00:00:00
can I tell you a funny story so I I was in I was in and then when I landed there was a an
00:00:07
assistant message on the plane and then uh the pilot texted me like hey bad news
00:00:13
We're not gonna be able to take you tomorrow there's an error message and if we can't
00:00:18
resolve it we can't fly that's it okay so I text sax I'm like hey dude I'm in a really tough spot is there any way that
00:00:26
you know I could catch a flight you know with you tomorrow absolute dead silence oh three hours
00:00:34
later Paul pilot Paul text me and says good news cleared us we're going tomorrow I
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text sax right away hey no worries it's all resolved in eight seconds he responds awesome with an exclamation
00:00:45
mark yeah also he had zero intention of bringing me and my family with him zero I
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filibustered he fell about you the truth is the plane was with me I was using it I'd be happy to let you borrow
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the plane if I'm not using it here's sax the last time we went to dinner ready the check comes Miller unlocks lands on
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the table here sacks what you're seeing see that you know what that is sack's going for his wallet
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you can just count it it's almost ironic because I can't remember the last time he's almost remember the last time you
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picked up a check Jayco what do you every time am I pick it up on the way in maybe for a slice of pizza come on sax
00:01:22
is one of the most generous people I know I remember we went to a bar once we barely had time to get a glass of Still
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Water a Diet Coke and some of the free nuts and then Jake how was like guys it's on me
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I pulled out a 20 I gave it right to the bartender that's true my turn my turn I
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got it my turn you got the the white truffles and the filet mignon last week I think these bar
00:01:49
nuts are on me fishes yeah throw in some cashews too throw in the cashews and raisins the
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trail mix I'll get the trail mix because you got the truffles last time chamoth [Music]
00:02:11
we open source it to the physics [Music] all right everybody Welcome to the all in podcast we're still here episode 105.
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I don't know if you saw boys last week the pot hit a new high water mark 16. overall in the world so congratulations
00:02:33
incredible I thought we peaked at 14 actually was it 14. people listened to this pod when I was in DC this week I
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had a bunch of meetings and so many of the of the staffers listen to the Pod and they came up to me they're like hey
00:02:46
love you guys listen every week it's really great it's really crazy actually the reach of this thing it's really cool
00:02:52
now when you were in DC how gleeful were they about Sax's absolute shellacking last week that must
00:02:59
have been high fives all over the Dems like they won twice Trump announced and sax lost listen we uh we talked a lot of
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us are they about SBF and how much money he gave them in order to stop that Red Wave
00:03:13
take it easy I talked to it I talked to a lot of folks folks and what I would say is we talked a lot about energy
00:03:19
policy life's Life Sciences obviously two areas that I invest a lot of money in and foreign policy and um actually
00:03:27
David you'd be surprised by how many fans you have there cool well I mean like General Millie like we talked about
00:03:31
last week he's come around Jake Sullivan just this week said that he told the ukrainians it was reported that they
00:03:37
can't have Crimea back get realistic so Jake Sullivan and Millie are like the voices of reason now in the
00:03:44
administration on this and they're just saying the same thing I've been saying for which I was excoriated by the
00:03:49
foreign policy establishment and I got into a little Twitter spout with Ian Bremner this week because all the the
00:03:54
sudden he posts that oh everybody has been privately saying that we need to negotiate no no you haven't you were
00:04:01
criticizing you were denouncing Elon as a Kremlin agent when he posted that Twitter poll suggesting that the
00:04:08
ukrainians should negotiate so you were publicly denouncing those of us who are calling for negotiations and now all of
00:04:14
a sudden you're saying well this has always been the position but I think what's significant about that is the
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guy's just a Weather Vein for the blob and the the foreign policy establishment and so the Weather Vein is now pointing
00:04:26
towards negotiations so that's the good news here do you think that if DeSantis wins the presidency you will be
00:04:32
nominated as a Secretary of State Treasury what would you take treasury state in fact if you were offered a
00:04:39
cabinet position would you take you should you should take that what you what you have to understand is that my
00:04:44
position on foreign policy or Ukraine specifically is not it's not uh it's not adopted by either party I mean McConnell
00:04:52
and the Senate Republican leadership are very much on board with the bind administration's policy on this they are
00:04:58
very very hawkish it's really the unit party on this issue there's really just one Consolidated
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blob okay but back to the question would you would it be a dream of yours would you find great joy in having a White
00:05:11
House position to when DeSantis goes in to serve your country would you sir would I serve if if the president of the
00:05:20
United States calls you up and asks you to do something obviously you have to get to serve your country but it's not
00:05:25
something I'm obviously looking for that's a yes what if he asked you to serve as the U.S ambassador to Burkina
00:05:34
FASA where the Ambassador roles are so funny it's like you have to compete for the good
00:05:43
ones and then some people get stuck with the bad ones those are those are available for purchase yeah yeah exactly
00:05:50
you know there's like a there's like a menu of these things like these ambassadorships like yeah I don't think
00:05:55
it's like written down anywhere but it's kind of like unspoken it's like if you want the ambassadorship to the UK that's
00:06:02
like 10 million dollars and then you know the the thing was with UK and France it's every every Embassy every
00:06:11
ambassadorship comes with an annual budget but the cost of actually running that Embassy and really throwing the
00:06:17
parties is much more so for the UK and France the Gap is 10 million a year that you have to fund out of pocket so you
00:06:24
got to be really willing you know to put the money up uh but apparently you've got to pay for the parties my friend my
00:06:29
friend was was the ambassador to the UK under Obama and I went to a party there it's unbelievable and he has the best
00:06:37
life because like you know he was meeting everybody in the world you can imagine goes through the UK and then
00:06:41
wants to meet the U.S ambassador it was a great job for him right but the money I'm talking about is the cost of buying
00:06:46
one of these Snickers you have to typically raise that much money yeah you bundle that much money for whoever this
00:06:53
is what I've heard I mean I don't know this is what I've heard is that but does that mean that sbf's parents if
00:06:57
Elizabeth Ward wins the presidency right now the Illuminati right now just revoked all of our Illuminati cards
00:07:06
we're not supposed to talk about this guys uh that you can buy an ambassadorship but speaking of buying
00:07:11
politicians and coverage uh let's get an update on FTX so Trump speaking of politics I mean you know
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because if I bring it up I didn't want to tilt something in the first five minutes the only thing I want to bring
00:07:25
up is yeah I think I'm entitled to and I Told You So on this there was a story where the FBI said that the reason why
00:07:33
Trump kept the boxes in his basement they've now the FBI has definitively said it's because he was just trying to
00:07:39
preserve mementos not try to sell State secrets to the Saudis or something like that that like some people were making
00:07:47
wild conspiracy theories about so Jake how it looks like I was I was right about that in fact I think we had that
00:07:53
very discussion on this pod yeah I mean we I I said I thought he was keeping it for like keepsakes like
00:07:59
mementos that was my position too because you didn't you didn't support the salary let me ask a question because
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I mean I wouldn't put it past him he's a maniac I think if you believe that this
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was about mementos which the FBI has now said it was I think you also have to say
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that the FBI's approach in raiding his home with armed you know soldiers was heavy-handed now I'm not saying they
00:08:19
didn't have the legal right to do it I'm sure they checked all the right boxes but it was heavy-handed but look that
00:08:24
brings me to another Point why do they do it I actually suspect now that what the Bible ministration's trying to do is
00:08:30
keep Trump in the news I think they actually want to provoke they want him to run they want to run it's the exact
00:08:36
it's the exact same thing remember the the 50 million that went into Republican primaries to support the you know the
00:08:42
election denier candidate turns out that was a successful strategy for them as much as I hate to admit it it's as
00:08:48
Reckless as I think that was and hypocritical because I don't think you can be out there claiming that these
00:08:54
candidates are threat to democracy at the very same time you're funding them so I think it was completely
00:08:58
hypocritical and sort of Machiavellian but it worked and I think in a similar way what the Democrats are going to try
00:09:05
to do over the next years is is keep Trump in the news as much as possible and in fact CNN ran his entire speech
00:09:12
announcing last Tuesday I think for this reason if Trump wins the Republican nomination he's going to
00:09:18
then he will lose the presidency because if you look at all of these exit polls that came out of these midterms he's
00:09:25
just so massively unfavorable but that's not what's going to be you know litigated in the primaries in the
00:09:32
primaries it's just Republican non-republican and there are a non-trivial number of paths where Trump
00:09:38
actually beats DeSantis and I think that's very scary to the Republicans who want to just move on and have a chance
00:09:44
of actually consolidating power and it's gleefully Blissful for the Democrats because if again and we saw this look if
00:09:52
if the Democrats were able to fund and field Maga candidates in the Republican primaries that then lost in the general
00:09:59
election well the best mega candidate of all is Trump so it David Sachs is completely right
00:10:07
now like the balance of power here should be if you're the Democrats whatever you can do to keep him in the
00:10:12
news whatever you can do to induce him to run makes a lot of sense because he will he'll [ __ ] the Republican party
00:10:20
let's put he'll split look at how Jacob's got a big writ he's admitting to the hypocrisy which is for years he's
00:10:28
just screaming about this is your voice hold on a second you've been screaming about what a threat to democracy is how
00:10:33
he's secretly on the payroll of the Kremlin or foreign governments and yet and yet you want to keep him in the news
00:10:39
you want to be the nominee and you Republicans to kick him out of the party no I do
00:10:45
take him out come on I was on the DeSantis train before the midterms election you on this pod will never kick him out
00:10:53
of the party you should say disavow him publicly disavow him how I've already said I support DeSantis I
00:11:02
said it before the midterms what else do you want me to do but I'm talking about
00:11:06
the party at large I think I think you're I think you and many other people on the Democratic side in the media are
00:11:13
being very hypocritical about this because you want to claim that he's this unique threat to democracy while playing
00:11:19
this game where you want to keep him in the news you want to basically provide him with as much oxygen as possible
00:11:24
because you think he's more beatable and by the way I agree that he's less electable than DeSantis which is why
00:11:30
part of the reason why I'm on the Santa's trainer I also think DeSantis would get more
00:11:35
done but look um I don't think it's a foregone conclusion that he's gonna be the nominee did you see the new polling
00:11:40
that came out after the midterms DeSantis is now the favorite in among Republican primary voters among every
00:11:47
different slicing that you want to do of whether it's likely a Republican voters
00:11:52
primary voters whether it's Fox News viewers and on and on and on DeSantis is now ahead of trump I about okay wait
00:11:58
hold on need to be able to stay at my position because sax interrupted me seven times I just would like to get my
00:12:02
position on here number one you all backed somebody who is a horrible human being who made terrible decisions and
00:12:08
now you guys keep supporting him at some point you have to put your foot down and
00:12:12
say listen we don't want this guy you have to publicly say January 6th you know and this guy's approach the
00:12:19
election denial you guys have to come out and just say we don't want this person to run I think you've been
00:12:24
hedging too much I think that's the problem now who has I am not how can I get the Republican Party yeah now you
00:12:30
always were a little bit like because I I did no yes hold on and this very pot I
00:12:35
asked you if he run would you support him would you ever vote for him again and you were like wow and you would vote
00:12:40
for him again if he wins the nomination you'll vote for him that's the truth Republicans will still vote for him look
00:12:44
you know that before it was popular before the midterms I was on the DeSantis train I was saying so on this
00:12:49
pod for over a year when it was very unpopular certainly in the area in which I live and so you know and there are a
00:12:56
lot of Republicans now most Republicans now agree with me on this issue according to
00:13:01
the polling that just took place but if he wins the nomination you will vote for
00:13:04
Jason is that you want us to buy into every [ __ ] narrative that you've ever told about this issue January 6th
00:13:11
of [ __ ] no it was an election today let him finish let him finish well he's interrupting me every two seconds stay
00:13:18
out of a free bird oh I just want you guys to guys I just want you guys to speak and then let the other person
00:13:22
speak that's it I don't care my point is just here we go again I don't I don't want to rehash every
00:13:28
single thing in the past but but look the point is that I think we have more electable candidates I think we have
00:13:35
candidates that would get more done in office but and I've already said so but I you know but I don't that doesn't mean
00:13:41
I believe this whole like threat to democracy thing I think that is massive inflation of the actual threat but but
00:13:49
look if you want me to say that we have more electable candidates we have cancer
00:13:53
will get more done who frankly would be less alienating to moderates and independents and could even win over
00:13:59
some moderate Democrats the way that DeSantis did in Florida to win by 19 points yes happy to say that and I've
00:14:06
been saying that I will just say if I if I'm if I'm if Freeburg allows me to make
00:14:10
a point I would like to say it is a threat to democracy January 6 and election denial those two things are
00:14:16
accused party fund over 50 million dollars to those candidates cynical because they wanted to win
00:14:23
cynicism pure cynicism okay we're on the same page about that yeah yeah it's pure
00:14:27
cynicism um but do you let me ask you a question and then we'll wrap on this because I know it's uncomfortable for
00:14:31
free bird to watch Mommy and Daddy fight um it's okay Bobby dad used to love each
00:14:44
other even if we fight sometimes it just makes me want to turn the volume down go
00:14:48
ahead we're almost done anyway I do think Fielding moderate candidates is the path and I think Tremonti brought
00:14:54
this up a ton of times who it's the race to whoever can get that moderate middle
00:15:00
and I hope that they feel better candidates but do you think Sachs he's running this is one of the cynical takes
00:15:07
is that he's running because it will help all the legal cases against him do you think there's anything to that my
00:15:11
guess is that that they see him as an easier candidate to beat and they're going to do everything they can to try
00:15:16
and keep them in the news and and I don't I actually I don't think that's your position I actually think that
00:15:21
you're being sincere that you don't want him to win a second term I mean remember
00:15:25
like we don't know I think we all believe that we're gonna have a pretty severe recession next year so just
00:15:30
because the Democrat cynical strategy in the midterms of promoting you know what
00:15:35
they called election deniers in the primary that happened to work but just because it worked last time doesn't mean
00:15:40
it's going to work next time and abortion absolutists and a whole bunch of other things I think I think the
00:15:44
point is pretty much this which is that people gave Trump a lot of credit for being an idiot savant but it looks like
00:15:53
he's more of an idiot savant minus the Savant okay this is a this is kind of a goofball who has a brilliant media
00:16:00
strategy and he had his finger on the pulse in a moment and then he just couldn't execute
00:16:05
couldn't put two and two together couldn't put one foot in front of the other and he was way too divisive and he got
00:16:11
booted out and he lost fair and square and now what the Republicans have to realize is if they don't figure out how
00:16:19
to field somebody out of the primaries that is different than Trump the Democrats will win because if it is
00:16:25
Trump whoever the Democratic candidate is I don't think it really matters will crush Trump
00:16:31
yeah look I I think that's likely correct I mean I think I think that we talked about it last week you cannot win
00:16:37
the presidency with call it 45 of the vote I mean Trump is capped at that amount and the scary thing for
00:16:42
Republicans by the way is Trump does a much better job than anybody else in getting his base activated so the thing
00:16:47
that all these polls get wrong and I think they've consistently gotten wrong and and as a result have underestimated
00:16:53
him is they don't give him the credit he deserves duly for being able to curate a
00:16:59
fervent base of that 30 or 40 percent of America that will show up for him and even if they didn't show up as much
00:17:06
in the midterms they sure as hell showed up in the primaries for his candidates oftentimes so I just think it's a very
00:17:13
dangerous cocktail that that you can't sleep on so the Republicans have to take this really serious moderate Republicans
00:17:19
want to have a chance of winning you guys have to figure out how to beat Trump in a ground game because if his
00:17:26
base shows up he has a decent chance of winning the nomination but then you will
00:17:31
lose the general yeah I think that's I think that's pretty much spot on I think Republicans
00:17:36
really have to be smart and disciplined and think about we have to nominate the the most electable candidate but here's
00:17:43
the thing is we're not even debating policy right now no one no one really says that hey on a policy basis there's
00:17:49
a huge difference between say Trump and Desi answer to some other folks it's all
00:17:53
about personal style and is it really worth it to the Republicans to potentially lose the next election based
00:18:00
on personal based on style points it's a silly reason to lose you know William F
00:18:05
Buckley a long time ago said that he would always support the most electable Conservative candidate he didn't always
00:18:12
go with the most Conservative candidate he wanted to go with the most electable candidate who met a basic policy bar and
00:18:20
he sometimes got in trouble for that for example he supported Bush 41 over Jack Kemp I know I'm going back a long way
00:18:25
but but in any event you know having thinking about electability is just really important there's one silver
00:18:32
lining here the head of the Republican Party Rupert Murdoch has uh absolutely dissed Trump I don't know if you saw the
00:18:39
New York Post but he put on the cover lower like 10. Florida man makes announcement and on page 26 he had the
00:18:47
announcement of trump running for president and the funny thing was Rupert Murdoch if he didn't even name
00:18:53
Trump as the presidential the absolute last line of that column and he said oh and he also happened to be the 45th
00:19:00
president of the United States yeah it was very funny well you're seeing a lot of Republicans saying I think correctly
00:19:05
is that if you want to win elections you have to look out the windshield you know
00:19:08
not in the rearview mirror and what we saw in the midterms is that even talking about 2020 was at minimum a giant waste
00:19:16
of time and a distraction and at maximum potentially caused these candidates to lose I mean the fact of the matter is
00:19:22
that that a lot of candidates including semi-supported in Battleground States who got lured into trying to relitigate
00:19:29
2020. they all got vaporized and I just think it's stupid to be talking about the past
00:19:36
voters want you to focus on the future and especially when there's no policy outcome that matters that's at stake for
00:19:44
you to be talking about a pass election instead of the future questions this is politically stupid
00:19:50
Freeburg if I may bring you into this discussion uncomfortably as it might as uncomfortable as it might be
00:19:55
would you vote for Biden incredibly old I don't know he's gonna be 81 or 82 in the next election but you vote for Biden
00:20:04
or DeSantis as I go through the list of things I'm most concerned about in the world today
00:20:10
number one is the debt and spending cycle of the federal government in the U.S I'm
00:20:17
I think it's the most kind of scary set of facts and conditions that we're getting set up for
00:20:23
kind of a major crisis 10 to 15 years from now because you can't afford all the debt that we've taken on as a
00:20:29
country as well as the entitlement as well as defense and so something's got to give and
00:20:35
there's a bunch of paths that could emerge from that set of conditions that are all really scary paths and not good
00:20:41
I'm more concerned about that than I am about nuclear war or climate change uh just to be clear because I think that
00:20:47
the social effects and the the global geopolitical effects that arise from the U.S kind of destructuring because of our
00:20:55
our debt and spending cycle that we're in right now are far more significant than what we'll experience over the same
00:21:01
period of time and again I do think that technology is going to resolve a lot of
00:21:05
our issues with climate change and I think nuclear war cool heads will prevail everyone's got a family so
00:21:10
that's what I'm most concerned about so any kind of voting decision I make is made with that lens which is what's the
00:21:15
the best path to supporting some some fiscal responsibility setback or step back to resolve those issues as Charlie
00:21:22
Munger said so well in this interview that was published this week and I've said it a few times on the show but he
00:21:27
he did he's a much better speaker than I uses far fewer words but you know in democracy eventually the populist
00:21:35
realize that they can vote themselves all the money and you know that's what we see happen
00:21:39
in an accelerated way in Latin America we've seen that with a lot of these democracies and ultimately resolved to
00:21:44
kind of socialism and in the U.S we're seeing a lot of this Behavior where we're kind of voting
00:21:49
ourselves all the money we're putting in place politicians and the populace is saying I want I want I want and more
00:21:55
money comes out and it it um it totally decreases the strength and the resiliency of our nation and our economy
00:22:02
and it's the most concerning thing to me because the the incredible Innovation and economic engine that is the United
00:22:08
States has threatened and it really threatens a lot of stability uh in the world today any any final thoughts here
00:22:15
as we wrap up the political discussion I think you're obviously a Democrat so you're voting for Biden but you also
00:22:21
care about fiscal responsibility so where are you at with your vote for 2024. I don't think that we know who's
00:22:26
actually running on either ticket yet just to be completely honest so that's my perspective my other comment is I
00:22:32
think what David said is so spot on the single biggest issue that we have is that we have made
00:22:38
a huge decision to de-globalize and that deglobalization has the risk of introducing a hyperinflation Loop
00:22:48
and we won't know how bad that is for another year or two why would it do that why would it well think about decisions
00:22:56
so today let's just say you buy a chip to make the iPhone you buy that chip from you know tsmc that makes it uh in
00:23:05
Taiwan ships it to China and the entire world is serviced with that supply chain
00:23:10
that keeps that chip as cheap as possible now with the chips act as an example we
00:23:17
will build resilient Supply chains where now instead of one place it'll come from
00:23:21
six places five of those six will be in Allied territories the United States western Europe potentially Mexico
00:23:30
the thing with that is that that now is 6X more equipment that you're buying right instead of one machine you now
00:23:37
have six machines instead of one person operating the machine in one country you
00:23:41
have six people in six countries as you can imagine when you layer up all these costs
00:23:47
there is no world in which that chip is as cheap as it was before and so the cost of that has to be born
00:23:55
either by the consumer who pays a higher price that's measured as inflation or by the government who subsidizes it
00:24:03
at the point of import that'll be measured by debt and so one way or the other in our in
00:24:10
our path now towards more resiliency and National Security which by the way I think is the absolute right decision
00:24:16
okay energy Independence all of this stuff we have to do today we are at risk of a hyperinflationary
00:24:24
loop if not managed well and so you have to be really on the levers of the economy and you
00:24:31
have to understand it deeply the person that deserves the most credit of preventing this hyperinflationary Loop
00:24:37
right now is Joe manchin and hopefully the history books whatever Jay Powell does I think has been good but the fact
00:24:45
that Mansion prevented Six Trillion more dollars of being pumped into the economy
00:24:49
in the last two years is probably the single thing that prevented inflation instead of being peaking at nine from
00:24:56
peaking at 15 or 16. I think it would have been a national disaster without that charmath is right that extra Six
00:25:02
Trillion that Manchester would have been a national disaster but let's also give
00:25:05
credit to every Republican because they also voted against it I mean the fact that the pressure was on Mansion to do
00:25:11
the thing and see the force from the trees and he did that yeah no look I agree I I agree that encouragement I
00:25:17
agree that he was in the hot seat well so is cinema by the way Cinema didn't go for the three and a half trillion build
00:25:23
back better but then Mansion you went along with the 750 billion dollar version of BBB which they renamed the
00:25:30
inflation reduction act that was kind of a disappointment so frankly like I give
00:25:35
more credit to the Republicans there against all of it and the Democrats jammed it through so if
00:25:41
you're worried about all of this trillions and trillions of unnecessary spending why don't you give them a
00:25:45
chance I'm talking about the Delta between what was spent and what could have been the entirety of the Gap is
00:25:51
really was prevented by Joe manchin I know but it was Joe manchin siding with the Republicans
00:25:57
was perfect on spending they both want to spend too much money but at this particular Moment In Time the
00:26:04
Republicans are more restrained about spending than the Democrats let's go to number one issue for each person hold on
00:26:09
number one issue for Freeburg is fiscal responsibility I was going to say the same thing it is my number one issue in
00:26:15
this next election I want to see austerity fiscal responsibility and get this spending under control so that our
00:26:21
kids do not inherit you know stagflation hyperinflation or whatever cocktail of disastrous economic policies we are
00:26:28
handing to them what is your number one issue sax for 2024 if you had to pick a number one issue what would it be for
00:26:35
David sacks look I think it's simple the president's job is to ensure peace and prosperity so you guys are talking about
00:26:40
the prosperity side I think we do need fiscal responsibility we need to have a good economy there's like a bundle of
00:26:45
policies that go into that starting with I think greater fiscal restraint and then on the peace side I think we need
00:26:52
to adjust America's foreign policy to be less interventionist where we're you know we're involving ourselves Here
00:26:58
There and Everywhere all over the world and I I'm hopeful that when I'm hearing out of the administration in the last
00:27:04
couple weeks from Jake Sullivan from Millie these are some good things that I'm hearing but you know I would like to
00:27:11
see us dial back on the foreign interventionism if you head to 60 40 that or whatever is is one more
00:27:16
important the other are they both equal and then we'll go to chamoth both equal for you which one's more important
00:27:20
they're both I mean look how can you have a successful United States if we're either in a recession or at War you
00:27:28
don't want any either of those situations so those are your top two equally what is it for youth what what
00:27:32
what do you think there's also a third one which is culture jaycal so this one's a little bit hard to categorize
00:27:38
but I do think culture matters and you know I want us to have a culture of Excellence I want in the schools for
00:27:44
example I think schools should have grades they should have advanced math we should hold our kids to a high standard
00:27:50
I think that we want to have safe cities we want to you know have cities where crime's not out of control we need to
00:27:56
have you know a sound border policy so I think there's like a collection of policies there under
00:28:02
you know schools crime border that are sort of broadly cultural I guess but or maybe you could call them quality
00:28:09
of life issues so you know yeah we need to have a good economy we need to stay out of Foreign Wars but also we need to
00:28:14
have a high quality of life can I still man something for you because I I really
00:28:19
agree with those three things David that you said but I've I've spent a lot of time thinking about this in my
00:28:26
formation is that there's one thing that allows us to solve all three if you bear
00:28:30
with me for a second and I think that that is the energy independence of the United States
00:28:35
if you look inside of what's happening in the U.S today the cost of generating energy is effectively as cheap as it's
00:28:42
ever been and as close to zero as it ever has been and it's only going to get cheaper the problem that we have is that
00:28:49
we have all of these decrepit laws and infrastructure and Regulatory capture that causes us to always be in an
00:28:55
imbalance and as a result we do all kinds of crazy things we borrow enormous amounts of money to create subsidies we
00:29:02
go and we fight all of these you know Foreign Wars that don't make any sense we wrap the energy problem and set in
00:29:09
climate change language which causes this cultural division but my belief quite honestly is that the
00:29:15
the reason the IRA was so important is as it is the most clarified piece of legislation we've seen
00:29:23
that essentially puts all forms of energy on a Level Playing Field and has the chance to get America to permanent
00:29:28
energy Independence and if the cost of energy is zero and we can abundantly create it in the United
00:29:34
States what I think happens David is we have energy to rebuild our supply chain much cheaper so inflation gets under
00:29:40
control we don't borrow as much we have a completely different lens on foreign policy so that this
00:29:46
interventionism and fighting over resources is much harder to justify and we put the
00:29:53
climate change language aside and we use energy Independence as a form of National Security which gives us the
00:30:00
courage to battle all these other cultural taboos that we otherwise have to say we agree with even if they don't
00:30:05
necessarily make any sense and there's a bunch of them so I don't know my my my answer to your
00:30:11
question Jason is that one thing if we accomplish in the next five to ten years has a chance to really change the course
00:30:19
of the United States right and then but so I'm guessing then Biden's your vote because if it is in
00:30:24
fact because Biden is the one who who pushed for these clean energy tax credits and this policy
00:30:30
in it what do you think cancel you also cancel our energy Independence I mean look we were energy independent based on
00:30:35
fracking you may not like fracking but it did get us energy independent you may think that there's environmental
00:30:41
consequences to it that you don't like and and that has to be balanced but we did everything against I believe in that
00:30:47
gas I believe in Coal actually as a bridge fuel I believe in all of these things
00:30:52
I believe that these are all more important than going off to all of these foreign lands and trying to justify
00:30:58
spending trillions of dollars and putting tens of thousands of American lives at risk essentially for resources
00:31:04
that we can actually create for ourselves at home well I agree with you on that 100 I'm fine with I mean I'll
00:31:09
tell you clean fracking as a way as a bridge go ahead to getting to you know more Independence through nuclear and
00:31:15
renewable like I said before China's declared that they're building 450 nuclear power plants the net cost
00:31:22
effective cost of electricity production out of a nuclear power plant is somewhere between one and five cents
00:31:28
per kilowatt hour the US on average is paying 11 to 15 cents per kilowatt hour nuclear is just through utilities of
00:31:35
free perk that's with all the regulatory capture and all that trash that you have
00:31:39
to spend for example we have to spend 220 billion dollars a year to replace the power lines in America by law that's
00:31:45
2.2 trillion dollars just there right and so the cost for solar and wind off grid I think is around three to seven
00:31:53
cents a kilowatt hour in that range right so it gets nowadays it's gotten much more competitive
00:31:58
but I think that the nuclear solution it's just not even being engaged in the conversation now I want to go back to
00:32:05
the previous point which is because I didn't State the numbers before so I just want to State them
00:32:10
because they're so shocking and this is what what shocks me the current uh federal debt is 30
00:32:15
trillion dollars our GDP is around 23 trillion five percent interest rates on 30
00:32:20
trillion dollars is one and a half trillion dollars in interest payments alone every year and our social security
00:32:27
so so one and a half trillion dollars I mean that alone is about six percent seven percent of
00:32:33
GDP so you have to tax every transaction in the country by six or seven percent just to pay the interest payments on the
00:32:39
debt and then we have Medicare and Social Security that math is wrong because you have maturities of all
00:32:47
different types with different yield to maturities and different coupons it's not today's numbers it's what's
00:32:53
happening on time so as you look out and you look at the the yield on treasuries
00:32:58
and you apply that to the current debt level and the increment in the debt level you'll get to that level right
00:33:02
you'll get to a trillion five a year in interest payments that need to be made plus another call it three four five
00:33:10
trillion dollars a year in mandatory spending and so that's where the country starts to run into a problem because at
00:33:16
some point when you have to tax so much to cover the cash payments that need to be made by the federal government the
00:33:22
economy really gets hurt and things start to [ __ ] and then if you were to take those entitlements away Social
00:33:27
Security Medicare you have a real problem with people's ability to support themselves in an economy where they're
00:33:33
not working these are elderly retired people so there is a mate at work to pay these expensive medical bills so there's
00:33:39
a major crash coming if we don't figure out how to bridge our way to this Gap so
00:33:44
if someone wants my vote and they're going to run for president they would put up a simple chart like Bill Clinton
00:33:49
used to do then show me a 10 to 30 year plan and just say here's where we're headed and here's what we're going to to
00:33:54
do to make sure that doesn't happen and that chart alone I think can win the vote okay let's pull up the chart then
00:34:00
so here is the federal debt total public debt as a percentage of gross domestic product as you can see in the 70s and
00:34:06
80s we were at under 50 the 90s we started you know growing I don't think this matters I think everybody every
00:34:13
self-proclaimed intellectual looks at this chart and says oh my God we've exceeded a hundred percent you know the
00:34:19
the Empire is going to go to ruin that's not why the Empire goes to ruin we have
00:34:23
the reserve currency of the of the world and there's an enormous amount of power
00:34:28
that comes from that position so what the right number is is TBD that's the most honest way to think about it it was
00:34:35
a hundred it's at 150 it could go to 200 many countries operate at the levels above us and still haven't imploded per
00:34:42
se the real thing is what part of what Friedberg said is look if you really want to look at what we pay today we pay
00:34:49
400 billion dollars this year that's the interest payments okay that's when you calculate all of the different
00:34:54
maturities we have with all of the different coupons we have that's what we owe today and David is Right
00:35:00
mathematically that if interest rates go to five percent and stay there forever but we know that that's not how
00:35:06
economies work they ebb and flow okay so the real problem that we have to understand is how do you actually create
00:35:13
enough growth and then the next time that we have a meaningful fall in interest rates like every other person
00:35:19
does you know look a lot of people in America know how to refi their credit cards refi their home loans refi their
00:35:26
mortgages the United States could have had a much more aggressive and thoughtful strategy
00:35:31
of refining by pushing out these maturities way into the future and again Trump actually suggested that
00:35:37
but because he sounded like a goofball everybody said absolutely no way but in hindsight that one move would
00:35:44
have saved us trillions of dollars over the next decade if we had done it and this time around we have to have
00:35:50
politicians who are smart enough and have the werewolf fell to say it doesn't matter where this idea came from it's
00:35:55
really smart rates are now back to two percent or one and a half percent let's now issue 50 and 100 Year bonds and
00:36:02
let's refi this problem out into the future that makes a ton of sense and we have to do it the refi makes a ton of
00:36:08
sense just to pull up a chart here and to counter your position there that it doesn't matter
00:36:15
maybe you can respond to if you look at GDP ratios here number one two and three Japan Venezuela
00:36:23
Greece Sudan and you know you know some smaller countries there but United States currently these
00:36:30
countries none of these countries this entire world runs on the US dollar complex whenever we raise rates yes it
00:36:38
is true that on the one hand our interest payments go up but proportionately and on a relative basis
00:36:45
I think I think maybe let me take a step back look one of the most important things in investing which is appropriate
00:36:50
here is that people ask what is the price of a stock well before you go public you're calculating what the
00:36:58
intrinsic value of a company is okay all the things that they do all the money that they make here's what we think it's
00:37:04
theoretically work worth but the minute it goes public the intrinsic value no longer matters it's what is it valued
00:37:11
relative to everything else okay the United States is a relative if it's a stock if all these countries are
00:37:18
stocks we are valued relatively to others not not intrinsically and the reason why we have so much power
00:37:26
is because everybody else is actually valued relative to us so this is why I think the right thing
00:37:32
to look at Jason is the rate of change of debt to GDP for the entire G8 or G20 or the rest of the world and what you'll
00:37:40
see is something that goes up and to the right nobody in the world has been rewarded for not investing in their
00:37:47
populations and basically borrowing from tomorrow to invest in today's human capital okay so we have a disagreement
00:37:53
here Freeburg do you think this is a major issue yeah do you think it's manageable Free Bird yeah I think
00:37:59
there's two things that are missing one is the inflationary effect so you look at that list of countries that are there
00:38:03
they're paying higher interest and they're paying in the form of inflation so they have less that they can spend on
00:38:09
their people and ultimately what ends up happening it's just simple arithmetic it's not about relative value of a
00:38:15
currency it's the arithmetic that we have a check we have to write every month to pay for Medicare and Social
00:38:22
Security and it is written into law what that check needs to be and the rate of which we're having to write those checks
00:38:28
the the increment of those checks is going going up so significantly that when you add on the interest payments
00:38:33
and you look at those checks and then you add on defense something's got to give because you cannot raise taxes in
00:38:40
the amount that's needed to fund all of that outlay without this causing either number one massive inflation if you just
00:38:46
take on more debt or number two you know significant loss of services either Social Security Medicare or
00:38:53
defense and so something's going to give and the the distribution I think is not
00:38:57
being discussed so I just want just one point the president's budget anybody who
00:39:01
is a president of the United States gets hold of their annual budget it's about five and a half trillion dollars this
00:39:06
year so you're talking about interest payments that are still less than 10 of their total budget now that includes the
00:39:12
entitlement payments okay so about three billion dollars three trillion sorry three and a half trillion is what you
00:39:17
have to pay for twenty percent no three trillion dollars is the sum of Medicare and Social Security
00:39:24
okay so the president still has one and a half to two trillion dollars of leeway
00:39:27
of which a quarter are debt payments so my perspective quite honestly is mathematically there's a lot of room to
00:39:34
run here before these things get really out of control and even if they do I think the relative problem is for the
00:39:40
rest of the world will be so egregious that the ability for the United States to go to those Banks and those economies
00:39:46
and basically sell in more U.S debt is quite High because they cannot afford to own debt in their own country so if you
00:39:54
think that if the United States is bad go back to that list guess what those central banks in those countries are
00:39:58
going to be buying US Dollars faster than they can go out of stock unless we see some
00:40:03
Union of India China Saudi Arabia Russia Japan Brazil obviously not Japan but some some of that consortia will become
00:40:14
a closer trading partner and perhaps could cause a shift in the balance of the dominance of the US dollar and
00:40:20
that's one path to to consider sax what do you think of the balance you hear obviously we have two opposing opinions
00:40:26
here from tremath and Freeburg where do you stand on the United States balance sheet are we over our skis balance
00:40:32
sheets of disaster what are we at like 130 percent of debt to GDP I mean we have like 30.
00:40:39
yeah it's not even stable I mean we can't spending is 27 of GDP right now 27 it should be 15 right so the spending
00:40:47
where does that number come from why there's a there's a bunch of economists who have shared these papers morons
00:40:53
morons hold on hold on if you look at it if you look at government tax receipts over
00:41:00
time with all different kinds of tax rates including very very different top marginal tax rates what you see is that
00:41:06
a federal tax receipts as a percentage of GDP is in the 17 to 19 range and like the best years you make 19 is usually in
00:41:15
a good economy and in a bad economy it's like 17 and it really it doesn't matter
00:41:19
whether Reagan was President or Clint Bill Clinton and so on so there's only so much blood you can get from a stone
00:41:26
and historically spending was around 90 of GDP and so you would have a one or two percent
00:41:35
you know deficit every year and that really accelerated first you had the financial crisis of 2008 and then you
00:41:41
had covid and freeburg's right you know we we went from call it you know 20 of GDP spending to roughly 30 or more
00:41:49
during covid as kind of this emergency measure but like everything else in government you know the emergency
00:41:54
measure becomes a permanent program so now we're at 27 percent it doesn't seem to be going down and the Democrats want
00:42:01
a lot more I mean we talked about it build back better would have been three and a half trillion instead of 750
00:42:06
billion if they just had one or two more votes incentives they now have so so hold on so so Freeburg is right there's
00:42:13
like nothing stable about the point we're at it's the point we're at is bad on its own terms having 30 trillion of
00:42:19
debt let's say that interest rates stabilized at three percent that's still a trillion a
00:42:25
year of Debt Service which is more than the entire trillion if interest rates stabilized at three
00:42:30
percent which is optimistic and we're servicing a trillion sorry 30 trillion of debt that's roughly a billion dollars
00:42:36
a year of Debt Service payments that could be spent that should be spent on other things you guys keep saying
00:42:41
billion when it's a trillion the average yield to maturity needs to be factored in there so over a 15-year period David
00:42:48
you would be right mathematically if all matured but that's not what this is because you rear you'd have to refi and
00:42:54
reissue a bunch of debt that is at lower yield right now at these interest rates
00:42:58
I want to be clear I'm not sure if any of this is good I mean remember I I understand
00:43:06
I'm not saying that this is a good or it's a trend what I'm saying is I have this issue that all of a sudden people
00:43:12
make up and you guys are doing it now an arbitrary number with no rooting in history or fact and say this is bad and
00:43:21
all I'm saying is I know it feels bad to us and I think we would all run this country differently if we could get
00:43:26
control of the balance sheet I would as well I would try to get debt way way down I would try to get deficits way way
00:43:31
down but all I'm saying is using this justification of an arbitrary number always falls flat so I'm encouraging us
00:43:38
all let's find a better model of reasoning because every time we point to some rando's book and say 127 is bad
00:43:46
nobody listens and I think the message that you should take away is it's because it's imprecise and it's not
00:43:51
rooted in any actual logic and if there's a better building the reason I believe that this is concerning is I
00:43:57
look at the top 10 countries that have you know debt ratios that see them out of whack and I think wow what is their
00:44:03
Fortune been for the last 10 years vis-a-vis Japan it's not the right comparison the right comparison okay to
00:44:08
go back look at the British Empire and when and what was the debt to GDP when it started to actually fall off does
00:44:15
anybody ever collapsed I collapsed no I'm saying okay was it triggered was it triggered by debt to GDP and I think
00:44:22
your answer will be in part again they took on runes debt and they couldn't make maintain their empire
00:44:29
anymore and the whole thing collapsed I'm just asking for some numerical specificity
00:44:38
a lot of numerical specificity there is a ton of work that's been done pulling [ __ ] out of their ass so it shows that
00:44:46
it's historically the best way to manage the growth in in a in a country is to have deficit spending be equal to or
00:44:54
less than the growth rate of the economy of that country so for example if your income the the tax revenue that's being
00:45:00
generated by the government is equal to say 15 of GDP you do not want your spending to be more than 17 or 18 if the
00:45:08
economic growth rate is two to three percent that's it if you do anything more than what happens you know if you
00:45:13
do anything more than that you're borrowing from the future to pay for today that's the simple truth okay so
00:45:18
what happens and when you do that the rates go up and the prices go up and eventually your currency doesn't work
00:45:25
so you're making a bet read the book that I talked about last year the the most recent Ray dalio book he goes
00:45:31
through six stories with the economic data to prove it the factual data the history of what's happened with six
00:45:37
Empires over the last 500 years were this exact same scenario has played out this isn't some random arbitrary story I
00:45:44
read that book and everyone had the exact same perspective that you have when they were living in those days and
00:45:49
they said you know what we're going to be okay because we're the reserve currency and the world loves us and
00:45:53
we're the Empire and we have influence everywhere and they all lost Primacy and their currencies collapsed and they all
00:45:58
broke apart and that's not saying that that can't happen in America what I'm saying is you get so full-throated I
00:46:04
read that book it's great narrative but the numbers are brittle okay they're fragile and they're mostly made up
00:46:12
so all I'm saying is in the absence in the absence of numerical specificity I agree with you that this trend is
00:46:20
alarming and it's bad I agree with you and I agree that we should spend a lot less what I'm saying is when you say to
00:46:26
the world stop spending because XYZ number is bad you have no credibility because it's not it's something that you
00:46:33
can actually back up and all I'm saying is if you could find a better logical argument you would probably get a lot
00:46:40
more people to you you're just being ignorant you're ignoring it you're saying you don't want to actually
00:46:45
believe it the numbers are there show me the numbers and I'm not saying ignorant
00:46:49
in a disparaging way I'm saying you're literally just ignoring the data show me the numbers
00:46:58
I'll send it to you tonight I promise and I'll post it on our freaking things so people can watch it all right okay
00:47:03
listen the the group chat's gonna be on fire this weekend sax final word for you
00:47:07
okay final word okay final one please obviously on opposite sides I think it's great I still respect and love you if
00:47:18
you go back in history and look at debt to GDP levels the only other time we're anything remotely like the level we're
00:47:24
at right now is right after World War II when we had just saved the world from Nazism okay that was worth going into
00:47:31
debt for you look today what is it that we've gotten into this 130 debt to GDP what is this 30 trillion dollars of debt
00:47:38
for what if we bought with all that money huge amounts of it have been squandered you're right and Biden won
00:47:43
and more if if the courts didn't stop him he would have spent a trillion for giving a bunch of student loans to
00:47:50
for basketball degrees or liberal studies or whatever me graduate degrees that brown in my
00:47:57
heart will be finished that's Point number one is that this money is being squandered at levels we've never seen
00:48:02
before and the squandering is continuing it's not like we've reached a steady state it just keeps going and going and
00:48:08
it's great goes on I can't precisely saw a second I can't precisely say when it's
00:48:12
gonna break but I do know it's gonna break the other thing the point number two is about consequences today there is
00:48:20
a phenomenon economists call crowding out where when interest rates go up more and more money flows into the risk-free
00:48:28
rate of return and then that crowds out investment capital and we've talked about it on the last pod where if the
00:48:35
risk-free rate is five percent and then like high quality corporate bonds are offering eight to ten percent now Equity
00:48:42
Investments must generate 15 and VC must generate 20 and there are very few VC Investments that can generate that kind
00:48:50
of irr so what happens the money flows out of VC and there's less money for risk capital what drives our economy
00:48:56
risk-taking data entrepreneurship so hold on a second so this massive Debt Service that we have which drives up
00:49:03
interest rates will crowd out the very kind of economic activity that the United States needs to stay on The
00:49:09
Cutting Edge of the rebuttal to the rebuttal no you're so right so why don't you just
00:49:15
bookend the argument exactly the way you just did my point is not that you said it just before that we don't know at
00:49:21
what upper bound these things break or don't break and all I'm saying is every time you throw up a random number you
00:49:26
guys sound like the boy who cries wolf okay and you're shouting into a vacuum is is just the is the advice that I'm
00:49:32
trying to give you guys I agree with you I spend my entire days investing in and
00:49:37
trying to figure out what is the risk-adjusted rate of return of the things that I'm doing and I'm trying to
00:49:42
tell you as somebody with some reasonable Financial numeracy every time I hear you or Ray dalio or somebody else
00:49:47
say this number is where it all breaks and it doesn't you lose a little bit of credibility then you go to this number
00:49:53
and you're like oh at 100 how much is too much how much debt can we handle and how much spending as a
00:50:05
percent of GDP should we handle what is the limit in your mind and how do you decide what that limit
00:50:12
can or should be I think the honest answer is every time that I have been alarmed that we had hit a threshold that
00:50:18
was meaningful so for example like I think under Obama we passed a hundred and it felt very scary because I was
00:50:24
like wow that seems like a demarcation it turned out to not be a demarcation at all because it's relative to every other
00:50:32
country and what they're going through and I understand that you don't want to believe that but I do think that
00:50:37
America's economic fatality is not an independent uh function it is a dependent function on everybody else we
00:50:43
are relative to everybody else if there's a a different Cosmos and a different planet somewhere maybe this
00:50:49
will all reset but right now it's not and so we all trade relative to the United States and in as much
00:50:56
I would like to just say I don't know enough to guess what this number is and I'd rather focus on what David said
00:51:01
which is there are things that we need to do that we need to incentivize people to
00:51:08
invest in extreme risk-taking that create new businesses that move the world forward
00:51:13
you can have that conversation without bellyaching and crying to Mommy about a GD debt to GDP number because every time
00:51:20
you throw it out there nobody knows what you're talking about nobody knows what reaction to have and everybody feels
00:51:26
over time David Friedberg that you're crying wolf so all I'm saying is I get that it's concerning to you and it
00:51:31
creates anxiety but every time you probably this is not the first time you've had anxiety you probably had
00:51:36
anxiety at 50 75 100 125 guess what I bet you'll have anxiety at 150. I don't know what it means I do know what sex
00:51:44
means though which is that right now we have a risk-free rate that's going to five we have corporate bonds that'll be
00:51:50
at 10. we have Equity investing of the most risk-taking which is the early stage Venture that
00:51:56
has to return 25 and that is an incredibly High bar but we need to do it and we need to do maybe
00:52:03
fewer Investments quite honestly with fewer participants with less dollars that are more effectively put to work
00:52:10
okay maybe this is a good jumping off point to talk about all the waste in Silicon Valley
00:52:14
and that stuff can happen without debating incessantly this debt to GDP number which is awesome
00:52:22
all right Freeburg sacks and then we're gonna move go I agree I've never had anxiety about debt to GDP it's never
00:52:29
been anything on my radar the conversation I'm trying to have today is the amount of spending the federal
00:52:35
spending including interest payments as a percent of the GDP as a percent of how
00:52:39
much we can tax to pay all those to make all those payments every year and so what I'm concerned about is the
00:52:45
ballooning cost of paying out all the obligations the federal government have you say something different than what
00:52:50
you were just saying that's if you were cared about only that then refinancing the debt is an equally valid proposition
00:52:56
and changing the duration expense it's not the only expense so interest payments are ballooning in addition to
00:53:01
interest payments Social Security and Medicare payments are also ballooning and defense out of control spending
00:53:06
everybody add those four big categories together you don't have any room left over
00:53:14
you're talking about discipline in spending in defense great I agree you're talking about discipline and capping
00:53:21
health care costs great I agree what does that have to do with this other orthogonal thing you've been talking
00:53:26
about which is this random number debt to GDP it doesn't okay okay let's move on from that discussion let me make one
00:53:33
final point we can move on so look it takes time for the final Point go it's important discussion apparently
00:53:39
look in the in the interests of bestie Harmony I will partially agree with the point that your mouth is making which is
00:53:45
that for a long time in American politics people have sort of cried wolf about debt to GDP for example if you
00:53:52
remember way back in 1992 Ross Perot basically bases candidacy on the idea that the US was racking up way too much
00:54:01
debt you know what debt to GDP was in 1992 41 okay so people used to care a lot about this I remember when Reagan
00:54:09
was President and jets GDP was 30 people were saying that he was just like you know wild spender okay but I think that
00:54:16
precisely because nothing broke at 30 40 80 100 you then had the rise of this Theory called mmt or modern monetary
00:54:26
Theory which said that the debts don't matter if you're the reserve currency you can print as much money as you want
00:54:32
and so people started indulging in this and so now I actually think we are at a point I can't say precisely where it
00:54:38
breaks but I do think that because debt to GDP didn't seem to matter for so long
00:54:45
I actually think we got carried away and now we're at levels which are just going
00:54:50
to be ruinous if for no other reason than our debt service is going to crowd out whether you want more guns or more
00:54:58
butter in our federal budget if you want more defense spending you want more entitlements you want more discouraging
00:55:02
spending there's no question that debt service is getting bigger and bigger is going to crowd out those programs
00:55:08
there's no question we need to spend less I 100 agree with you okay but all I'm saying is we should spend less on
00:55:14
defense because we have different ways of Defending ourselves That Should Be The Logical argument for Leicester
00:55:20
energy Independence is defense and a balanced budget could be defense as well if you look at the IRA that was less
00:55:26
than a trillion dollars over a decade okay that has the potential to shift trillions of dollars a year in defense
00:55:33
spending yes okay okay so let me wrap okay let me wrap here for a second thank you
00:55:39
everybody you can look at these bills in and of themselves and try to actually do
00:55:44
the right thing for the country without wrapping up all of these random arguments and I by the way just be clear
00:55:50
I don't believe it don't do it don't do it the world's worth moderator come on during the Obama presidency we had a
00:56:00
thing called the sequester I don't know if you guys remember this yeah but Republicans and Democrats agreed that
00:56:06
basically that because we had just had like these trillion dollar uh deficits because of the 2008 Global financial
00:56:14
crisis they got together and said listen we're going to hold the line on spending
00:56:18
and there'll be no increase on defense spending in exchange for no increase in discretionary spending social programs
00:56:25
and for a few years we held the line on spending actually and then of course both Democrats Republicans didn't want
00:56:32
that for different reasons and the sequester went away we need to go back to something like that there are two
00:56:37
things one one detail like when you go and send a bill so look the way you pass a bill right you have to send it to the
00:56:43
CBO to get scored one of the things that I learned this week is that sometimes the CBO and they're not really empowered
00:56:50
to actually tell you how things get offset so for example like if you have a medicine
00:56:56
what they will do is say well we'll look at at the population level how much would this medicine cost if
00:57:02
it's taken by the population but if that medicine then all of a sudden has the potential to actually
00:57:07
off-ramp you over here those savings are not really factored in as well so David to your point another way that
00:57:15
we can refine how we build budgets to make sure that we're not overspending is to actually improve the toolkit and the
00:57:21
data that like the CBO is given so that when they score things they can actually
00:57:25
look at the total impact like for example like the IRA again one of the biggest benefits will be to defense
00:57:31
spending if we choose to make those cuts you will be able to do it differently once we have you know no Reliance on
00:57:37
foreign energy okay to wrap this segment the first segment which took 57 minutes
00:57:42
it's obviously wow really well I think it's an important discussion Hey Jake how would you vote for DeSantis if he
00:57:47
promises fiscal responsibility well here's the thing I am going to take a look at the candidates I'm going to
00:57:52
make the best decision in terms of what I think is that that's for the countryside
00:58:00
yeah it depends on if DeSantis gives you everything you want a fiscal policy why
00:58:05
wouldn't you vote for him if he stays out if he if he's in favor of a woman's right to choose for the first 15 weeks
00:58:11
that's Florida policy are you yes you know I would take a look I would take a look
00:58:16
not to vote for him 15 weeks right to choose combined with fiscal responsibility
00:58:29
okay but to wrap up here the two things that matter I believe and based on our panels discussion austerity and
00:58:35
Excellence are what are going to get us out of this mess here is what the platform seems to be shaping up our 2024
00:58:41
platform control spending everybody here thinks that's important energy Independence everybody here thinks
00:58:46
that's super important stop fighting unnecessary Wars uh and maybe rethinking our foreign policy I think we all agree
00:58:52
on that and the cultural focus on Excellence not excess this is shaping up to be a little
00:59:00
bit of an all-in platform here great discussion everybody speaking of austerity measures I think
00:59:05
you know we should just talk right right up top here about what's going on at Google Chris hone uh I believe is how
00:59:12
you pronounce his name chrisone he sent a letter to Google and Amazon Amazon today after already announcing 10 000
00:59:19
layoffs they just said again Andy said prepare for more layoffs in 2023 and these are not Factory workers these are
00:59:27
white collar high-paying jobs that are being laid off here there's Surplus Elites Surplus Elites uh it is
00:59:36
definitely a part of the Zeitgeist right now so they're going to reduce headcount
00:59:40
massively but in this letter to shareholders he points out notably not just hey Google needs to do
00:59:47
a riff a reduction in force but he points out a more granular point that I want the panel to talk about here which
00:59:53
is he says hey you need to reduce the actual salaries at Google the average salary being 296
01:00:01
000.67 higher than an incredibly well paying Workforce Microsoft quote we acknowledge that alphabet employs some
01:00:10
of the most talented and brightest computer scientists and Engineers but these represent only a fraction of the
01:00:15
employee base many employees are performing general sales marketing and administrative jobs who should be
01:00:19
compensated in line with other technology companies and he says we need to establish an ebitda margin Target as
01:00:28
you can see in this chart and reduce the losses on other bets perhaps increasing
01:00:33
share BuyBacks as well so what we're looking at here now after Facebook business my God I mean the business is
01:00:41
nuts Freeburg you worked there what in this Rings true to you uh or not and then how many people does Google need to
01:00:52
employ to operate the business and invest in the future of the business in your mind
01:00:58
they have a hundred eighty seven thousand employees at Google it's grown 24.5 rounded up 25 year over year they
01:01:08
grew 25 percent year over year in their business how many people need to run this business to have it aggressively
01:01:15
grow look I think there are um two main drivers of the issue that Google maybe meta maybe Twitter prior to elon's
01:01:28
involvement and and really Silicon Valley as a whole uh the bigger companies have faced the
01:01:33
first is the war for talent the war for Talent started I mentioned this last time around 2004 2005 because
01:01:42
prior to that there weren't as many grads coming out of um undergrad with computer science degrees right I think
01:01:47
10 of of grads in the Bay Area Schools were finishing with computer science degrees today the number is like 60 so
01:01:55
you know around that time the war for talent LED organizations particularly Google down a path of offering more
01:02:02
perks and benefits to their employees to create a workplace that was more competitive and that ends up being a
01:02:08
slippery slope because then other organizations try and find parity and then other organizations try and overdo
01:02:13
it and push it even further so this leads to both wage inflation across the um uh the uh ecosystem but it's also LED
01:02:24
to almost like the acceptance or the allowance for degrees of complacency and so I'm not saying that the workforce is
01:02:32
all complacent but I do think that complacency is Forgiven some amount of complacency I'm going to take a Friday
01:02:38
off I'm going to take two Fridays off all of a sudden I'm not working any Fridays the other thing that's happened
01:02:43
is as this Workforce has aged I worked at Google 20 years ago and a lot of the folks I work with
01:02:50
almost all of them now have families at the time everyone was young and as the demographics of Silicon Valley has
01:02:57
matured you have more people that are less about killing themselves and giving everything that they have to their
01:03:03
organization and they're more interested in being with their families and now spending less time at work especially in
01:03:09
light of the fact that compensation has ballooned to a point that you can now live a very very comfortable lifestyle
01:03:14
and you don't need to have a big payday in order to be able to take really good care of your family which was the case
01:03:19
as a startup and then the other issue is just one of innovation at Google if you
01:03:24
work on a new project and it doesn't work there's no loss you still have your job and they've started programs where
01:03:30
they'll give you equity and new startup ideas or they'll give you all the stuff so they'll give you upside if you win
01:03:35
they'll give you bonuses if it succeeds but there's no downside and so the pain and the burn that you would feel as a
01:03:41
startup founder or as someone building a new business isn't experience to realize
01:03:45
and I cannot I don't need to tell you guys this but for anyone else that's listening that many not really be fully
01:03:49
aware the lack of pain the lack of risk the lack of downside the lack of having no safety net and and falling through
01:03:57
the pits removes all of so much of the incentive to succeed and to drive and to innovate and I think that's become part
01:04:05
of the complacency problem that's caused larger organizations to Simply say let's throw more heads at the
01:04:10
problem and when you just throw more heads at the problem you have more of kind of talent War problem that I
01:04:15
mentioned number one what is the average salary 280 000 300 000 rounded up yeah that doesn't Cloud I don't know if that
01:04:22
includes benefits whatever let's just call 300 000 yeah and by the way that doesn't mean that those people should
01:04:27
all get some of my best friends work at Google it's a great organization people do
01:04:35
incredible work there but in terms of Return of dollars invested as a shareholder that's the question that's
01:04:41
the that's the analysis that's the scope that the shareholder is looking at is do
01:04:45
I want to spend a dollar to make a dollar five or do I only want to spend a dollar where I know I'm gonna get a
01:04:51
dollar eighty back and so if you just bucketed where the dollars are going you would end up saying you know what I'd
01:04:57
rather just focus on the places where I spend a dollar and I get two dollars back or a dollar eighty back and I don't
01:05:01
want to do any of the stuff where I spend a dollar I make a dollar five back and that's called roic or return on
01:05:06
invested capital and that's includes return on invested human capital and so the analyst in the stock that that's an
01:05:12
investor in the stock will look at it through that lens whereas everyone that's working there is still
01:05:17
contributing meaningfully they're still doing valuable work but in terms of return on invested capital a good chunk
01:05:23
of the projects are not driving the majority of the value a minority of the projects a minority the ad count is
01:05:28
driving almost all the value I mean if you sensitized it to what you said David a if it was just 75 or a half that
01:05:37
number then you know the stock goes up 35 overnight and if it goes up to the full number yep the stock goes up 65
01:05:45
overnight I think that's totally feasible and then and then I think what you do is
01:05:52
you take accountability model that you speak to the street about and you say here's
01:05:58
how we're going to hold ourselves accountable to investing this 10 billion dollars every year and not just have
01:06:02
everything be a nebulous 50 in your project and then it's always a 15-year project and you're always just burning
01:06:07
cash to go after those projects that are highly nebulous if you had to Steel Man
01:06:12
the other side I think the argument would be I I would say they they would make probably three arguments
01:06:19
argument number one is like look don't get overly distracted by other bets because it's a small category of spend
01:06:25
and we've contained that cost pretty rationally relative to the rest of the Core Business
01:06:31
the second thing that they would probably say is there's an enormous amount of work that is never seen by
01:06:37
Wall Street that explains how good our service is whether that's you know in early iterations of you know technical
01:06:44
capability like GFS and bigtable to things like TPU to things like tensorflow and all of that builds up all
01:06:52
the things that deepmind does all the compute we have to throw against search to support that so I think they would
01:06:58
probably say well people probably don't have a great sense of today that it's not just 25 of the team that's
01:07:04
required and then the third thing is what they would probably say is it's very hard to explain but Google has all
01:07:10
kinds of other things that they do for free to create the ecosystem so that the internet works well you know I I heard
01:07:17
this one thing where somebody was explaining that Google is like you know the the DNS server
01:07:22
right Google is the time server and all of the stuff they do for free and all of it is just about making the
01:07:28
internet work more efficiently and that has some costs so that's probably how they would steal man
01:07:33
how to build back up to some number but it's probably there's still a gap between that number of David and what
01:07:38
their prevailing headcount is yeah I think that's that's totally true because the infrastructure
01:07:43
struck Byers is the most engineering organization on planet Earth in my opinion and they have laid um
01:07:50
fiber lines across the Atlantic they have built their own data center infrastructure their own switches their
01:07:56
own silicon like everything is built by this team from the ground up from first principles and it gives extraordinary
01:08:02
modes and advantages to the business it makes the internet a better place it allows you know Ultra fast super cheap
01:08:07
YouTube video viewing across the internet I mean there's just so much of of these core advantages in the business
01:08:13
but if you look at the head count over time you have to ask yourself the question you know how many of these
01:08:19
Investments that are core are really you know captured in the head count that blossomed from 2013 47 000 people so
01:08:28
that the business has gone up in headcount by Forex in the last nine years one of the things
01:08:33
that Jeff Bezos was always so incredible at and I saw him give a speech on this at one point Bezos gave a speech that I
01:08:39
saw and he said we are really good at failing and he showed all these projects that Amazon tried and he said we tried
01:08:46
A9 we tried to do our own search we tried to build our own cell phone a fire phone we tried to do this we tried to do
01:08:51
that when they don't work we kill them and when they did work they became 100 multi-hundred billion dollar Enterprise
01:08:58
Value creators for them like AWS which was one of these projects and so Amazon was so good at taking the stuff that
01:09:05
wasn't working knowing when it wasn't working and ending it and they were still able to drive an innovation engine
01:09:10
one of the challenges I see with alphabet is that they are so good at bringing the best talent to work on
01:09:16
these Innovation problems but where they're not good is saying you know what this isn't working it's time to move on
01:09:21
and if they did just that if they added that one disciplinary capability then I think this as you said the market cap
01:09:27
would go up by 600 billion dollars what about this um I just want your reaction to this thing that a lot of people
01:09:33
whisper in Silicon Valley which is part of what the big companies should do it's
01:09:37
part of the positive Game Theory is to not let these talented people actually leave it's better to pay them
01:09:43
300 000 or 200 000 or whatever and stay at Microsoft and meta and Google or whatnot then go off and
01:09:51
start up build a startup that could actually then disrupt them and so you know it's it's a cost worth bearing
01:09:57
because it's actually mitigating strategy yes it's a blocker strategy yeah what do you think about that super
01:10:02
interesting idea I think that the people that are likely going to actually be able to execute on
01:10:09
that are going to leave and do it anyway look I was not super I had made a little
01:10:17
money when I worked at Google but I was not super wealthy and I left the last the vast majority of my stock options
01:10:23
and rsus on the table when I left Google in 2006. here's our climate Corps because I could not help but do that I
01:10:30
could not help myself I had to go do that thing of course and I think the kinds of people that are going to
01:10:34
succeed in entrepreneurism cannot help themselves it doesn't matter how much money is being thrown at them here's the
01:10:40
chart basically these companies have been correlating their spend and their head count to their revenue
01:10:46
not what's necessary you look at alphabet total employee change since 2018 95.36 I mean I don't know that looks
01:10:54
pretty good today Revenue 132 it's pretty good it doesn't look like they were massively
01:11:01
over hiring if you asked me totally totally so what are you guys talking about so maybe I'm wrong I will say look
01:11:07
a big part of um Larry Page's decision to shift the company from Google to alphabet was
01:11:13
he believed that the core business at some point would ultimately be disrupted that the core advertising engine was
01:11:18
going to be disrupted and there wasn't going to be the sustaining long-term growth advantage in that business maybe
01:11:23
he's been disproven or maybe that it hasn't been just it hasn't been proven yet but the concept was we need to find
01:11:28
the next Google and we need to build the next Google and so we want to allocate Capital within a portfolio of bets and
01:11:35
have some number of those things maybe not all of them maybe not even a lot of them maybe just one or two of them turn
01:11:41
into the next 100 billion dollar Revenue line for us now he always said that that's going to
01:11:47
take a long time he definitely underestimated the quality of Google search and the the dominance of it now
01:11:53
it's probably it probably stands to reason that if we have enough Innovation at the
01:12:00
fundamental model level in AI particularly like a bunch of really powerful multimodal models the new form
01:12:05
of search can disrupt Google but the problem is they are so ahead of everybody else with respect to those
01:12:12
models as well so the real question is even that next big LeapFrog isn't going to happen without billions of dollars of
01:12:19
capital invested and you know the most likely folks that are able to do it I think open AI at some level but again
01:12:26
they're going to always have to raise money from other folks Google can self-fund it and it makes an enormous
01:12:31
amount of sense to drive that technical mode so it just seems like Larry what do we
01:12:36
think is going to happen here and any are they going to make the cuts or not you think they'll make do they have the
01:12:41
ability to not make cuts and just ignore a six percent shareholder Tremont or are
01:12:46
they just gonna make them and then we're going to go on to you the dynamic will be how much Ruth is able to convey Ruth
01:12:53
pour out is the CFO and she's hardcore she's hardcore she's incredibly everyone on that leadership team is incredibly
01:12:59
impressive but she um has a very particular lens uh a Wall Street lens and she understands what the shareholders are
01:13:06
thinking and looking at and she will convey these points to the board and um and there will be engineers and Sundar
01:13:12
is an engineer and he will and he's a very good he's very good at Gathering and the different points of view and
01:13:18
having balance around this and he will share his points of view at the board and I think ultimately it will come down
01:13:23
to my guess is like we just talked about some portfolio allocation decisions which is how much risk and how how much
01:13:31
beta how much Alpha and do we have the right mix in our portfolio and it is inevitable there's going to be some
01:13:35
cutting so I think that there will likely be some reduction um five percent ten percent ten thousand
01:13:42
employees that seems like the number that people are going with yeah yeah let's see my guess okay sax what's your
01:13:48
take on austerity measures uh and moving to an age of excellence and efficiency which is happening inside of
01:13:56
the tech industry as we speak I think freeburg's right that these companies could operate a lot more efficiently I
01:14:02
think there's an economic argument there but I want to up level it and talk about
01:14:05
the cultural aspect of this for a second and also bring in two of the huge stories this week the um the SPF Story
01:14:12
the interviews he did with the New York Times in Vox and then this Hysteria around you know what's happening at at
01:14:19
Twitter look I think that there something clearly has hit a nerve here in this last week where you have
01:14:27
all of these employees who have voluntarily left creating all of this drama and you know Antonio Garcia
01:14:36
Martinez had a good quote about this he said what Elon is doing is a Revolt by entrepreneurial Capital against the
01:14:41
professional managerial class regime that otherwise everywhere dominates and that same PMC which includes the media
01:14:46
is treasing it as an act of last measure State there's another version of this that came out a couple weeks ago and by
01:14:52
the way let's match yesterday just means like you're insulting the monarchy resulting in the crown there was a good
01:14:59
one here uh there's an article on Compact magazine a couple weeks ago where the editor Jeff schallenberger
01:15:06
tweeted the layoffs at Twitter are no different than what's happening across Silicon Valley but because the
01:15:10
ideological antagonism of the professional left uh musk they made clear what's at stake the collapse of a
01:15:15
jobs program for Surplus Elites and then um and then there's a great quote from this article which again that's that's
01:15:23
so hard hitting I know it's different it's a deep nerve I'll get into it differently yeah exactly so the quote
01:15:31
from this article said one of the biggest and least talked about social questions in the west is how do
01:15:34
economically provide for our own modern version of France's impecunious Nobles that is how to prop up high status
01:15:41
people who can't really do much economically productive work I think this is really hitting a nerve
01:15:53
because the fundamental quid pro quo of our civilization is that in order to achieve
01:16:00
economic and social advancement you go to college and get a degree and you submit to voluntary re-education of
01:16:08
yourself at one of these woke madrasas one of these re-education camps that's the pro quo and you get a degree now
01:16:16
some people did your punch-up guy write that intro no no look this is this is where I believe for a while now there
01:16:24
are some number of people who get useful degrees like computer science or engineering but huge numbers of people
01:16:30
get degrees and like we talked about at the basket weaving or whatever the you know politically correct degree is for
01:16:36
sure and they graduate with a quarter million dollars in debt and no marketable skills right and right and
01:16:43
what was propping up all these people were these fantastically wealthy monopolies tech companies that were
01:16:50
hiring huge numbers of these people now all of a sudden we get to a point where we're in an economic recession and these
01:16:57
companies are starting to do layoffs and they're starting to do a little bit more
01:17:00
soul searching about who's really adding value and people are starting to get laid off
01:17:05
and I think there this hysteria is coming from a place of deep insecurity you had all these people go to college
01:17:12
they did not learn critical thinking skills what they learned was that listen if we pay lip service to the right
01:17:18
platitudes then we will have career advancement and now they're learning that that may not be true and actually
01:17:24
the person who's pulled the mask off this entire regime is another other than SBF and he did it in an interview with
01:17:32
Vox and we have to go to this okay he's the devil but he basically pulled the mask off this whole civilizational
01:17:40
quid pro quo that is a sham okay and here's what he said that the Vox reporter said you were really good about
01:17:47
talking about ethics for someone who kind of saw it all as a game with winners and losers what did SBF said
01:17:53
yeah he he I had to be it's what reputations are made of to some extent I feel bad for those who get [ __ ] by it
01:18:01
basically all these people who incurred a quarter million dollars in debt and think they can just spouse the right you
01:18:06
know platitudes he says by this dumb game we woke westerners play where we say all the rightship will us so
01:18:12
Everyone likes us how stupid does the New York Times feel right now how stupid do all these non-profits and Foundations
01:18:21
who received all this money from SPF he played them all he had to do was say the
01:18:27
right words that say the magic woke words and they would basically cover for the most enormous grift that's ever been
01:18:35
perpetrated that is basically the quid pro quo of our civilization is be woke and you will
01:18:41
have indefinite career opportunities no matter how uncomfortable signaling would
01:18:46
be another way to say it I mean it doesn't necessarily have to be the work woke ideology but virtue signal and give
01:18:51
donations to people this has been a Playbook of grifters for a long time Bernie Madoff gave a ton of
01:18:57
you know donations and he used the same place how many donations did he give to the Republican Party
01:19:02
none they're not part of the regime how many how many conservatives I'm not sure
01:19:06
this is a political I don't know I'm not making a political point I'm making a cultural Point okay good who
01:19:13
were the Charities that he donated to it was all the right woe causes not you know it was not endemic one was not woke
01:19:19
he was passionate about the pandemic stuff are you kidding me freaking out about the pandemic no no he
01:19:26
explained it to me the Neurosis it was the news no no that was not what he was funding sexy I actually talked to him
01:19:32
about this when I interviewed him he said he wanted to do pandemic uh prevention and early warning systems and
01:19:38
wanted to invest in strategies to fight and definitely freaking out about covid is was essential of the professional
01:19:46
managerial class for the last couple of years it is but that's not what he was funding I just want to make that point
01:19:50
yeah whatever he wanted to prevention I mean you could frame it as not but I actually literally talked to him about
01:19:55
it he wanted to do pandemic prevention in the future he wants to steal money from California
01:20:01
taxpayers via ballot initiative to fund his brother's organization which would have dispersed the money in
01:20:09
who knows what ways probably not legitimate out of a professed concern about the next pandemic why because the
01:20:17
PMC is neurotic about the last pandemic come on this is what you're saying to them I understand of course yes thank
01:20:23
you it's pandry I understand it's absolutely now listen why well hold on a second why did this work why did this
01:20:28
work virtue signaling work and again why were they only uh Charities and causes that appeal to the sort of the left is
01:20:36
because they're the ones with the power in our society and in our culture to Define what virtue is
01:20:43
when you're virtue signaling who are you signaling to the people with the power to decide what is virtue and what is
01:20:49
vice right that is why people go to work at the New York Times that is why they basically go into you know all these
01:20:55
influential jobs at non-profits and Foundations they're the ones deciding what virtue is they're the dupes they're
01:21:00
the ones who are fooled and now what's happening is there's an economic consequence to it which is it is coming
01:21:06
out these people have no marketable skills and companies are tightening their belts and now all of a sudden
01:21:11
they're starting to become deeply insecure about their own future my comment is that you know when you look
01:21:15
at Twitter as an example Bill Gurley had a really powerful quote as well which is when companies cut you
01:21:22
know they don't cut nearly enough and they and they misestimate and underestimate how resilient a company is
01:21:27
back in you know Twitter had 200 million Mau they had only a thousand employees and so clearly at that point they knew
01:21:34
what they were doing and now the business has you know increased in Mau by call it 50 to 300 million
01:21:42
but the employee base increased by seven and a half X so clearly something is misaligned and I think the thing that
01:21:50
you know people are going to find out is by the way with contractors probably 12x
01:21:54
right so I think that well there you go so I think that the the thing that frustrates a lot of folks uh that are
01:22:01
leaving or that are trying to throw bombs is they don't want Elon to be right because I think to David's point if Elon
01:22:09
is successful he has uncovered this very uncomfortable truth that was frankly hiding in plain sight which is that many
01:22:18
of these technology companies using technology get so much operational leverage that they have some enormous
01:22:25
efficiencies and then it's only a decision by the professional managerial class to reward themselves
01:22:33
with fiefdoms and kingdoms of employees and you know the serfs that work for them I mean it's really quite crazy if
01:22:40
you think about it well Freeburg made this you know early on in the history of this podcast
01:22:46
well hold on I want to add to your position Freeburg said something that adds to your position which is early in
01:22:51
this podcast he said the nature of organizations is they want to grow and that's government or even these
01:22:56
departments you're talking about anybody who runs a department is never going to
01:22:59
say my department needs to be 20 less so we can hit the bottom line they're going
01:23:03
to say give me 20 more because everybody else is getting 20 go ahead and then if
01:23:07
you if you if you layer in the Charlie Munger quote show me the incentive and I'll show you the outcome
01:23:12
you can understand why because the professional managerial class is rewarded by compensation that is
01:23:20
actually independent of dilution right because if you look at these compensation plans all of these
01:23:26
professional stock owners they complain all the time about stock base comp right
01:23:30
and these companies have budgets between two and five percent a year that they give away
01:23:35
and so you have this situation where an engineer or an engineering manager or a sales manager or a marketing manager in
01:23:43
success at a thousand people can grow to five thousand or ten thousand their compensation doesn't change in any other
01:23:50
organization their compensation would change because let's say that it's a percentage of the profits that are
01:23:55
distributed unless the company is phenomenally growing eventually you'll see it in the bottom
01:23:59
line of what you take home and so these folks are incentivized to have these status signals of value I
01:24:07
have a 50 you know you guys have heard this I have a 50 percent I oversee 3 500 employees and you've and
01:24:14
everybody is conditioned to fake oh my God that's incredible you must be really important
01:24:20
and so we're going to sort of now see in real time a questioning of that belief system and
01:24:26
if Elon proves to be right it's a really important decision point for a lot of other technology companies because if
01:24:32
you are an 80 to 90 gross margin business built on software maybe you have a bigger responsibility
01:24:40
than you've discovered to date to your shareholders and to the existing employees
01:24:45
to find the efficient rate of return right what is the efficient Frontier of headcount the other thing is it now
01:24:52
allows let's just say that now Twitter goes to making up a number 2 000 employees after this whole Google form
01:24:59
thing the great thing about the 2001st employee for the 2000 employees and for the
01:25:06
shareholders is that that 2001st new employee is a hundred percent aligned because they're coming into something
01:25:12
Eyes Wide Open and I think that that's also an interesting thing that is isn't getting
01:25:16
enough recognition is he's putting out there what he stands for this hardcore culture
01:25:22
irrespective of whether we think it's right or wrong all the people that stay are voting that it's right
01:25:28
and you know as long as it's not breaking any laws he's allowed to do that and so if people now want to join
01:25:34
that organization they should be allowed to do that too just like the people who
01:25:37
don't want to should be allowed to leave sacks you and I came up and we talked about this I think on last week's show
01:25:42
or maybe it was two weeks ago we talked about what the expectation was in Silicon Valley at a startup what startup
01:25:47
culture was in terms of just the effort that was required to build a winning company and we all said 60 hours a week
01:25:54
was the Baseline that's something that you know has been I think a lot of people you mentioned this trim off
01:25:59
people working two jobs for 30 hours a week and taking two salaries from two of the fan companies
01:26:05
go into Tick Tock and search for you know engineering salaries you'll see some of the craziest tick tocks kids are
01:26:12
making 350k working 30 hours a week it's nuts and so I think we're going to have is
01:26:18
that I think we're going to have a cultural divide here they're going to be a series of companies that say this is
01:26:22
classic Silicon Valley we're gonna we're gonna crush it we're gonna work aggressively we're gonna put in 50 60 70
01:26:27
hours a week and we're all going to benefit from that and then there'll be another class of companies that says hey
01:26:31
no we want to have a more lifestyle business and if people want to work 30 40 hours a week and they contribute we
01:26:37
don't need to be perfectly efficient and you know what the playing field of entrepreneur the playing field of
01:26:42
capitalism will show who is Right sex yeah I mean look I actually went out of town a few days ago so I wasn't keeping
01:26:49
up with you know every detail of what was happening at Twitter and I started getting all these text messages about
01:26:54
how Twitter was dead or dying or whatever like the site had been unplugged or what have you and I'm like
01:26:59
what is going on and you know you tweeted this morning hey is this working and I'm like yeah like like yes it's
01:27:04
working like and yeah this morning is this working today and so my tweet went through yeah so I came to learn what
01:27:12
they're talking about is that all Elon did was give a voluntary offer that if you didn't want to stay you could take
01:27:18
three months Severance now remember last week they had a riff you know which was
01:27:23
basically economically required in which they gave employees three months Severance which is 50 more than what he
01:27:30
had to it was generous now it seems to me that what if you're one of the employees in the other half that made
01:27:36
the cut but yet you're not really motivated to stay and maybe you don't really want to operate like a startup I
01:27:44
mean elon's basically saying we're gonna go back to working and operating like a
01:27:48
startup that means that you might have to work nights and weekends like a startup what if that's not what you
01:27:53
signed up for you may be sitting there at Twitter saying oh man I wish I'd gotten Rift well now Elon is offering
01:27:59
you the opportunity to take the same package yeah so I'm like how can this possibly be a bad thing it's actually
01:28:06
the great management technique that Tony Shea rest in peace from Zappos created he would say when people went through
01:28:12
their first couple of months of training he'd say now if you don't want this job
01:28:17
I will pay you a month's salary this is on their first day after they went through training their first like day on
01:28:22
the job he said okay now that you've gone through the training I'll pay you I think it was five thousand dollars or
01:28:27
three thousand dollars to not take the job and something like one out of five people would do it and so he said listen
01:28:32
I I don't have to fire them later on this is going to make my management easier it was it is actually a kind
01:28:38
thing to do to give people the opportunity to understand how giving employees an option because
01:28:46
the reason people are upset let's be on to sex is some people you know live to work and some people
01:28:54
work to live and the people who are working to live find a crazy that hustle culture even exists and people who are
01:29:00
part of hustle culture like the four people on this podcast it's just working hustle culture is working above the
01:29:07
hours you're being paid for that's that's basically what hustle culture is when you're getting paid that's how most
01:29:12
people would Define it salary is actually not you work for 40 hours a salary means you get your job done
01:29:18
okay that's how we look at it that is not how other people look at it oh my God there's no question that Elon is
01:29:26
going to raise can I just say sorry if we if we lose American Primacy it's because of that not because I agree with
01:29:31
you I'm just I'm still meeting the other side I'm still man on the other side people look at their salary and they
01:29:36
look at themselves as getting compensated for 40 hours and every hour above that but do you know this
01:29:41
generation's mind looks just as hustle culture there are people that are not working with it there are people that
01:29:46
are working 60 70 80 hours a week as a teacher to make 30 40K firefighters you know working on oil rigs and to hear
01:29:54
somebody like hustle culture at a startup where you're making 350 Grand and you're upset because like the matcha
01:30:00
lot ran out or whatever it's just so out of touch I'm not disagreeing yeah look my my view on it
01:30:07
is that people need to love their jobs and love what they're working on because I think the only way to be successful is
01:30:13
to work hard but the only way to work hard and be happy is to really love what you're doing and if there's a lot of
01:30:18
people at this company or others who don't really love it and they are just there to pay the bills or whatever then
01:30:25
I actually think it's extremely generous for Elon to be offering them a package it's the right thing to do I don't
01:30:31
understand how giving them an option was anything but positive and yet the media
01:30:35
has gone berserk on it meanwhile while giving SBS a virtual pass on the largest one of the largest frauds in history a
01:30:42
made-off level fraud you read the New York Times alleged no there's no alleged dude it's come out he loaned himself
01:30:49
like this is just one data point he loaned himself a billion dollars and he learned the head of engineering 500
01:30:54
million dollars off the balance sheet nothing to see here what possible justification and you know and SPF David
01:30:59
the reason just say the word to say the hard part out loud the reason why these same Publications are not covering this
01:31:05
is because they were complicit in his reputation laundering yes the New York Times before that article put out this
01:31:12
other puff piece where they talked to him and they were excoriated on Twitter because it was like not a single
01:31:17
question about the fraud for a legend alleged elections obviously 10 billion dollars suddenly
01:31:27
goes missing and no one knows where it is I'm willing just to call that a fraud are you willing to jump defense they're
01:31:33
busy scrambling to sort of save their own reputations which is why they are trying to like hide the cheese
01:31:38
effectively and point over here and say hey look at what's happening Elon sent an email where it's only one button yes
01:31:47
I mean let's be intellectually honest I love that Meme that Elon tweeted out do you see that the two rhinos
01:31:55
oh God I mean you know this is all gonna get reblogged it's too funny it's just too funny it's
01:32:04
too good it's too good to not put up on the screen that's that nature photographer is the New York Times it's
01:32:09
okay yeah people who don't see it there are two rhinos they're fornicating complicated
01:32:18
calculating is like it's two 2 000 pound animals populating doggy style ten feet
01:32:24
behind a nature police behind I'm trying to be the world photographer a nature photographer with
01:32:33
a six thousand dollar tele you know photo lens Serengeti but he's 10 feet behind him are the two
01:32:41
rhinos the two rhinos it says FTX losing over a billion dollars of flying funds and uh the the photographer is centers
01:32:49
calling for the FTC to investigate but the important thing is the photographer is pointing in completely the wrong
01:32:53
direction the wrong direction he's just totally missing the thing that is obviously right in front of his face
01:32:59
right that he should be photographing yes he's using that long telephone lines that is the New York Times that's
01:33:07
the point the arrow in the right direction yes point the camera in the right direction
01:33:13
is the point um I just want to point out my one biology tweet on this in this regard oh
01:33:17
God apology is not capable of one tweet that's going to be 76 tweets but it's a really good one of course
01:33:24
it's a trade service biology he says think of a regulator as a binary classifier what's their false positive
01:33:30
and false negative rate BTF Bitcoin ETF blocked for years FTX ignored for years the actual filter is not is this a scam
01:33:40
the actual filter is is this m ooh it's not consumer protection it's re-election
01:33:47
that's an alliteration it Rhymes Can young Spielberg make a banger out of that it is a banger it's not consumer
01:33:53
protection it's re-election if you are part of these interlocking power structures that we call the regime it's
01:34:00
the New York Times it's the regulatory State it's a Democratic party you get a big Republican hold on let's be clear
01:34:07
your your team Now controls the house and so who's team I understand but starting in January you
01:34:17
know there's any amount of congressional yeah no no hold on a second let me say this
01:34:26
right now the first investigation by the House of Representatives needs to be SPF
01:34:31
and FTX not hotter Biden SPF makes Hunter buying look like a [ __ ] I mean yeah you know Hunter Biden was what a
01:34:39
couple million dollars of grift this is 10 billion dollars plus a Griff so I think it also it also touches Regulators
01:34:44
it could touch you know it's it's a big it's a big it's a systemic failure that knows how to party so let's be honest
01:34:50
here I mean that is the issue I just think the quote of the week goes to uh John J Ray he's FTX his new
01:34:58
CEO he famously oversaw the liquidation of Enron and he says I have over 40 years of
01:35:05
legal and restructuring experience I have been the chief restructuring officer and board chief executive
01:35:10
officer in several of the largest corporate failures in history I have supervised situations involving
01:35:14
allegations of criminal activity and malfeasance Enron nearly every situation in which I have
01:35:19
been involved has been characterized by deficits of some sort in internal controls regular implies human resources
01:35:25
and system Integrity never in my career have I seen such a complete failure of corporate controls and such a complete
01:35:32
absence of trustworthy financial information has occurred here this is the person
01:35:38
who oversaw Enron saying this is unprecedented Enron was the previous unprecedented situation which is now
01:35:46
being framed as manageable by none other than John J Ray what a great name congratulations on being the chief
01:35:54
restructuring officer of FTX there is an article that showed Nick if you could please throw the
01:36:00
picture up on the screen of of all the people that invested uh the universe of SBF
01:36:07
oh my God what and they and the article headline was it's a who's who of VC and my comment is actually no this list is a
01:36:15
who's who of people who did no diligence yeah whatsoever and I just want to call
01:36:21
one person Nick if you look at the Alameda research this uh this firm called one inch jcal invested in a firm
01:36:29
named after the length of his penis come on come on maybe coming out of the cold pledge okay but you know that cold
01:36:38
plunge this shrinkage listen I'm a show or not I'm a grower not a shower all right listen you guys
01:36:48
coming at everybody knows coming out of the coal plunge it's it's not going to be the best performance for any of us
01:36:57
oh God what is that we've lost the script on the show Jesus please we got a rap I mean it's just too much do you
01:37:04
guys not think that all these investors receive audited financials and no you know they got they had a lawyer a legal
01:37:10
firm to represent these financials did you guys see who ftx's auditing firm was it's called Prager medicine that says
01:37:17
it's based in the metaverse this is like the Hollywood upstairs Medical College of the auditing World their address was
01:37:23
in decentraland Bernie Madoff I think his brother-in-law ran the accounting firm that did their audits right it was
01:37:28
like and it was on a dead floor in the lipstick building it was in the same building right on the lipstick building
01:37:33
they had like a secret floor with nobody on it like look I mean even in that case
01:37:37
people relied on an audit from a CPA that said here are the numbers and those numbers were fraudulently conveyed and I
01:37:43
think that there's probably some you know some forgiveness necessary here that there was maybe there may have been
01:37:49
serious fraud that took place and I don't want to be too disparaging of all this stuff that work at these investment
01:37:55
firms made an investment and they all got duped and the LPS got duped and so I don't think this is just fundamental
01:38:00
like a failure of diligence so we but we we we were part of the process where they tried to show like and I have to be
01:38:06
careful my lawyers reminded me that we're still under NDA actually with FDX so but what I can tell you is we did not
01:38:11
get any financials so we were verbally what was going on right when you asked for it when you
01:38:16
said we sent a two-pager of stuff anyways I can't say more than that but yeah don't get yourself in trouble oh I
01:38:22
want to say something else by the way last Friday David and I were at Yuri Milner's birthday party and there was a
01:38:29
chess tournament and uh uh Magnus Carlson was there and anyways David was in the finals okay it was David and his
01:38:37
partner look at the smile on Davis versus hold on wait I'm getting to a great punchline versus Magnus Carlson
01:38:43
and his partner David one oh wow amazing partner was was uh should I say Yuri's daughter who I
01:38:51
think is probably what like 10 years she's incredible yeah she's like second in America yeah she's good she's
01:38:56
incredible anyway yeah thank you to Yuri that was a really unique thing it was partner chess my partner was uh
01:39:01
prognananda who's an Indian Grandmaster who's like a superstar yeah and look playing you know with Magnus Carlson was
01:39:09
obviously that was a real thrill yeah there you go so when you ranked this with the birth of your children your
01:39:15
marriage and this where would that rank on the scale of one through five this is uh
01:39:21
this is for your poor kids but you know what speaking look at this model oh my God I haven't seen him that happen
01:39:28
since since Trump won guys look at look at that document I just said before before but I want to show you this
01:39:35
basically I pulled all IPO since 2020 so this excludes all SPAC mergers and real
01:39:40
estate Finance material energy utility so kind of the big bulky private Equity type stuff so it's mostly Tech consumer
01:39:47
627 IPO since 2020. more than half of them are basically half of them are trading at less at 0.2
01:39:56
times the total cash they've burnt so um there you know you can kind of look at total lifetime Capital burned by these
01:40:02
companies in the retained earnings line on the balance sheet and so when you pull out the retained earnings it shows
01:40:08
you right how much money they've earned over their lifetime and so the total money burnt by half of these companies
01:40:13
is about 107 billion dollars um and the market cap of those companies is only 26 billion dollars in aggregate
01:40:20
so a 0.2 times return on Capital invested to date in terms of Enterprise Value divided by total capital
01:40:28
uh investors let me say let me say it in English and you tell me if I said it right so
01:40:33
627 non-spack non-real estate non-finance companies went public so basically 627
01:40:41
startup companies went public since 2020 so two years yep and of those 627 tech companies almost half or three hundred
01:40:51
of them 48 of them are today worth about 0.2 times all the money that went into them yep
01:41:02
oh my gosh wow yep it's tough and then and then on the other half the other half is
01:41:07
um is the ones that have worked so this kind of goes back to a power law point but like as a venture industry you think
01:41:13
once you get a company public it's successful and the reality is that many of these companies from a from an
01:41:19
economic perspective are still not successful it looks like half um and perhaps much more if you include
01:41:27
all the SPAC mergers uh which uh is another couple hundred and I would guess the vast majority of those meet this
01:41:33
criteria are trading at less than the total cash that's been invested in them Freeburg this speaks to the Age of
01:41:39
Excess that we just went through we just weren't as efficient as we needed to be
01:41:43
in running these companies and now we're in the age of efficiency austerity Excellence
01:41:48
that's just great setup for a rebound isn't it Freeburg like I was looking through these look I mean one way to
01:41:54
read this I was speaking with someone who I um you can bleep them out I was talking with
01:41:58
two weeks ago three weeks ago and he showed me in their um how much should I say here this is a big investment firm
01:42:05
and they have a big growth portfolio less than uh they have about 160 uh Investments 180 investments in their
01:42:12
growth portfolio 85 of the returns are generated by 10 companies of the 180 and that's in the
01:42:21
growth portfolio these are supposedly de-risk businesses also exists even in exists in growth and as you can see here
01:42:27
the power law exists quite dramatically post IPO as well so you know as you can see here only nine percent of these
01:42:36
businesses have generated positive earnings over time um 43 or about half of them are worth
01:42:42
more than the total cash that's been invested in them um and that multiple this is a
01:42:47
production board study here by the way this is your done by your firm yeah yeah yeah it's off public data so the um the
01:42:55
multiple on the value of the companies that are worth more than their the cash invested is 5.5 times so in aggregate
01:43:03
IPO since 2020 are worth 4.3 times the total cash that's been invested in them over their lifetime
01:43:10
um but the crazy statistic is half of them are worth significantly less than cash that's been invested in them only
01:43:15
0.2 times so the power law dominates both early growth and and clearly uh being public but I think to your point J
01:43:22
Cal it also seriously speaks to the amount of excess and it's really going to rationalize probably based on the
01:43:28
conversations we had today about Twitter meta Google Amazon Amazon and this as well so um certainly also the big new
01:43:36
series and correct me if I'm wrong here tomorrow we want more companies to go public and have that discipline of being
01:43:42
a public company this was the big critique of this quiet era of companies taking 10 12 14 years to go public this
01:43:50
is going to be a strength for these entrepreneurs to have to fight it out in the public market under scrutiny
01:43:55
correction 100 I think like the Chris home letter uh I think that there are a lot of VCS on Boards of companies who
01:44:02
would love to say the equivalent thing to their private private company yeah um and part of the the Dynamics as as
01:44:09
Freebird just said because it's such a power law and people believe that you know you being with other VCS are really
01:44:15
important it turns out that most of these VCS abandoned their role on these boards and don't really hold people
01:44:20
accountable because they're worried it will affect their deal flow and so and the problem is it's a negative reflexive
01:44:25
loop it's but so these companies do poorly and then as a result their viewed as not an effective board member and so
01:44:30
the next deal they get is a poorer and poorer quality so the highly correlated portfolios in Silicon Valley are the
01:44:36
ones that will get torched because most of those companies will receive very poor or no advice
01:44:42
and then the few that will get to the end is because they have hard-nosed people on the board that will
01:44:49
force them to make really hard decisions yeah that's it uh sax any thoughts here
01:44:55
on the public markets I'm sorry last thing and by the way Sequoia who has had exceptional returns has always been
01:45:00
known to be hard-nosed you know a lot of people the critique against Sequoia from
01:45:04
Founders which would be that oh if I take sequoia's money they may fire me well yeah because if you're not good
01:45:09
it's the mission of the business is bigger than your ability to be the CEO and so you know you just have to
01:45:16
remember like there is no free lunch we were not giving out free money here swung One Direction too far they used to
01:45:23
the tradition Silicon Valley Used to Be You always replace the CEOs the found the founders with the professional CEO
01:45:29
uh and Google being the turning point there or maybe the last one and then it became Founders will control their
01:45:35
companies with super voting shares forever hopefully the pendulum now swings to some equilibrium sex what are
01:45:40
you seeing in private markets program for Surplus Elites is going away the jobs professional managerial classes under
01:45:52
pressure yes that's for sure if you went woke you may go broke because you have no marketable skills
01:46:14
all right four the Sultan of science David Friedberg and also the executive producer of all
01:46:23
in Summit 2023 and the Rain Man himself chess master and champion David sacks as well as the dictator I'm
01:46:35
gonna go on a little road trip aren't we dictator a little road trip for the dictator and Jay cow we are it's gonna
01:46:40
be fun I am the world's greatest moderator who couldn't control the panel today I'll do better next week and we'll
01:46:46
see you next time love you guys Happy Thanksgiving podcast Happy Thanksgiving boys
01:46:52
[Music] nice Queen [Music] besties [Music] it's like this like sexual tension that
01:47:28
we just need to release somehow [Music] we need to get Mercies foreign [Music]