a bunch of elite
people graduate degrees from
yeah. It's a listen. There's scriptures on both sides. It's disgusting, and we need to to a a version of politics. That maybe is more like our conversations here.
But let's let's pivot to another society that we thought was gonna roll over ours, but and that we were in we were behind on in terms of competition. China is in chaos right now. Apparently, in terms of slowing economic growth, bank protests, mortgage protests, exactly what I predicted last year when you guys were talking about was gonna dunk on us. And I said, you know, it's very hard to run these authoritarian countries, and the citizens like to protest when they get the short end of the the stick. And here we go, Chinese economy is is growing very slowly.
They were gonna do 5 a half percent this year. They were only point 4 percent in q 2. COVID has a lot to do with this. But there's been a series of bank protests, and the media has been trying to figure out exactly what's going on here to set the stage here. Rural banks in China in a couple of provinces froze a bunch of people's withdrawals in April.
Okay. Sounds like the crypto contagion. in many ways. They had been offering unusually high interest rates, also sounding like the DeFi GIF going on here. No.
No.
I think
it's I think it's more like 2008, Jason. I think the I think it's more like the financial crisis in 2008 that was driven by the real estate bubble.
Yes.
They've got their own real estate bubble, which is collapsing there.
Correct. And so there's there's multiple things going on at once The authorities haven't said how much money is frozen. Protestors claim it's billions of yuan, but it's 100 of 1,000,000 in the US. After weeks without a resolution, customers have been began protesting. Plain clothes, thugs have been hitting a kick in the protesters, and as of Wednesday, a video and viral of the CCP bringing in tanks to protect the banks.
Very evocative of Tiananmen Square.
Take I have a question. So go ahead. Yeah. So China has a very explicit 0 tolerance policy on COVID. Why do you guys think -- Correct.
they are so extreme in that policy. Like, any any ideas? Like, have they explained why It has to be zero tolerance.
They have not explained that. And if you believe that they are the origin of COVID, maybe they have some insider information about long haul COVID, and that was something I wanna talk to Friedberg about if he thinks this, you know, long term COVID stuff is a really acute issue. But, Friedberg, what do you think?
Yeah. I don't let
me I
don't wanna get that -- Can
I answer can I answer that if you don't want
to? Yeah.
Go ahead.
Listen, I think the answer is very simple.
But I
didn't wanna talk about the Chinese economy.
I I I -- Oh, yeah. Yeah. Yeah. There's 2 laws going on.
--
to turn over to. Yeah. This is a complex issue.
there's a lot more going on there. So on on 0 COVID, I think this is coming directly from Xi. This is his policy. And I think that earlier in the pandemic, they were hailing their response, which they saw as orderly and effective at controlling COVID, and they were contrasting that with a chaotic western response. And so I think that the credibility of the CCP and g himself got tied up in this idea of stopping COVID entirely of 0 COVID.
And so, I think this is coming directly from the top and is having a huge impact on their economy. And I think This is one of the dangerous aspects of a autocratic system is you got one guy at the top making the decisions. And if he's wrong, There's not really a great feedback
for a question. Yeah. There's there's not questioning the god king. Yeah.
You know, it sort of recalls a situation in China think this is about 500 years ago. There was a Chinese emperor who banned shipbuilding and banning having a navy. And because of that, China shut itself off from global trade, and it fell well behind the West, which then explored and captured the new world. There's this question about, you know, the Chinese Chinese culture and civilization was much more advanced than the west than Europe a 1000 years ago. But, basically, it fell behind, and a big reason is because this unilateral decision by 1 emperor to basically close themselves off from the rest of the world.
§05Segment 5
So you have to wonder, does this autocratic move by g basically doom their economy to a recession. It seems like they're not learning from our experience. These lockdowns didn't work. I mean, you can't stop the virus. It's eventually gonna get out.
Even I saw Biden got the virus this week. I mean, it's out. Right? It's endemic now. Everybody's gonna get
it is basically what's happening.
She's been making a bunch of heavy handed decisions this. So you got besides lockdowns, it was it's also the crackdowns. It's the crackdown on the tech industry.
Yeah. The tech venture funding has plummeted. And so has so LPs are no longer investing in funds there with the exception of Sequoias, which seems to be struggling but is still able to raise some money. And then, additionally, founders can't raise money, and founders are questioning when they meet with VCs if they can actually the VCs are just meeting with them theatrically, the story that came out this week in the Feet, if they're just meeting with them theatrically because they want to still hold out hope that there'll be a venture capital industry, but there may not be a VC industry in China anymore. Let me just give you the housing stuff and then Friedberg.
I know you wanna chime in on this. So there's also mortgage boycotts happening at the same time as this Pugeti bank stuff happened. The bank stuff seems to be not the national bank these are local banks that apparently could have been running some kind of a grift where people deposited the money they ran away.
It looks
a lot like the savings and loan kind of behavior in the nineties in in the
US. And these
are regional banks, to be clear. This isn't the national banks. And so at the same time, the mortgage boycotts are happening in 3 at 301 unfinished developments in 91 cities. Homeowners are accusing developers of failing to deliver the apartments they've already paid for, according to Bloomberg, 70% of how so wealth in China's tied up in property much higher than the US.
This is downstream of the whole Evergrand thing. Right? You got Evergrande. Evergrande basically defaulted, and there were a whole bunch of people who prepaid for their homes. And so they're already paying mortgage, but Evergrand never finished the homes.
And now they're rising up because they're saying, why should we pay for a home that was never delivered?
Right. I just wanna, like, take a Zoom out because I think it's worth you know, we can focus on any one of these particular things that are happening. and try and diagnose him and dissect him. But if you zoom out a little bit, I think it paints a more interesting picture. Over the last 30 years, right, the Chinese economy grew from
318000000000
to in 19 90 to 10 and a half trillion in 2020. Right? Incredible growth. GDP per capita, you know, grew kind of in a in a similar ratio. Right?
Now from 318 bucks per person to $12,500 30 years. I mean, really unprecedented in the history of humanity. China now accounts for 20% of global GDP from less than 2% in
19 90.
Now if you look at historically what drove that growth, we all talk about manufacturing. Right? Manufacturing accounts for about a third of the economy. And manufacturing as a sector was growing in China 25 percent year over year in 2008, and then only grew 6% in 2022. It's, like, basically, you know, kind of reaching an all time low in in recent years.
So that's historically been the driver for growth of this economy. And so much of the you know, the the the bargain between the people and the Chinese Communist Party has been, keep giving us a better life, keep growing our economy, keep giving us more housing, more stuff, more food, more safety, more security, will support the CCP. And the challenge that the CCP is having is that a lot of that growth the core growth engine is starting to slow. So manufacturing is slowing, then real estate was growing. And so real estate accounts for 7% of the Chinese economy, and I've got a good stat for you guys here.
In
2005, 250,000,000
square meters of real estate was sold in China, In
2021, 1,500,000,000
was sold. Every year it's been incrementing. So the amount of real estate that's being produced and sold was increasing like crazy. This year it's collapsed. So it's all it's down, like, you know, forecast to be about 1,250,000 now.
So the first decline in real estate building and sales. So that part of the driver of the of the economy in China is now collapsing. And then the financial services sector accounts for 8% of the economy, and that's been growing because it's leveraged off manufacturing and real estate and all the capital that's flown in, all of which is slowing down and stopping. You know, this $58,000,000,000,000 of assets in China, generating about $700,000,000,000 of annual profits for the financial services industry, insurance, banking, lending, and so on. So a lot of the conflict and the things that are starting to fall apart, which may just be the tip of the iceberg, is a function of a fundamentally slowing economy, and the forecast in the outlook for an economy that doesn't have the drivers it's had historically, and things are starting to come off.
The wheels are starting to come off a bit. And so, you know, look, the advantage they have is central planning, long term investments, being able to kinda be thoughtful about this. But in order to do that, there's certainly gonna be a need for the CCP to keep people in line as some of the long term bets hopefully play out for them as they would say. In order to do that, they're gonna have lockdowns and other sorts of mechanisms of regulatory control over the people But, really, this could be the beginning of some of the unwinding and real concern about, you know, is there a core economic growth engine in China? that can save them?
And what will it be?
I think all of this, if we look at what's happening in the economy, writ large, Chamath, you know, the global slowdown plus inflation, is now causing a stress test on every country. Sri Lanka stress test, you know, showed us what's happening with their farming issues and with corruption. And here in China, the stress test, I think you would agree showing what's going on in terms of, you know, banking, mortgages, real estate, and obviously, this surging middle class and what their expectations of life are. So what what's your take on what's happening in China? And are they you know, how does this add up in terms of our rivalry with them as our contemporary?
at a very macro level, China has 1 massive, massive, massive problem, which is one of population. it's hard to get an accurate count, but it is an aggressively aging population, which was the result of the one the one child policy for a very long time. China has sort of been on their heels trying to adapt that policy But, really, the the last data I saw I tweeted this out. It was a little while ago, Nick, so maybe hard for you to find in my Twitter feed. But it was a projection of China's population, which essentially showed it contracting by almost 50% by 20 one's 100.
So in the in the so it that's a really, really bad situation. Now when you have a slowing population, then the economy has to morph. Why is that? When you have a young population, so for example, take what China was 20 years ago when it entered the WTO or what India is today, When you have lots of thoughts of young people, you can on ramp them into economically productive activities like manufacturing. The problem when those folks accumulate middle class income and wealth is that they age out of those kinds of jobs like they did in America.
and what we seek our services and service level jobs. And you spend more money, you spend it in a different way. So as populations age, your economy has to turn over unless you have a large bulwark of young people that is constantly growing to take up more of the slack, the economic slack to pay for these folks who have different lifestyles, more savings, and different needs, specifically healthcare. That's China's enormously big problem. So when you see them talking about 6% GDP targets and you think, how does a country that big even grow at 6%.
It's because they're reverse engineering for what they need to create economic vibrancy in that country. And so when you start to look at 2%, which in America, you'd say 2% is great. We would like high fiving each other for 2%. That's not a sustainable level of growth for what's happening inside that country. It does not create enough of expansion economically to cover all these folks.
That is a really, really big issue. So as that happens, I think what we need to do is figure out how to be competitive. Now this goes all the way back to our first conversation. Subsidies don't make us more competitive. Things that governments can do to make us more competitive are long term drawn out tax incentives that change the earnings capacity of companies.
Why? Because in the capital markets, reward those businesses. Jason, you just mentioned it. Why is the Chinese capital markets in difficulty? Nobody knows what the long term earnings are.
How do you forecast it? It's not simple anymore. It's not a model. It's not an interest rate. It's not a discounted set of cash flows.
Right? And so that's how they need to refactor themselves. They need to have a much larger population. If you don't have that, you have to figure out how to do it with immigration. If you don't have that, what China has done is they've tried to go to Southeast Asia and to Africa and they've tried to create that synthetic form of a growing pyramid.
Right? Now that can work as long as the balance sheet of the country supports that because, ultimately, you're still about moving money offshore. Okay? So I think they're in a little bit of a they're they're in a pretty difficult spot.
The most difficult spot is the one they that she put them in. If you get rid of entrepreneurship, if you get rid of high growth companies that create the opportunity on a global scale, and then you you know, take DD off the public markets. You don't let education companies become public or and you basically get rid of their little co opting of capitalism and venture capital, their whole their whole society is gonna become slow growth and slow growth in a country that doesn't have safety nets is really dangerous. Saks, your thoughts. in terms of competition versus America.
Yeah. Okay. Let me get to the the competition in a second. Just a bill on what Chamath said. The the birth rate or the fertility rate in China slipped to just 1.15 in 2021, so last year.
It takes 2.1 to maintain your population at replacement level. So and this is lower than even Japan, which is also shrinking as a good Japan, but 1.3 the US and Australia are at 1.6 but we get above 2.1 because of immigration and China doesn't have that. So they've got a huge demographic problem MOS point, it's gonna be something like well, the population is shrinking by 40% with every generation. That's what these numbers imply.
In saying,
numbers are it's gonna be under 600,000,000 by the year 21100, but I would I don't understand how it wouldn't even be less than that if it keeps going at this rate. So they're and the the the commentator Peter Zihan has or I don't know if that's the right way perhaps to say Peter Zihan or something. Anyway, he's pointed out that China is facing demographic collapse in the next decade or so. On top of that, like you're saying, Jason, the you've got Xi emphasizing malice economics. He basically says he he thinks that the Chinese economy.
Again, he stresses the need for socialist characteristics and he seems to be bringing back that sort of communist ideology to their economy, and they've basically really cracked down on entrepreneurship and venture capital It's really a self owned. I mean, they've moved away from the policies that have made them so successful economically over the last 40 years. And then on top of that, you got this debt crisis and this housing crisis. So it really looks like the dekistacked against all of them and you're asking what does this mean for us? Well, I think it depends on whether you look at it economically or geopolitically.
I think if you look at it, economically, you'd say that it's bad for us because our 2 economies are economically linked. There's a lot of dependency they've evolved together for a long period of time. And there if China has a collapse, then that could they're so big now that that's gonna have, I think, global Reaper questions, there's gonna be contagion. But the truth is if you look at it geopolitically and geopolitics is more of a
0
the balance of power is a 0 sum game. economics can be a positive sum game, but but the balance of power is definitely not a positive sum game. You'd have to say it's good for us because the reason why China has become such a threat is because of its growing economy over the last 40 years.
Yep.
And look, I mean, what they've done and what they've been doing over the last decade or so is translating their economic might into military might. And that has given them the capability to now threaten their neighbors to become more belligerent to basically rattle the saber against Taiwan. And if their growth if their impressive economic growth continues for the next couple of decades as it has until now, there's no question that they will they will basically try to assert their hegemony over East Asia. And Taiwan will be a huge flash point, but there's also flash points in the East China Sea with Japan over the -- But
§06Segment 6
they're gonna need a micro roll to do So if they don't if their economy is not growing, they don't have the bank role to do it. They're gonna have to look inward and say, hey. We gotta fix these domestic problems. We gotta get people to stop protesting these streets. we need to this middle class is demanding of jobs.
The great news for what's happened in China, and I think this is why the people there are very happy is the number of people living in poverty has plummeted. You know, when they started tracking this data in the eighties, you know, high 90% of people were living in extreme poverty or poverty.
99%
of people were in poverty on the on the global definition of it. And now, you know, it's just plummeted to, you know, a couple of 100 million people. So couple of charts for you here, but just and the data is obviously it's very hard to understand what's going in China because a lot of it is opaque. But just the number of people on a percentage basis living in poverty has gone. And now the number of people who are in the middle class has surged, that creates another dynamic.
Those people want to have a great life. They want better jobs. They don't wanna work in factories. They wanna have a a more information based economy and and a and a better job than 60 hours a week in a in a factory. That's why they're moving their factories to Africa and other places.
I
mean, I I I don't know if that's absolutely true. I I think that China's manufacturing sector is is aiming to evolve. So, you know, China has about 3,000,000 factories or manufacturing facilities throughout the country. employing about a 112,000,000 people. The US has about 300,000 factories employ employing about 12 and a half million people.
the output of of China's factories in in aggregate, sorry, the total production output of all the factories. So we have very high value outputs coming out of our factories and high leverage. China is observing and obviously recognizes that there's an opportunity probably to evolve their manufacturing capacity to be higher leverage, higher value output. And so there is gonna be, you know, from the long range perspective, planning and investment in technology that allows those factories to become much more sophisticated and create much more higher value products moving up from what is effectively cheap labor putting things together in an assembly plant to being things like additive manufacturing, 3 d printing, automated manufacturing, biomanufacturing, etcetera. And I think this is particularly gonna be realized because China announced that they're building 400 nuclear power plants.
that drops the cost of electricity to under 5¢ a kilowatt hour. In the US manufacturing electricity, typically cost around 11¢ per kilowatt hour,
12¢
per kilowatt hour in that range. So if factories become much more automated, they start to become a function of the price of electricity in terms of what they can output. China's gonna have a huge advantage as these nuclear power plants come online over the next couple of decades, and these facilities get upgraded. So there is a plan. Right?
Remember this
--
They do have a plan in in the the reason they have that plan.
There there there is there is a question of do they get there fast enough to drive economic growth that actually supports all these other industries like real estate and finance that they've become critically dependent because those industries only work if there's a core economic driver or core economic engine that's working here. So this energy infrastructure, this new manufacturing infrastructure, these are things that, by the way, they can do really effectively because they're not working on 4 year and 6 year political cycles, they can take a 5, 10, and 30 year outlook and make a make a plan and and and invest against it. It's what they did from night. So I wouldn't count them out. but there's certainly a lot of challenge that they're facing right now.
And it's a big question mark right now what's gonna happen.
Well and it to your point, factories in China are, you know, factor workers getting paid over 6 bucks an hour now in Vietnam 3 in India, even less. And that's why you're seeing a lot of folks. I don't know if you're seeing any of your portfolios, but We've seen a lot of folks looking at India, Vietnam, and moving factories there. And, obviously, Japan has been incentivizing is not gonna just lose
their manufacturing edge. They're not just gonna say, hey. We give up. Let whatever I'm gonna be a mom. They're gonna try and upgrade the capability of those factories and say, hey.
Instead of just putting together, you know, parts for with $6 an hour of human labor, let's start to do the more sophisticated -- So then free bird.
the next car that turns is, well, what happens to those factory workers if they've been automated out? What do you do with hundreds of millions of people working in factories who now have been turned into robots? And then if they're gonna be in an the answer is information economy. If it's gonna be an information economy, you need venture capital and you need new companies to create those jobs, and they just killed that. So I don't know what strategy she is pursuing here, but it seems like a bad one.
We could talk about this one at length, but we were gonna bring this up. But, you know, generally speaking, technology drives productivity gains, but it's it's deflationary in
the short term. -- means on a in, like, a practical sense, maybe you know, that the technology
--
So let's say let's say that you have to pay a bunch of people to make a t shirt and then a machine is built that makes the t shirt. The cost of the t shirt goes down. Because one machine can just print out a 100 t shirts an hour, whereas it would take five people, you know, 10 hours to make those 100 t shirts or whatever it is. Right? So a technology of kind of emerges, and those people are now theoretically out of jobs.
But what ends up happening is those people transition into new jobs that didn't exist before, and we end up seeing higher order work take place. Think about the the world 200 years ago. Do you think we would have had any concept of people being Uber drivers or people, you know, creating crafts and selling them on Etsy,
or -- YouTubers. Contact creators.
--
people being yoga teachers or yoga or yeah. Yoga teachers -- Only cancer.
--
psychotherapist? Only a dog.
Okay. Well, they go job.
OnlyFans. or dog walkers or all of these these service businesses or, you know, industries that simply did not exist before. And so the laborer that those that that percentage of the population was involved in historically has gone away because it's been automated. As that automation has happened, it's allowed higher order services jobs to emerge, and that will be the progression of humanity forever. I will tell you guys I I was gonna mention this.
Have you guys played with Dolly too
--
Yeah. -- the other day?
Yeah. Sure.
I got the the login. I was my brother-in-law was visiting. We were playing Dolly 2 and making funny kind
of -- Explain
what it is. Yep.
So so Dolly 2 is developed by OpenAI. We all know Sam Altman. He's been leading that organization to great effect. over the last couple of years. And and what they're doing is they they basically scan the web for images, tag them, and then apply, you know, machine learning to, you know, to basically allow natural language creation.
of images from scratch. So the AI can generate an image. And you can go to, you know, the the Internet and look at a bunch of these, but the imagery is incredible. I mean, the the the creative output what what feels like creative output from the system where you just say, hey. You know, make me an image of 4 guys doing a podcast on Zoom, in the style of Van Gogh.
And it creates this image that is unique, has never been created or seen on Earth before, and is a function of the the learning that's been done in these neural networks to to develop this AI that can that can create novel stuff is really amazing. And I started to think about, like, what are the implications for this over time Think about, you know, the original movie Ben Hur in today's dollars would have cost a $1,000,000,000 to make. They had thousands of people. I think tens of thousands of people on that set. It took years to make.
built giant sets. They could only, you know, make one film. It was an incredible feat and an effort. That's what movie making is, you know, still today. There's there's teams of people.
Now what if you could speak to the AI and say make photo realistic, you know, Jason and Timov having a a battle on a field in the middle of nowhere, and now an airplane flies over. And you can instruct the AI, and the AI can generate photorealistic visuals audio. The AI can even generate scripts and and narrative for you. It really starts to change the role of the creator, the director. The director is no longer doing this thing where they have to get it just right, make the perfect 90 minutes, and then line up all the money and all the people to do that work on that plan on that program.
they can be much more iterative, and they can be much more creative on the fly. They create a 2 hour movie by speaking to the AI, and then edit the movie by speaking to the AI. change the actors, change the color, change the voices, change the music, just speaking to AI, to generate creative output, and people will consume that output. And I think it's amazing to think about what creators will end up doing 10 years from now as AI and these tools proliferate, and you see version 12 of this, which is version 2, and what version 12 might enable. And so the role the number of people that can do that job goes from Steven Spielberg and Bob Zemeckis and a few other people to suddenly thousands or tens of thousands of people around the world making incredible movies.
That's just like one -- -- Dolly's image let's pull it up of 4 guys doing a podcast. So alright. And we have a ways to go, but, yeah, that is 4 guys doing a podcast. That's awesome. Yeah.
It's awesome. I mean, and to your point, like, this is gonna we're on So,
yeah, this is gonna so a lot of people are like, oh, is this gonna wipe out graphic designers? Is it gonna wipe out the credit industry? But the reality is the roles that those people are in today will absolutely be gone, but they will emerge and evolve into new roles that we never even thought imaginable -- They'll have.
--
will really transform that industry and society this is gonna be true across everywhere that AI touches. Yeah.
And I knew you'll see this
in China.
Go ahead, Jamal.
And China as China steps up their technology in manufacturing, you'll see those, you know, new markets evolve. Sorry. Demarcot.
Designers will have less leverage to ask for all these stupid snacks and offices of startups.
Well, I mean, you need only look at
-- The designers are the worst. My god.
Oh, they're the best. I love them. But, anyway, in the 19 forties, I mean, we there were literally hundreds of thousands of Telephone operators. It was -- Totally.
--
and -- Totally. -- they're all gone now. And not only that
-- Have you ever met a designer that didn't take themselves incredibly seriously, that didn't have, like, you know, tea that they would steep. -- the bad ones. You know, the good ones take themselves very seriously. They'd have, like, steel straws.
video game designers are a little different.
I'm sorry. What did you say about the sales trust?
That was it.
Yeah. I'm very interested. I am by the way, shit, on on video emanating waste in my life.
I mentioned to you guys last year, this video game I played over Christmas by Anna Perna Pictures, and the guy that runs the studio sent me a DM. He loves the pod.
Oh, that's nice.
And they just launched a new video game, which I started playing a couple nights ago called STRAY. And you're literally at you you play the game as a cat lost in some crazy world. You're literally a cat. The the image is the the imagery on this thing is unbelievable.
That's actually my favorite game right now, Saxes. I play a cat at I'm a stray cat, and it's fully amazed like, the AI I I you know, if I you should go play the game. You
should go play the game. Yeah.
I'm gonna take a hard pass on that. I'm I'd like
to play a game where I'm a a dog, and I meet another dog, and then we eat a bowl of pasta. But this long string of pasta, we each come closer and closer, then we end kissing.
I'm I'm I'm -- Move on to do we wanna go? BlackRock has lost
1.7 $1,000,000,000,000
in 6 months. VC funding is down or Amazon acquires one medical for 3,900,000,000. Which which one do we wanna go to next? Anybody have a favorite here? Sax, you've been a little quiet.
You got one you wanna go to?
We can talk about the BlackRock thing.
This is the largest amount of money lost by a single farm over a 6 month period in history. BlackRock is the world's largest asset manager. And it was the first firm to break $10,000,000,000,000 in AUM assets under management. Now right now, they're at
8.4 1,000,000,000,000. 2022
ranks as the worst start in 50 years for both stocks and bonds, chairman and chief executive officer Larry Fink said on his earnings call at the end of June, only about a quarter of its assets were actively managed to beat a benchmark rather than track it seamlessly as passive strategies are designed to do. Firm's passive equity holdings are now ten times larger than its active holdings, although it does operate some active multi asset and alternative strategies that narrow the gap. Claps in bond markets this year has shaken money out of active fixed income funds.
Listen, I think there's less than meets the eye here with this. I think this was a headline that was trying to grab attention by saying biggest loss ever. Look. The reason why it was the biggest loss ever is because BlackRock is so big. I mean, And and what is BlackRock?
It's basically, at this point, they're index funds. They're ETFs. They're index funds. They just represent market indices. So, you know, the reason why it went down 1,700,000,000,000 is because it started with
10,000,000,000,000.
Yes. So the average index is down 17%. That's all it means. We know this. The S and P 500 is down 20%, 22% for the year.
The Dow Jones down 15 ish. The Nasdaq is down like 30 So this is just reflecting what we already know which is that the stock market is down this year.
Do you think it's another data point to support the idea that active managers generally speaking and maybe holistically speaking over time cannot beat the you know, the market cannot beat indices. I mean, do you have a point of view on that as an investor, Saks?
§07Segment 7
Well, I think, you know, you're talking about public market I think it's very
hard to
beat I
think it's very hard to beat the public markets over a long period of time consistently. I just think it is. Now, you know, the contradiction though is that if you have no active managers, then the indices won't be efficient anymore. So you need the participation of the active managers to help drive the the indices and make corrections to it. So and the fewer active strategies you have, the more inefficient the markets will become thereby inviting active strategies.
So, you know, I I think it's a good question. I I think there are some managers who are who can probably do it, but I think it's a very tough thing to do.
Jamoff, what do you think? You're a public investor active selector of investments.
Here's what I here's what I here I've I've been thinking a lot about this. I think that I have disproportionately benefited from being at the right place at the right time. backed by enormous amounts of central bank money. And so I think we all have been. I think it is very difficult to be a public market individual stock picker in a world where the central banks are constantly meddling.
Because when they do, the best thing that you can do is belong the market beta, and the more concentrated you are, the better returns you would have delivered. since 2008 when the central bank started to get very aggressively involved. When individual stock pickers reigned the the universe, was when central banks were largely on the sidelines. And so, there was all kinds of dispersion. Right?
Disersion. Meaning, Good outcomes, bad outcomes, lots of alpha. Right? Meaning, your performance was independent of the market. But since 2008, it's largely been beta that's driven the market, and the folks that have done exceedingly well were those in tech because we deliver the best beta.
And every time we confuse alpha and beta, we get over our ski tips and there's always something out, you know, blow up. So I think my my my general takeaway is that If the central banks stay on the sidelines, individual stock picking rains and active management can win. If they continue to be involved and do quantitative easing and all of this other stuff, index funds that our long concentrated market beta will always outperform in the long run.
I I was watching Warren Buffett answer some questions. And one of the questions and this goes to the law of big numbers like BlackRock. He was saying, listen. It the reason I did better earlier in my career than later in my career on a percentage basis is because I was placing had a smaller amount of capital, and I was placing it on smaller bets, smaller ideas, and themes. And then as I had a bigger chip sack, I had to find bigger ideas to put more money to work, and therefore, more people were looking at those And so those assets were not undervalued.
And so I found that very, like, insightful in terms of when you participate in the market. If you're trying to pick between very large bats like Coteau and TPG and Tiger were doing, in the growth spades acts. Like, now everybody knows that these company everybody knows Strip's a winner. Everybody knew Airbnb and Uber were winners. in the late stage of the private.
Everybody knew Facebook was a winner in late stage private market. If you're battling that out, you know, Yuri Milner is gonna come over the top and pay 1,000,000,000 more than you or Masayoshi Son's gonna pay 5 or $10,000,000,000 more than you. Where is the alpha there? You know, where where is the gain?
And Alta's in the feast.
Okay. There you go. And so they were playing a different game. And I that's you know, I started trading this past 2 weeks because I've never traded public stocks, and I wanted to add it as a skill set. So I'm I put a couple million bucks into an account, and I'm just trying to actively figure out how does value work there?
And, you know, I'm just starting to make trades that I wanna hold for 10 or 20 years, and we'll see if I can beat the market that's the other thing is what do you wanna spend your life doing? If the index if you can put money in a passive index and not do any work, Well, you know, that's attractive as well. So, Saks, what what do you think in terms of active management, you know, in these public markets and the size of the bets? that have to be
Like I said, I think it's very hard to beat the market consistently. I think it's a very tough profession. I'm sure there are people who can do it but I don't know if it's easy to predict who those people are. So look, I, you know, I I think it's something that can be done, but I just think it's a tough tough game. I mean, what we do as private investors is a little different.
Right? Because not everybody is in a position to buy shares. Right? Yeah.
You're not available to you. You don't even know the company.
Access is limited and information is limited. And in exchange for that sort of preferential access that we get, we actually have to do work. Wow. When you're a when yeah. When you're a public investor, in a company, Disney or whatever.
You don't do any work. You're not involved at all. We do a lot of work for the companies, and that's why they choose us. And so it's not, you know, it's you're not competing against the whole world. I think the public markets are just so competitive.
Are you tempted though looking at these prices? And because I was looking at a company that was trading at fifty times revenue last year. They're racing again. They doubled their revenue. So now they're at 20, 25 times revenue.
They're raising at last year's valuation. And then I looked at the public market comps, and they're trading at six times. So now I'm like, wait a second. And and, obviously -- Well, you gotta
look at the growth rate. You gotta look at the growth rate.
So -- -- was 3 the growth rate in this example was three times fat greater than the public market comp. So how would you assess that then?
Well, what we're seeing right now is that pretty good SaaS companies that are growing you know, maybe on a trailing basis, they grew 3 x, and, you know, prospectively, they're growing, call it, two and a half x. They're trading right now. Not trading, but, basically, deals are getting done at 20 times ARR. 20 gig.
--
ARR this year's current run rate?
Yeah. The current ARR.
Yeah. You're not getting that, like, bonus. Like, here's your next year, we're gonna give it based on that. This is current -- No.
No. Current ARR is about 20, 22, 23 times ARR. down from what last year? A
100?
It was, like, hundred times was the rule of thumb. Yeah. So now there are some where there you know, deals are getting done in 20s, I'd say, or even 30. If they're if you believe that by the end of the year, it'll be more like 20. So but I I think the new levels are landing at 20, 20 something times ARR.
Now why does that make sense relative to the public SaaS companies? Well, like you said, the SaaS index is trading at roughly six times, but that's only 20% average growth. Right. And so, you know, if you're growing 3x here
10
times, the growth's Right?
Right.
And the the high gross SaaS companies are trading it, like, seven times. That's for, like, a 40% grower We've talked about this before. So listen, if you're tripling year over year and you pay 20 times, that'll be a 7 times next year. But if you're growing 2, two and a half, three ax next year. That's way faster.
So -- Yeah.
--
I think there's actually an arbitrage there. I mean, this is why we like doing private SaaS investing right now.
Deals are getting done. I will say that. The people who I'm seeing who are really struggling, Friedberg, are the people who didn't turn on I'm talking about in the very early stage. They didn't turn on revenue. They were making progress in team building and culture and features, but they just weren't focused on the revenue side.
And my lord, People got a lot of credit. I mean, 50,000,000 dollars, $100,000,000 evaluations without the revenue turned on. And that now they're faced with not being able to raise money full stop. What are you seeing on your side Friedberg in terms of deal flow in the private markets?
Yeah. It's
--
And raising money. Yeah.
because you have
to raise money for your company. It's not easy. Okay. Unpack it. What's not?
Well, what are the conversations like? Give us the anecdotal information.
I mean, I've seen a number of term sheets get pulled. So I think -- Oh, really? yeah, we've heard a lot about companies that kind of during the q 1, early q 2, time frame, head term sheets, weren't closing, got delayed out. And there's a number of kind of examples of repricing, or the investors come back, markets have changed, let's reprice the thing, or, hey. not gonna do this deal anymore.
We're gonna sit on the sidelines and wait till the market settles, or RLP's actually aren't gonna let us fund new stuff. So there's a a a lot of those
are -- -- last one for people. What does that mean? You know, for
people?
You know, investors have LPs. They have investors sells and their LPs are coming to them and saying, do not put more money out right now. We are telling you, we are not gonna wire our money to you. We need you to wait until you
--
Even though they're contractually obligated to, they're telling you
-- --
theoretically, they may not be contractually obligated to, but, obviously, these are long term partnerships. And so when an LP know, or a group of LPs says, guys, we're not comfortable with you deploying money right now. You know, you're in a 10 year partnership, 15 year partnership with them. You're gonna as an as an investor, as a fund, you're gonna say, okay. I'm gonna kinda listen to that right now.
Now the the the bigger issues in series b, c, and d where companies you know, have some traction, have some performance, have raised a bunch of capital, have done a bunch of work, and investors don't know what they're worth. They're like, hey. Is this thing worth 25,000,000 or a 125,000,000 or 500,000,000? Last year, you could've raised money at 500,000,000. I mean, look at what happened with one of those crypto things.
Those crypto trading platforms, they raised $500,000,000 last July, and they just sold the business for a reported $25,000,000 after being valued at 5,000,000,000 a year ago.
Yeah. So the whole -- And
the truth might have been more, like, 275,000,000. Yeah. We don't know. Some news out.
Got loud. Yeah. And and so but but series a, people seem to be pretty active again. And so
--
Active again, but the price is now for seed rollers.
Yeah. But
it's a one round. -- happening
6
to 15 series a is happening 15 to
25.
a lot easier to get a deal done in a series a because people say, hey. Look. I'm gonna give you this. You say, okay. I'll take it.
I need the money. Series b, c, and d is where there's this whole fight because there's existing investors, existing shareholders who are saying, I don't wanna take a 50% right down, a 70% right down, a 30% right down over the last round, and fighting, and then doing inside rounds and bridge notes, and all sorts of other shenanigans to not have to take a negative mark on your book. Yeah.
Well, I think so what what I think is interesting here is that You think about, like, where are the opportunities in the market right now. And I think one of the things that happened in the boom is that everyone got pushed to go earlier and earlier because deals were so competitive. And so you know, in the SaaS business, normally 1,000,000 of ARR was considered the rule of thumb for getting a series for basically graduating to a series a that you're ready go from seats to series a when he had a 1,000,000 of ARR. As we know during the boom last year, that number kept going down. You know?
Yeah.
500,000.
And then you would see crazy deals get done that were pre revenue priced at a 100 plus. We never did any of those kinds of deals. We just thought they were too crazy, but they definitely happened. Well, think about the dynamic now, which is let's say that that SaaS startup that has a 1,000,000 of ARR, they can do a series a at 50. Or we can just wait until they get to
5,000,000
of ARR and then pay 20 times and do it at a 100 pre. Which of those is the better risk adjusted return? Let me tell you there's a a lot of risk in going from 1,000,000 ARR to 5,000,000 ARR.
It's
hard. It's it's hard. There's a lot of things
to call for rails.
You're you're just you're
not doing
it through the founders.
selling the price.
You need to start scaling a team. You need a real sales capacity. But, also, a lot of startups that could sorta hack to together and cobble together 1,000,000 of ARR based on non scalable techniques that various startup incubators teach like you -- Yeah. -- don't be scalable. -- don't scale.
Poor Brexit.
Right? It's okay to do that from 0 to 1, but not 1 to
10.
Right. Well well or it's it's not that it's not okay. It's it doesn't work. Right? Like, you're not gonna be able to cobble together 5,000,000 of ARR.
You can cobble together 1,000,000 of ARR. You can use the cheat code to get there. So what I'm saying is there's a lot of risk in going from 1 to 5. You find out whether the product's really scalable. So what is the better deal?
Wait till a
100.
Waitos priced at a 100 or a 120,000,000 pre or doing the deal at 40 to 50. Now, if you love the if you love the company, you want to get in as early as possible. Yeah. But I think you're gonna start seeing a dynamic where in the same way that last year, everyone went earlier and earlier, you're gonna see VC start to sit back and go a little later and later.
§08Segment 8
Improve it to us.
Yeah. A dead man zone. Nobody should be putting money into deals right now. What is it why? What what does it do?
Unless unless you're in business unless you're in the business of running a fee generating machine. If you're really trying to generate alpha, you have to have a sense of what's actually happening in the world right now. If you're just trying to deliver the market beta and run an index, then, yeah, you're right. You should ignore this idea that there could be more price adjustments. But if you look at the public markets, which is again the ultimate terminal buyer, they have more cash than they ever had since 2008.
which means that there is no reason to buy. You're talking
about private companies. It all
ultimately ends up in the public markets. And so if the public markets are saying, There is no reason to buy this stuff. It trickles down. So then, the crossover investor who has a public private business says, you know what? On the public side, I'm completely derisked than in cash.
And so on the private side, I'll just be a little bit more circumspect and wait. As David said, I'll just wait 6 months and put even more money in later. I'll actually have a better IRR and I'll make the same profit dollars. So then, the series b and c firm who used to feed those deals to the crossover folks are like, oh, well, if you're waiting, I don't wanna have to write a check to support these folks. My whole point was to have you mark up the deal so I could raise a new fund.
They slowed down. And then that goes back to the series a person who's like, well, wait a minute. You know, the reason I paid it at 50 pre was because I thought you'd step in and buy it at a 100. And these so then they slow down. So all I'm saying is I think that we are at the point of the cycle where constipation is setting it.
And this is why you're seeing such a downtick in deal velocity and and dollars put to work.
This is a great advice I want everybody to take. I'm gonna take the opposite advice, and I'm gonna do twice as many deals in the seed stage as everybody else. But I encourage every venture capitalist and seed fund to take Chemut's advice I'm doing the opposite because a five person company
-- This is an advice. This is just a market observation. I'm just telling you an observation.
I I hope everybody takes that as the truth because what I'm seeing is the founders who are raising and who have real businesses are so sharp right now and so focused on costs and profits and what matters, and they have eliminated all the shit that doesn't. There's a whole contingent. I don't know if you're seeing it, Saks. I'd say it's 1 out of 5, 1 out of 4 that are like, I understand what's happening here, and I'm gonna take advantage of this moment in time, and I'm gonna just drive revenue profits. What happens to the
$250,000,000,000 that's been put to work in the last 2 years that need to get up rounds?
Yeah. It doesn't matter to me. I care about is meeting young companies that are grown with revenue. But I think there
there's -- I'm
just trying to have I might try to have a conversation if
you want to. Yeah. No. I I that's
-- So I'm just
That that's a lot of indigestion. Yeah. They're gonna have to cut their staffs by half and get to profitability.
Ultimately, the way that valuations matter or price levels matter is there's an entry price and an exit price. And ideally, if you can time it right, you want to invest when valuation levels are low and you wanna exit when valuation levels are high. If you were a VC last year, you should've been realizing as much as you can because valuation levels are really high. It was a good tweet by one of Breckerson's colleagues at Altimeter, basically saying she was talking to LPs and asking what they care about. And what she reported LPs is saying is that if you're a fund that's more than five years old and you didn't distribute during the best -- Yep.
--
window ever, which was
2018
or 2000 21, it's a hard no. You know, we're not gonna be re upping with you.
I'll say it even more. If you're if you're a venture investor who took a longitudinal view on public market stocks, and then have now seen 60 to 70 percent write downs of those same stocks that you could have distributed, you should still have something to answer to. That makes No sense. It turns out that the skill of private market investing and the skill of public market investing are different even if all you're doing is delivering the market beta. it's still different enough.
We had discussion unless you remember I was saying, should I distribute the shares of Robinhood? Should I hold them? What should I be doing?
We told you to distribute.
And I distribute it. I distributed thing. You know? And and in terms of secondary, I feel particularly smart.
-- like a genius now? Because your LP should say thank you, Jason.
No. I mean, some of them are saying that. what I feel smart about, to be honest, is we had and I think in let's just say, I'm making up a number here. 4 to 5 times, we were offered the opportunity to trim our positions in secondary with our winners from people who wanted to buy secondary shares, I did it probably 4 out of 5 times. And I'm just kicking myself.
I didn't do it the 5th, or I didn't ask if they would take more. because my god, we were able to clear some positions at very high valuations that are now lower than that in the private markets and send cash to our LPs and get our you know, get over our hurdles and our first two funds, which, you know, I feel smart about.
I think that you should feel so so good about that. That is that is really hard what you did, and I think people underestimate how hard it is. It is really hard to actually return more money than you have taken it. Yeah.
I mean, that that's what I'm focused on.
Just that simple statement. And and by the way, it was hard in the last 10 years where we've had basically a massive upmarket and the four of us frankly benefited from the extraordinary luck of being a tech.
Yeah. No. It's super lucky. I think the big thing that's gonna happen right I'm seeing it all over the place is m and a, I think, is gonna start ticking up. Just today, Amazon acquired 1 medical for 3,900,000,000.
1 medical operates a network of clinics if you don't know.
$3,900,000,000 enterprise value for a 182 franchises, which is $21,000,000,000 a franchise.
Look at what happened to their look at what happened to their stock price.
No. I know I went from 60 in the peak in February of 2021 to 7 in May. And it basically bought on
the same price it was trading out in January.
No. My point is you could buy a McDonald's franchise for 2,000,000, or you could buy the company that is the people that needed McDonald's for 21,000,000. That's why they got such a good deal.
By the way, at at McDonald's, you can't make money selling pharmaceuticals and upselling you know, other stuff that Amazon's gonna certainly -- I think
it's super interesting that I think it's super interesting that Amazon's getting into this business. Wow. I mean,
that is really interesting. They they clearly have a an economic model that shows some significant synergy. -- footprint.
The retail footprint.
Well, there yeah. And there may also be kind of a supplement, pharmaceutical, kind of upgrade opportunity. There's synergy in this business.
And think about the synergy between that. Think about what what
they're getting is also not just the the physical locations, but a network of doctors that can do telehealth. I don't know if you guys have ever used one medical, but they do really you know, easy Zoom telehealth services. And so you could hop on, get a prescription, have it fulfilled by Amazon, it shows up at your doorstep in under an hour. Genius. It it it will be an incredible synergy for that business and probably a real value driver, not just at the core units, but with respect to other things they're gonna sell through.
Your one medical doctor will provision a blood test he or she will analyze those blood tests over a telehealth. They will prescribe a better diet. That will be sent to Whole Foods who will then no. I'm sorry. I'm serious.
And then
You're right. Professor Jason is eating at Hopeful bread.
Amazon, it makes so much sense for Amazon to expand into built out retail footprints? Because that business model now gets more and more complete by the day where you become so ingrained and enmeshed in this -- Yeah. -- this is
this is really about at the end of the day is the subscription business. Amazon Prime is the driver of Amazon's business. That's gonna be a 3 point. -- yet another Amazon Prime lock in. So you're I know it sounds silly, but days of the free delivery is full without your subscription.
But I will bet you guy I will bet you guys a dollar that within a year after closing the deal, they're gonna massively expand the telehealth footprint of what where Medical is
doing. -- percent.
because one medical had to go out and do customer acquisition to go and acquire customers to make money doing telehealth services, and they're spending a $1000 probably CPA to acquire these customers. Amazon's wanting
to do this. Why didn't Google do this?
Amazon's already got like, Amazon's already got the customers. They've got 70,000,000 people but
each year.
--
some time. By the way, at the end of another thing, another thing.
Google doesn't know how to do messy things in the physical world. They don't know how to do service. I mean, Amazon been working warehouses.
They do Apple. Apple knows how to do stores. They don't know.
Apple knows how to do four products and a beautifully designed showroom.
$20,000,000,000
is business.
Amazon knows how to get in the nitty gritty and the nuts and bolts operations.
Yeah. Yeah. I know a
few things.
Yeah. Real world stuff. The other thing that's really interesting about this Amazon deal is that it was done with Bezos not at the helm. And I think it really, you know, begs the question and and begs an answer around, are these guys gonna continue to innovate like this? And I think right now, the jury's saying yes, They are gonna continue to push the the synergies they can drive from this business by expanding into ancillary services and and and industry.
And it's really impressive to see them doing this without without Bezos running the day to day. As a shareholder, I feel that. So really great to see.
I yeah. I mean, this is where, like, they could buy DoorDash, Uber, Lyft, those kind of real world service.
They're buying it. Just like they did with what Whole Foods, They're buying an asset that they're gonna get tremendous leverage and synergy out of very cheap. They're buying this company at the same price. It was trading out a few months ago.
Yeah. No. No. It's
a great deal. They have a great CEO at One Medical who's a friend of mine. Amir Reuben. Congrats. Shut out.
Congrats.
Yeah. Alright, everybody. Did you spend what your beaks says?
No. I never I never wet my beak in the steel.
Oh. Dry beak syndrome. No. I would I would disclose it. suffering from DBX by
the way.
I mean, take Victor lap right now if I was in that company. Yeah. I missed it.
I'm shocked we haven't seen the Jay Cal Victory lap. He goes on some podcast. tells Bloomberg that VCs are gonna get pinched for insider trading all these tokens. And low and behold on The Wall Street Journal, 3 guys I guess, a guy at Coinbase, got pinched for basically insider trading these token sales, front running it by buying them in his wallet and stuff. And so Where's your victory left to
your account? Oh, no. No.
Beak that out. Beak that out. Beak that out. Beak that out of it.
That would be our reoccurring Joe. Jake, how
what's your Jake, are you gonna take your victory lap?
Do you
wanna take your victory lap?
Well, no. I mean, I told everybody, like, if it's a if it smells like a security and people are buying it for reason for it to appreciate. Don't be surprised with the SEC. You know, starts having tips dropped on them that different VC firms in Kahoots with law firms, in Kahoots with everybody, were liquidating their positions. We talked about liquidating positions as being the goal of venture capital.
They created a shadow economy next to securities law said, we're gonna just start liquidating these things. But under what they made the rules up under which they could liquidate them. I'm not picking on any firm or anybody. We'll see over time who gets pinched. But, you know, if you decide you're going to talk yourself into this is not a security even though it kinda feels like 1, that's on you.
That's on you as the person buying the tokens, issuing the tokens, giving the legal briefs on the tokens. I think people suspended disbelief and talked themselves into thinking, that they weren't trading securities. And I think the SEC now that everybody's lost their money is gonna just tick off one firm after another. and it's gonna be massive settlements. It's gonna be 3 or 4 years of litigation.
So it's not a victory lap. It's just it was such an obvious observation. We all saw it. I mean, How do you liquidate your shares in a company that has no product in the world? Like, come on.
Come on. People knew what they were doing. And if they if they get the book thrown out and they deserve it. Alright, everybody. This has been another amazing episode even though Saxe is gonna say it's the worst one
for you. I like it.
I do. That's a lake.
Is that real?
That's lakefront. Is that a Zoom background? Could I get that in a Zoom pack?
Take a photo so we can all use it.
Yeah. Love you, boys. Love you, Bat, these. Alright. We're back
in the bridge.
Back at you.
We'll let your winter Friedberg.
Rainman, David Sacks.
We open source it to the fans, and they've just gone crazy lately. besties are gone.
-- 13.
That is why they are dog taking it. I always
driveway tax.
Oh, man. I
have a casual media analyst.
We should all just get a room and have one big you, George, because they're all just useless. It's like this, like, sexual tension that we just need to release them out. What? You're the bee What? You're
a thief. What?
Where did you get Merckies are back?