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wait that's not even a sweater that's a sweatshirt no no it's not even cashmere it looks like polyester or something
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okay quick freebrook come on the video where you're wearing the same thing as jkl so we can make a quick joke about it
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morons i mean you guys are so predictably dumb the two of you it's so itchy do you have a rash jason made me buy
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this outfit and i put it on and i'm like itching i'm about to take this thing off
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polyester wool polyurethane what's that made out of [Music] rain man david [Music]
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okay everybody welcome back to the all in pod episode 87. here we go tons of news going on thanks for all the
00:00:52
great feedback on episode 86. uh we're going to start with emerging markets oh again welcome to the program david
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freeburg sultan of science the dictator himself from his palace in sri lanka uh his new pal is in sri lanka he'll be
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taking over over there we'll get into that and sax is in a in witness protection right now apparently
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where are you sacks in this white nondescript room can you say where you are this is my soundproof padded room
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yeah oh is that what if that's what a biden's done your vitamin derangements in them they they put you in an asylum
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what do you do you rock back and forth and say inflation ukraine inflation ukraine no we just had the room
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soundproof for you know better podcasting oh look at you taking the taking the job seriously i don't think
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it looks bad i think it looks good yeah you could put a little art behind you or
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something just put one of your monets behind you you know the ones you have in storage downstairs
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okay emerging markets are facing uh some huge challenges right now quick more quick primer on three types of markets
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developed emerging and the frontier market if you don't know developed markets are considered u.s japan europe
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their gdp growth is lower single digits typically in the emerging market it's roughly defined as developing but not
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fully developed that includes countries like the brics which is brazil russia india china and recently added south
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africa many other markets are included in that they were previously called the third world in the
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80s people didn't like that term investors will bet on them having uh higher gdp growth typically two times or
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three times what the developed world has china for example 2019 six percent growth u.s in 2019 2.1
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growth and of course there's frontier markets these are viewed as small unstable
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illiquid generally risky if you look at something like kenya vietnam those would
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fall into that category uh vietnam seven percent gdp growth in 2019 to the us is
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two percent sometimes people like to make bets on them here's a nice little chart for y'all to look at and you can
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just see china versus vietnam in the united states uh since the 80s and so why is this all important well the wall
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street journal reported last week that ems the emerging markets have been feeling massive pressure we'll get to
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sri lanka in a moment that's a frontier market to be clear but three things well
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we've got probably a half dozen things going on let me just highlight maybe the top five and then i'll hand it off to
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the besties you have high bond in loan yields the debts debt rates are increasing in the
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emerging markets and frontier markets think what happens when you got a variable mortgage or you try to get a
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new market a new mortgage in the developing markets the developing market investors have
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stopped investing in emerging markets and frontier markets as you might suspect during a downturn
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and they're even pulling money out then you have surging inflation we all know about that and we're going to talk about
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inflation here in the u.s because we got the print this morning and slowing growth we've also talked
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about this for the last six months on the program all these problems get exacerbated when economic growth slows
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and it's slowing globally and then finally we have the potential issue of contagion
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we don't know exactly what's going to happen when various countries are facing these challenges although we did tell
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you here what would happen with the ukraine shout out to uh sax and free bird fertilizer wheat oil all that good stuff
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and it's becoming very acute perhaps to carry canary canary in the coal mine is sri lanka
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breaking news president uh rajapaksa fled for the maldives and it's a state of emergency curfews were to
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clear declared i think that's been canceled as of the taping of this we can get into the state of sri lanka
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your thoughts freedberg i know you've been chomping at the bit to discuss this yeah that was a good long intro i think
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um you know the the high level for me if you look kind of at debt markets around the world there's about 300
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trillion dollars of global debt and i put this uh chart in the chat here nick you can put it on the
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on the video and about a hundred trillion of that debt globally is in um emerging markets
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and so these countries generally have you know much more kind of variable gdp growth
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as well as challenges ultimately with their currencies most of this debt recently and and this has been a
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trend for a number of years lately has been issued in their local currency rather than in u.s dollars and so as the
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currency devalues it becomes more challenging for an investor to make a return if they're
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investing from a us dollar denominated base or some other dollar denominated base
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so um look the em the emerging markets are are heavily saddled i mean some of these countries
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have over you know 300 percent or 250 percent uh debt to gdp and what's really gone on recently
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is that many of them as net importers of energy and food are going to struggle to make the stuff
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they need to make at home or to feed their people at home because of the rising inflation that's
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been happening around the world from the producers of those goods and services of those goods and so to import
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those goods is more expensive that makes it more challenging for people to be able to afford food to be able to afford
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energy this is part of what we're seeing happening in um in sri lanka what's compounding this is
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we have rising inflation in the u.s so as we've been talking about a lot the fed's been raising interest rates here
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in the us which means that you can now buy treasuries that yield three percent if you're an investor around the world
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where else are you going to put your money except u.s treasuries in a market like this you want to buy three percent
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yield in u.s dollars versus you know getting 10 yield in you know some currency denominated account some
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currency denominated bond in a country you don't really know well or trust as much as the united states and so as a
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result a lot of dollars are moving out of emerging market debt into u.s debt and the price of that debt
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has collapsed and so we've seen in the last couple of months a decline of emerging market debt of about 20
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this makes it harder for those countries to issue new debt to fund things and it's creating this really challenging
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spiral that may ultimately lead to defaults those defaults absolutely have a trickling effect because if one
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country starts to default and you're an investor in emerging market debt you're going to say hey wait a second this this
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this i just took a huge loss in this position you're going to start to sell off other emerging market debt and then
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it becomes harder for those countries to raise more debt and fund themselves and
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it can cause a cataclysmic spiral so you know it's a really scary scenario we're
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wading into now and i think we really hope that the us starts to taper interest rates and we find some
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stability in these markets over the next couple of months because it's not just a
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food and energy crisis it's also a humanitarian crisis and ultimately could lead to a global financial
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crisis in fact it's highly complex but it's something that folks are tracking very closely
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here what's happening also is the companies that were already at risk are going to
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start feeling this impact we could jump into sri lanka if we want sri lanka has i think
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a bunch of short-term issues and a couple of very long-term issues um let me set the backdrop because i think this
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is really interesting let's take um let's study sri lanka through the lens of two other countries jamaica and
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singapore if you go all the way back to 1960 so you know roughly when singapore became a
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nation the jamaican population in 1960 was 1.6 million people the singaporean population was 1.6 million people
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sri lanka's population was 9.8 million [Music] jamaica's gdp was 700 million singapore's gdp was 700 million sri
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lanka's was 1.4 billion now you fast forward to 2022 jamaica's gdp is about 13 billion
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singapore's gdp has grown to about 360 billion um and sri lanka's gdp is 80 billion so like what did singapore
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do right what did jamaica kind of get right because one of the things that they kept
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in check was their population even though their gdp didn't expand that much so per capita income was still quite
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healthy and then what did sri lanka get right and what did sri lanka get wrong well
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some of the things when you look at singapore is that they found a way to embrace
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despite a very heterogeneous culture and sets of religions inside of that entity
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inside that city-state they found a way to promote multiculturalism yet also promote
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english as the lingua franca why was that small thing so important because it allowed them to be a hub
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for the rest of the world in a way that many many other countries couldn't do the second thing that they had
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was a very low level of corruption because they had a leader in that case lee kuan yew
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and again some people in the west will paint it as slightly authoritarian you know he would paint it as asian
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values but the net result of it was very low levels of corruption a small but highly effective
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public service and meaningful investments in education and health care to make that country
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grow over decades and within a generation that country completely you know exceeded all expectations
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sri lanka struggled through a civil war i was a byproduct of that civil war it was partly religious it was partly
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ethnic and it was 20 plus years in the making and in the happening and it took a very
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right-wing autocratic leader the brother of the current deposed president to basically root it out now
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in order to root it out there were enormous amounts of war crimes and all kinds of things that i don't think
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anybody would support except it brought some amount of stability and so then you would have thought okay
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maybe this is the point at which you can now really start to grow but these guys yet again found a way to
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naval gaze and just to infuse so much corruption and graft inside of how the government was run by the way and it
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wasn't just the right it was also the left they spent two and a half times more on
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defense as of last year than they did when they were in wartime it doesn't make much sense the public
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service grew to the largest it ever did in a moment where you know you really should have prioritized private
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enterprise so all of these things sort of created a situation where they fundamentally didn't know what they were
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doing so the other two issues there i think and that's a great summary of like really those frontier countries and what
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made them emerge singapore also has a great strategic location which sri lanka kind of shares they're both island
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countries strategically located for trade and then i guess the policies right singapore went on a very very aggressive
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uh tax and business policy effort did sri lanka do that as well and then maybe could speak to just how important those
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are as islands you know uh and their and their geography because jamaica doesn't
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obviously have that i mean sri lanka has this massive growing importance as china
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has emerged the problem in these last few years is that they did everything possible to not
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just alienate china but to alienate everybody on every dimension possible you know they alienated china
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the the coup de grace was that there was an enormous shipment of fertilizer chemical fertilizer that was sent to the
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ports and it was summarily rejected and turned around because somewhere along the way the
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leadership in sri lanka decided that they uh were woke and so they enforced every farmer oh no to go organic the
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problem with going organic and organic fertilizer was all the small farms shut down
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all of the large farms had 20 to 30 crop yield reductions the prices of food went
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crazy they reversed policies two or three times and really what they found as the you know they tried to go woke
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instead they went broke and all of a sudden all these other countries who were there trying to help
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said wait what is going on here so they offended china they offended the middle easterners uh they offended the japanese
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by cutting a light rail project that japan wanted to fund i mean in every step of the way they de-industrialized
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this country found they didn't de-industrialize they tried to follow this woke agenda that is
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de-industrialization i mean reversing from like the modern techniques of industrial production like fertilizer
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and modern systems of farming is the industrialization it's it's um you know it's going to be a curse
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ultimately sacks to your point we we just discussed this last week with the farmers
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you know if you're in a frontier market trying to adopt the regulations and the strategic goals for the environment of
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the emerging market is like two giant hops it's it's it's probably insurmountable
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well look there's a strong analogy between the populist uprising that's happening in the netherlands with the
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dutch farmers and the populist uprising that's happening in sri lanka basically they're implementing the same
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policies this is that sri lanka is a further down the road and it's a poor country to begin with so you know like
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jammoth mentioned in april of last year the sri lankan government banned the importation of chemical fertilizers and
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pesticides used in farming they again went with this idea they thought they could encourage organic farming
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so the result of that was that overall production agricultural production fell by a third and rice production fell by
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43 and rice is you know the biggest staple in the country so now you got people there starving or going hungry you've
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got massive food insecurity as well as the whole economy basically has been crippled and the result of that is
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society has essentially collapsed so you know now the question is why did the sri lankan government feel compelled to
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adopt these policies a lot of it has to do with the fact they're getting these massive loans from the world bank and
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the imf and the world bank and so forth are imposing these esg requirements so sri
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lanka has something like a 98 esg rating even as their economy and society is collapsing how is that
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possible well they're doing a great job following the prescriptions of the global elites of davos i mean
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this sort of global elite flies into davos from brussels and washington on their private planes they have panels on
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esg and then they prescribe these policies for countries like sri lanka and this is the result i mean it's crazy
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they've been telling us for years that somehow there's no trade-off between their environmentalist policies and
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creating a healthy growing economy and this is an example of that's not true there are real trade-offs here and the
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crazy thing is that the elites expect poor people in sri lanka to make up for their environmental emissions and it's
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not really fair at all here's another example in march of 2020 sri lanka enforced one of the world's
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strictest china-esque 9 lockdowns covered 19 knockdowns despite one of the lowest death rates
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and infection rates in the world and so for nearly three months it literally crippled the economy and the livelihood
00:16:05
of citizens there but here's where it gets crazy then they actually go against global best
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practice and they banned the burial of covet 19 victims claiming that it could lead to
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groundwater contamination i don't even know how they came up with this but you know what this did was it significantly
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undermined the small minority of the country that is muslim because a religious practice
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there you know is you bury your dead and then that caused great pain to them and
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then it as in turn it hurt all these international relationships with all these gulf nations
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so then you you come all the way around and then you go back to those same gulf nations a few months later and you're
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like can i have subsidized oil and they're like no not so much and just to give paint a picture what's
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happening there right now as i mentioned before it's it's pretty much a state of
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emergency you can see various videos trending on social media and you always take those with some
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caution because sometimes people will take clips out of context or label them incorrectly or use clips from
00:17:03
other moments in time but what's really happening there right now and you shared
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a video in our group chat is everything is now uh being sold out in very small amounts so there
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there are lines for basic goods and inflation is is crippling there and as freeberg mentioned they started to pin
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um their exchange rate and their currency to i guess the world's exchange rate and now
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everything is super expensive and essential imports uh like food and medicine and fuel they don't have the
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money to pay for it so this is going to be a complete societal collapse it seems
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and they're going to need to get bailed out there was a bill that was introduced
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in the government that said the central bank would be forced to have a discipline on money
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printing sound familiar in march of 2020 the central bank of sri lanka began printing money in order to
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finance a growing budget deficit again happens in many countries and they did that in part to fulfill an
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election promise that they made that they would maintain single-digit interest rates again sounds really
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familiar so uh they've printed about a hundred billion rupees in march in the next two
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years the central bank printed 1.65 trillion rupees right so 16 and a half times that first
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number and then as a result what they saw was the highest inflation in post-independence history so time after
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time what you're actually seeing in sri lanka is not a microcosm of something that's endemic to whatever you want to
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call it jason a developing country a third world country a frontier country a southeast asian
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country in fact it actually resembles many of the policies that exist in so many countries all around the world and
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what's really important here is that as goes sri lanka so goes ghana so goes pakistan
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so goes a whole bunch of countries where you're already starting to see food riots food insecurity energy and
00:19:09
security rampant inflation uh sovereign defaults and you have to ask yourself like how
00:19:16
are we going to really tourniquet this whole thing and prevent a much bigger contagion like freebird
00:19:21
just talked about i think it's a we might be out of the work because uh you mentioned kovid it turns
00:19:28
out a lot of these frontier countries were already on debt relief and being given a moratorium on making their debt
00:19:36
payments since they got so walloped during kovid and then now the other shoe drops and here we are there's no relief
00:19:43
you can give them if they're already not paying their loans in some cases by the
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way here's another thing that happens in a lot of these developing countries so in the middle of all of this chaos what
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do you think happened the parliament got together they passed an amendment to the
00:19:54
constitution and it enforced and it gave incremental power to one individual the president
00:20:00
and typically in most of these countries that run by a parliamentary system the president is a figurehead right the
00:20:06
person shows up you know shakes hand kisses babies that's it right maybe convenes the senate but that
00:20:12
is it now all of a sudden the person has control over defense control over budget
00:20:17
control over the central bank and this person cannot be you know voted out in a no confidence build the same way that a
00:20:23
prime minister can that happened here as well so yet another example of if you start to see a
00:20:29
bunch of autocrats in some of these developing markets feel like the answer is more power
00:20:34
it's been tried here it didn't work so i think that there's a there's a lot of lessons i i
00:20:40
am a little concerned and skeptical that many of these other developing countries
00:20:43
that are teetering on insolvency will actually learn well i mean what they need to do we are
00:20:48
the definition of the developed world reportedly and we have a president who tried to stay in power still an election
00:20:55
so it uh it literally is happening here in the united states as well the parallels are truly terrifying all right
00:21:01
the cpi uh i'm sorry it's actually said something this is rolling my eyes that's
00:21:05
no noise that's what you're a noise from an eye roll ah that's what it was it sounded like a boulder going down a hill
00:21:10
wait sorry can i ask your mother a question yep tomorrow by the way if people don't know chamath is of sri
00:21:15
lankan descent just to make that clear if you didn't hear his little mention didn't you go there a couple years ago
00:21:21
i mean here's another great example of in this case this was the left who managed to
00:21:28
[ __ ] things up so it's not just the right that screws things up in that country it's the left as well so in this
00:21:32
example um i went there and i offered to bring google loon myself and google um we offered to bring internet access
00:21:41
to the entire country like guaranteed internet access um this was like five years ago
00:21:48
um and we set up an entity and the government um tried to do the right thing and grant some spectrum
00:21:55
and instead of sort of like um fast tracking this and allowing you know this project to become a
00:22:03
reality there was an enormous amount of infighting that essentially said that you know we
00:22:10
were trying to steal the license or we stole the license or we were trying to monetize a license
00:22:15
and both me and google were just like forget this this is not worth it and we abandoned the project and walked away
00:22:21
instead google ends up servicing a whole bunch of other countries and the reason
00:22:24
why sri lanka was part of it is because the balloons follow a certain uh orbit and it would have it cop it would go
00:22:30
over sri lanka no matter what so it's kind of like we can light it up for free all we need is spectrum in this country
00:22:36
google's already doing that work so you know i've i've gone there a few times i found it very difficult to try to do
00:22:43
the right thing i think people there's a level of infighting that i hope this crisis
00:22:50
changes i also think that it's an opportunity for people to reset writ large the gerontocracy that runs many of these
00:22:58
countries including the united states quite honestly um there is an opportunity there are some you know of
00:23:05
my friends who i think may emerge in the next few weeks who are very well known people in that
00:23:11
country who literally want to step one remove most of the executive power from the
00:23:18
presidency make it a true you know parliamentary style system with an empowered prime
00:23:24
minister and empowered elect elected officials and let the country run and fix itself you know
00:23:29
de-prioritize some defense spending de-prioritize the growth of the public sector
00:23:34
re-prioritize the growth of the private sector i hope they're successful i've would love to invest if given the
00:23:41
opportunity under those kinds of market conditions and i would love to go back at some
00:23:45
point but my history with the country has been very fraught because as i've gone to try to do the work freedberg
00:23:52
people are just haters and they basically they will cut their nose off despite the you know they
00:23:58
they'll just do the worst things possible chamath there's i think you have a second swing at bat here uh only
00:24:03
50 or so of people in sri lanka have internet access and maybe we could uh talk to our friend
00:24:09
over at starlink and that could be an incredible mitzvah and changing thing there if you get 100 of the country on
00:24:15
internet my god that could change everything and it seems completely doable by the way and this is the most literate
00:24:21
country in the world you have to understand like the people in that country the human potential in that
00:24:25
country is incredible okay there are not developing countries like this that have
00:24:31
this type of literacy the and the kindness of the people these are incredible hard-working people but the
00:24:37
elected class is some of the most inward naval gazing corrupt people and this is the opportunity for the
00:24:46
young people of that country to wipe the slate clean with all of them and start over with some i think um yeah
00:24:53
the literacy rate is 92 or something crazy there it's very high it's a highly educated literate group of
00:24:59
people the truth is the number of people living in extreme poverty has plummeted
00:25:04
uh thanks to globalization we we went from almost yeah two billion people living in extreme poverty now it's gonna
00:25:12
be that's gonna end in our lifetimes we have maybe 500 600 million people living
00:25:15
in extreme poverty that's because of globalization that's the great thing that's happened now what's also happened
00:25:20
at the same time is people have gotten out of sync we have elites to sax's point who think they know better and
00:25:26
they're trying to enforce on in a merging market or a frontier market god forbid the things that we have the
00:25:31
luxury of doing in the development we don't even do wait hold on well yes we don't have a green we haven't banned
00:25:38
chemical fertilizers in the western world well we do have in europe has standards for gas mileages but one
00:25:43
example we have emission standards we have the accords that we've been working on all of these things are starting in
00:25:49
the developed world and now exactly to what dave was just saying is we're taking them from the developed world we
00:25:54
are imposing them and sri lanka apparently embraced it i guess they get points when they're at davos sri lanka
00:26:01
is not rich enough to resist that's the issue so the u.s has an esg rating of 51 sri
00:26:08
lanka has 98 why is that because in our country we're not going to impose these crazy mandates
00:26:13
there's enough resistance to it but if you're in sri lanka and you have these massive loans and debt service you
00:26:20
have to do what the imf and the world bank and all these internationals what your creditors tell
00:26:26
you to do yes exactly they're the ones who imposed all this stuff so great so sri lanka ends up with a 98
00:26:33
near perfect esg rating even as the country is completely collapsing read the schellenberger article here he says
00:26:39
the underlying reason for the fall of sri lanka is as leaders fell under the spell of western green elites peddling
00:26:45
organic old agriculture and esg and then he mentioned that sri lanka has a near perfect score of 98 higher than
00:26:52
sweden which is 96 us is 51. what is having such a high esg score mean in short it means that sri lanka's two
00:26:58
million farmers were forced to stop using fertilizers and pesticides laying waste to its critical agricultural
00:27:04
sector and then it goes on from there so it was the imposition of it's not that sri lanka's politicians
00:27:14
implemented sri lankan ideas that caused the collapse of their country they implemented western ideas they
00:27:20
implemented they were also corrupt so it was a combination sure enough corruption
00:27:24
they implemented the ideas they learned at davos it's almost perverse you've got
00:27:28
all these you know western elites again like john kerry and so forth they fly in their
00:27:33
private jets to davos they come up with these esg rules they coerce countries like sri lanka to obey them
00:27:41
and it's the people of sri lanka who end up paying the price i mean this doesn't make any sense
00:27:48
what's your reaction to that jkl you're somehow going to blame this on trump no uh i don't know how trump has
00:27:55
anything to do with this well i mean i'm just thinking about it from first principles you know we we
00:28:01
should as a you know species humanity should be trying to trend towards taking care of
00:28:07
the planet and lowering emissions and being in renewables and then how we go about doing it perhaps there was good
00:28:13
intent here but obviously if the country is corrupt and they're teetering already
00:28:17
and they don't have the bankroll to do it forcing them to do it can lead to collapse nobody forced anybody but what
00:28:23
did the score give you it's not as if it all of a sudden they force them by nature of you get your loans if you do
00:28:28
these esg requirements so that is forcing them de facto okay fair enough but i'm saying like you know now that
00:28:34
you have this score it's not as if you issued green bonds and you could stave off this default no they do anything do
00:28:40
what you said before it's like look at the sri lanka should be looking at what singapore did and just copy the playbook
00:28:45
right i mean it's so obvious that you know country it requires a level of long-term leadership and and a
00:28:52
lack of and a lack of corruption and i think those those two things are very hard to come by and i think a third
00:28:57
which is a very controversial statement to make is it required singapore to adopt english as a lingua franca now in
00:29:02
fairness to singapore they also embraced multiculturalism right so you had forced
00:29:07
you know enough force but you had bilingualism in the school so hindi malay or sorry tamil malay chinese right
00:29:14
you could you would learn all of those and so you know you you kept an ethnocentricity to where you came from
00:29:20
but they they allowed you to understand the lingua franca that allowed you to merchandise your skills to the rest of
00:29:25
the world exactly are you saying they adopted the melting pot playbook and they allowed everybody
00:29:30
from around the world to have their culture but yet participate in a common uh goal oh my god literally if you say
00:29:36
melting pot to young people today and everybody should try to adopt you know a new culture but keep some of their own
00:29:43
people find great offense to that and that's what we were all taught the melting pot is what made this country
00:29:48
great i think lee kuan yew just called it multiculturalism uh but my point is that you know i think the english
00:29:54
decision by singapore was important i think steady predictable leadership by lee kuan yew was really critical
00:30:00
um and the lack of corruption you know the way in which they they they promoted their public sector meaning you
00:30:07
know some of the best paying jobs in singapore was a public sector job right like you you would aspire to work for
00:30:12
the government of singapore and so as a result you had policies and movements and and the movement of capital and
00:30:18
progress and rules that were just um it's an example for for so many countries and you look where they are today for
00:30:25
such a small population they have the same gdp by the way you showed vietnam they have a larger gdp in the vietnam
00:30:30
which is an incredible statement you know a testament to singapore's ingenuity so
00:30:36
could that have been sri lanka i think so knowing that the you know the the levels of literacy and
00:30:43
intelligence and frankly like look the the religious stability that can come from buddhism
00:30:49
yet we're not there we're where we are today which is a shame yeah and and this is the canary in the
00:30:55
coal mine i think we're going to see freeburg i i don't know what you think is going to happen over the next six
00:30:59
months but there's going to be other dominoes certainly yes i mean i watch for arab spring type behavior right i mean
00:31:07
you saw the protests and people storming the presidential palace in sri lanka um you know if
00:31:14
i would imagine if we had a report uh from the intelligence advisors to the president of the united
00:31:21
states there's probably a long list and a growing list of these nations you want to keep an eye
00:31:27
on right now where there is food insecurity energy and security declining currency
00:31:33
uh you know rising debt burden and um you know there's a breaking point for all of these
00:31:40
and as you start to hit that breaking point you start to see more of what happened in sri lanka now when
00:31:45
destabilization like this happens it's scary because what happens um is there's a new power that emerges and those
00:31:53
powers may or may not be aligned with the interests of the united states with the interests of allies with the
00:31:57
interests of the world with the interest of western democracy and so there are kind of scary moments that can emerge
00:32:03
over the next couple of quarters and years as these camels back start to break as
00:32:09
one straw after another is put on the back of these camels so yeah and who's the white knight who's going to come in
00:32:15
and save yeah and then these frontier markets are going to be china india russia or the united states we're
00:32:20
plowing 40 billion dollars into supporting the ukraine conflict um you know we're busy kind of
00:32:26
protecting our energy interests and our interests with nato as as the united states and as you point out china will
00:32:34
likely end up becoming the savior and supporter particularly where they have infrastructure investments and interests
00:32:41
i mean i don't know if you guys have followed this china has been building presidential palaces for african leaders
00:32:46
throughout the continent and these people they're incredible you guys should put
00:32:50
photos of them on the video um oh sorry wait that's the wrong one that's sax's house sorry guys
00:32:58
sorry hold on next one believe it or not they might put sexist half to shame some
00:33:02
of these things but they're they're really they brought the they brought the president oh yeah oh sorry that's uh
00:33:07
next one so anyway but yeah this is a um you know uh a moment to watch yeah because there's a very you know
00:33:15
unfortunate confluence of circumstances that may lead to destabilization that may lead to influence and power being
00:33:22
gained by folks that aren't direct allies of the united states so and this is why we want to build up a great cash
00:33:27
reserve and have a really stable economy so that when these moments do happen uh
00:33:33
you know the good actors of the world can take advantage of i suppose the bad ones and the united states is not in
00:33:37
great position for this every society as they say is three meal three missed meals away from
00:33:42
chaos there are now a record 19 developing countries with sovereign debt trading at distress
00:33:49
levels 19 and two that have already defaulted yeah just to start i mean pakistan has nukes right i mean
00:33:57
that's problematic well and pakistan who's famous for enabling other countries iran north korea reportedly
00:34:06
they look at their nukes as an export and they are more than willing to sell you right now i just sent you guys a
00:34:11
link from forbes you know there are currently as of today inflation protests going on across sri lanka albania
00:34:17
argentina panama kenya ghana um and if you look at the videos and you look at the images of some of these protests and
00:34:24
again there's like you know in the african continent there are um you know very radical militant groups that will
00:34:31
try and seize power if there's destabilization at the top um and you know there are there are
00:34:37
risks in in south america i mean all over the world uh you know these sorts of moments um
00:34:42
can catalyze a real shift in power and influence um and uh and there's a lot of it going
00:34:48
on so you better believe that folks in the u.s state department and the cia are very busy right now
00:34:52
if you uh if you look at bond prices the three countries that are the next closest to defaulting so russia has
00:34:58
defaulted but that was more a vagary of you know foreign currency controls that that didn't allow them to pay but sri
00:35:03
lanka has officially defaulted and the next three are el salvador ghana and pakistan yeah
00:35:09
and by the way argentina just you guys know the argentinian print on inflation uh oh yeah these things are double 61
00:35:18
yeah yeah yeah it's if we think that 9.1 i know they had a structural default a few years ago renegotiation they've been
00:35:25
back at the table over and over negotiating for years um and now they're facing this uh this
00:35:30
inflationary crisis yet again uh it's a it's a scary moment um in argentina but yeah this is exactly like the european
00:35:39
crisis with the portugal italy greece and spain uh we're going to see a lot of negotiations occurring i
00:35:46
really believe in this country and i think the people are incredible and i hope that
00:35:50
um whoever is the president basically takes as much power away from that role and puts it in the prime minister and
00:35:58
gets out of the way all right well we're hoping for the best uh okay cpi as uh everybody who listens
00:36:03
to this show knows is a basket of goods and services and how it changes over time you can slice and dice the cpi uh
00:36:10
based on food energy shelter your house et cetera last two months have been just
00:36:15
extraordinary to watch driven obviously by energy which has been driven by uh the russia ukrainian conflict cue the
00:36:22
sax rant on biden's administration the core index doesn't include energy and so if you were to look at the core
00:36:30
and index uh it and here's the chart 5.9 in june and uh it peaked actually with 6.5
00:36:38
percent in march so that's been trending down if you take energy out of it uh we haven't experienced energy and
00:36:46
food i think are excluded from core yeah and if we haven't uh we haven't experienced core inflation like this
00:36:53
since the 70s or 80s here's another chart just to zoom out and you'll see exactly how
00:36:58
jarring this has been uh for basically our generation we haven't experienced this since if you were born
00:37:04
in the 70s or so that's when it was higher than it is today and we've had obviously goods and
00:37:11
services plummet in our lifetime because of globalization and low interest rates
00:37:15
uh energy hasn't seen inflation like this uh since this is what is this chart is
00:37:20
this cpi what is that that is the core so that's inflation that's core so and then here's the energy
00:37:27
one coming up next so when you look at energy obviously energy uh has been volatile in our
00:37:33
lifetime uh because a lot of the oil in the world is controlled by dictators middle east russia venezuela yada yada
00:37:40
but the 40 year of a year uh increase in cost of gas and oil and energy has put us back to the mid 70s 80s in terms of
00:37:49
pain that's this chart so you see it's spiking all over the place but generally it was uh under 20 percent and now we're
00:37:55
back above 20 percent it's all about the oil chamber you were we were talking in the
00:38:00
group chat before you were kind of satisfied with 9.1 do you think the 9.1 we're seeing in the inflation print
00:38:07
today which was higher than expectations what is that going to lead to in terms of the interest rate hike 75 basis
00:38:14
points or you think they just go right to one you know we talked about this that this was going to be a big print
00:38:19
right i think we all expected this to be a big print um yeah i actually also kind
00:38:23
of put myself on a limb there and i said you know i wouldn't be surprised if at some point we print a
00:38:28
mid to high nines maybe even a 10 handle at some point we're getting there and the reason is because
00:38:34
uh you know rents are a little you know uh they lag in how they're reported inside of cpi so we
00:38:43
have a couple more months to go of of rents and rents are moving or budging a bit
00:38:50
that's number one um we do see a little bit of fall off in in energy prices but i'm not so sure that it's it's enough
00:38:57
frankly to to move the needle so i think that we could be in a sustained period for a while
00:39:02
the more interesting thing i thought today was that canada surprised everybody and raised uh their
00:39:08
benchmark interest rate by a hundred basis points okay so they just came one full point 100 pips and they just said
00:39:14
we're going for it we need to tame this we need to break the back of inflation they ripped the band-aid off yep
00:39:21
yeah and uh you know and i think if you read the fed minutes more carefully i think jerome powell is
00:39:27
basically ready to do the same thing yep after this inflation print the expectation for july
00:39:33
went to 80 basis points from 75 which means a small percentage of people actually think it's going to be a
00:39:38
hundred and september i think moved to 75. so the question is is that enough i just don't know i uh
00:39:50
i don't know and to be clear this is for june the data we got on today july 13th is for june what we did
00:39:58
see in july because we can track oil prices that's down 20 percent month over month and the cpi has been driven
00:40:04
largely by oil so speak to that chemoth what do you think it's going to be in july when we get it in august no but yes
00:40:10
and no because the again the owner equivalent rents are up so much that they may actually you know break even
00:40:16
right meaning rents go up by so much oil goes down by so much they cancel and we're still at
00:40:21
nine okay that's your prediction for july which we'll get in august you think nine yeah i'm worried that we're in a
00:40:28
sustained inflationary environment i'm worried about that i i hope that we're not
00:40:32
um but then the question jason secondarily is then what do the markets do and what's so interesting today is like the
00:40:39
markets shook it all off i mean like you could not have had a worse inflation print everything was up well 10
00:40:46
meaning meaning like it was beyond the number that was expected every component of it was up everything looked horrible
00:40:53
and people were like meh tell them is that because the market is future looking uh sacks
00:40:59
the market is basically pricing will get through this in six to 12 months is that what you're saying the
00:41:04
markets are down right now to be clear the the print was definitely worse than expected they were expecting
00:41:10
yeah they were expecting 8.8 it was 9.1 last month's number was 8.6 i remember us talking about inflation a couple of
00:41:17
months ago saying that we thought it had peaked you know maybe in april or may at
00:41:21
the latest simply because inflation is measured on a year-over-year basis and we were starting to lap much bigger
00:41:28
comps last year remember this conversation yes well the lapping effect turned out not to be enough and
00:41:34
inflation is still rising so we have not yet peaked on cpi i understand that core
00:41:39
we have peaked but deciding to exclude energy and food i mean that's a pretty arbitrary decision those are two really
00:41:47
important variables that matter to the ordinary american for sure so we solve this problem and to chamas
00:41:54
point we don't know when it's going to be when it's going to subside and i think the
00:41:58
big question now is when does inflation finally peak and start going down back to where it should be and then how
00:42:05
much how severe recession do we have to have in order for the fed to solve this problem
00:42:11
it feels like things are turning over in real estate we talked about that last week the number of homes being listed is
00:42:16
skyrocketing the number of mortgages being originated is plummeting while the rate goes up so we're gonna see mortgage
00:42:23
rates probably go six seven percent towards the end of the year that's going to put a huge kibosh the um
00:42:32
high-end real estate is also starting to get hit massively uh the number of listings is
00:42:37
going up in the high end and the number of sales is plummeting so that was one of the cards we wanted to
00:42:43
see turn over and it looks like that's turning over just so one small clarification is you look we obsess over
00:42:48
cpi right now because we're all kind of these fake macro want to be traders but i just
00:42:53
want to remind you because the fed has been pretty clear about this they don't focus on cpi they focus on something
00:42:57
else instead called pce which is the personal consumption expenditure price index
00:43:04
and i don't know what the flow through from cpi to pc epi is exactly but that is the broadest measure of goods
00:43:13
and services which does include food and energy so it stands to reason that pce may stay
00:43:19
elevated for a while which may give the fed enough of the motivation they need to go 100 to go another 100 or
00:43:26
maybe go 170 and then a 75 i think that david's point is right like all this taming that we've been
00:43:34
expecting to see we haven't seen it and so every month it's like oh it's coming next month every month it's been oh it's
00:43:40
happening next month at some point you may just have to say maybe we're in like a sustained period for a while and i
00:43:46
have to believe it's going up before i believe it's going to stay stable or go down well we did see energy go down
00:43:51
housing we are seeing now uh starting to contract the number of um price cuts has been surging according to
00:43:58
redfin so i think we're starting and the layoffs obviously happened two months ago so don't we think that we're
00:44:03
starting to see the headwinds and then we were talking to a buddy of ours who's big in the airline space he said god and
00:44:10
i think you were pointing out this statistic that heathrow is now capping the number of
00:44:15
people who can fly because it's been so crazy so overloaded with with traffic of
00:44:20
passengers that they today came out and said we are capping the number of passengers to one hundred
00:44:26
thousand a day no more and this is after the cost of those flights was skyrocketing you know six
00:44:33
seven thousand i really go back go back to what sack said before he this the nugget for me of this entire summer
00:44:41
was what he said about his take away from the co2 conference right just to remind people
00:44:47
you know that the person said something to the effect of oh well look all these other people will be saving money and
00:44:52
cutting jobs i intend to hire and you know nothing has changed for me and the comment that i made in our group
00:44:58
chat is well maybe that's the psychology of everybody it's not just the ceo of a
00:45:03
just yeah just just to be clear what what kochu did is they they polled all the founders in the audience the poll
00:45:10
results showed that on the one hand everyone in the audience understood that we were headed for a big downturn and
00:45:15
economic conditions and fundraising will be much tougher on the other hand all the founders or two-thirds of them said
00:45:20
that they were going to use this downturn to accelerate their business as opposed to cut my one-on-one
00:45:25
conversation with the various founders basically are in line with that which is it's all not me you know i know
00:45:31
everybody else is going to be impacted it's going to have to cut but i'm going to be the one exception and there will
00:45:37
be exceptions absolutely but everybody can't be the exception so consumers are saying i'm going to still
00:45:42
buy my car i'm still going on my summer vacation everybody else has to make cuts
00:45:46
well it doesn't matter what they say consumers are behaving that way you know american airlines
00:45:51
basically put out what they where they thought they were going to be their stock was up 10 percent you know
00:45:55
heathrow says we have too much traffic we're going to cap it at 100k there was an article about
00:46:00
you know u.s home prices and rents and there were these two uh housing companies in the wall street journal
00:46:06
that were profiled and both of them served middle-income neighborhoods in houston and these other places they're
00:46:10
like we've never done better business and you know there are fewer and fewer people buying homes because of mortgage
00:46:16
rates they all want to rent we you know our complete have we have complete ball control
00:46:20
and so where where is the stopping and the slowing down of spending it just may be
00:46:25
reflexively this thing where everybody feels like to be you know to have the polite dinner conversation they have to
00:46:31
talk about how they're pulling back it doesn't seem like anybody's pulling back austerity measures have not hit yet yeah
00:46:37
well i think i think they are in the process of working but it just takes a while i mean what i would say is look we
00:46:42
are 100 gonna solve this inflation problem why do i say that because price levels are fully within the power
00:46:50
of the fed they just have to raise interest rates high enough paul volkl proved that in the early
00:46:55
1980s he had to raise interest rates as high as 20 percent but he crushed the inflation 1970s but that's what it took
00:47:03
so i have no doubt that the fed can stop inflation i think the question is how much pain are they gonna have to inflict
00:47:09
how high do rates have to go and how long do we live through this sort of stagflationary period
00:47:15
and that's the unsettling thing is we're just it doesn't seem like we're anywhere
00:47:18
near the end of this yet i wrote this i wrote this last week in a little note but
00:47:23
this is why if you look at the tailor rate again and you know people have abandoned the
00:47:27
tailor rate it's not what it used to be i guess but you know it's still pretty directionally accurate which is what is
00:47:33
the true equilibrium interest rate that allows us to basically manage and meet supply and demand together so that we
00:47:40
have a calm stable economy and that uh that stable equilibrium rate is approaching five percent
00:47:49
you know our target the the collective wisdom of the of the market believes that three percent is
00:47:55
enough to get the job done we're right now at 1.5 to 1.75 so if there's any number between three
00:48:04
and five that is the true price we have a lot of work to do to get there yeah i think that's a really good point
00:48:14
because the ten year t bill has been kind of floating around three percent so that is the long-term expectation
00:48:21
of the interest rates that's required to have sort of normal inflation but what if it's four percent if it's
00:48:27
five percent if that ends up being the case it'd be a huge downside surprise to the stock market
00:48:33
well how would you define that 10 pullback 20 pullback from here well you have a bunch of things like we we
00:48:39
talked about this other issue before as well which is if you believe the stock market is
00:48:43
fairly valued you have to believe that prices are right and that the earnings are right right so
00:48:48
because it's effectually if it all boils down to the price earnings ratio of the
00:48:52
s p 500 and i'm going to still maintain that the e is wrong the earnings are wrong for most of these
00:49:00
companies so let why well one is that when these companies start to report their quarterly earnings
00:49:06
starting in the next few days the year-over-year comparison is going to be to the numbers that they posted in q2 of
00:49:15
2021 which by all accounts was a blowout number why because the number before that was 2020 where their business was
00:49:22
zero right so you have these incredibly tough comps in terms of growth percentages that you
00:49:30
have to reach which i don't think are achievable second is everybody's costs of making and
00:49:36
selling things is going up which stands to reason that unless you raise prices quickly enough your profits will go down
00:49:43
if you actually do business outside of the united states the u.s dollar has rallied so much
00:49:48
that you actually have less income that you're making in these other countries when you convert them and bring them
00:49:52
back to the united states now most people look through that last issue but the point is if you add this all up
00:49:59
there is a reasonable probability that the all the e's are wrong in which case we have to reassess what the right e
00:50:08
should be in which case what is the right p e yes and earnings are a function of what you spend and what you
00:50:12
make so that's why we see so many companies doing layoffs cutting people uh microsoft google everybody is now
00:50:20
putting people on notifications they're they they're firing white-collar labor but they're hiring
00:50:26
you know blue-collar labor faster and so you know we're actually going to see a downtick in productivity right you're
00:50:31
replacing a person that you know may sit down at a desk and use a computer eight
00:50:35
to ten hours a day to do something but you are hiring a lot of people that you know may get paid by the hour or make it
00:50:41
pay to you know fix salary if you do the right kind of work but uh that qualifies as as more contractual
00:50:48
blue collar labor the difference in that is a productivity difference ultimately
00:50:52
and just so everybody knows p for p e is price earning ratios over time here's a
00:50:56
quick chart for you currently uh and this is for the s p 500 we're currently at 20
00:51:04
or so and we have twice in our lifetime kind of hit that you know 13 14 15 level so we
00:51:12
could have a 25 correction from here in the stock market um if you look at the highs
00:51:19
our recent high in december of 2020 we're at 38 price earnings ratio so uh we've fallen from 38 down to 20
00:51:29
you know almost in half and we could still go down 25 from here and that would basically not even set a new record that
00:51:37
would just hit the last two crises we had the thing that the the thing that i think will work against
00:51:43
this happening jason so yeah you're right the the maybe it goes to 3000 or 3200 but if you look again today you know and
00:51:51
what what i mean by like the market has roughly shaken this off like the fact that the markets right now as we as we
00:51:56
talk are you know are essentially down half a point uh you know the the s p is down
00:52:02
you know 12 points uh it means that they are looking for any and all reasons to say this is a solved problem move on
00:52:11
nothing to see here now that is a psychological reaction most of that if you actually i called a
00:52:17
friend today and i said where are the flows and he said you know retail right now is
00:52:22
where all the flows are meaning it's retail that's buying they're in the 30th 35th percentile of where they normally
00:52:29
buy which is a pretty healthy signal wait explain what you mean who's buying so the way the market works
00:52:35
basically is your buyers and sellers and uh you know to to make it really really
00:52:39
simple you have hedge funds as one class of buyer sure you have etfs but they're
00:52:46
they're not really big yeah but they have fixed strategies and so you know they're hedging they're
00:52:51
moving but whatever and then you have retail okay so it's retail and hedge funds those are the two main pockets of
00:52:57
of where the flows come into the stock market from and you can get a real sense of what's
00:53:03
happening what the psychology of the market is if you see what those flows are and right now what we see is that hedge
00:53:10
funds are largely on the sidelines but what it means is they are well they've been so battered and
00:53:17
bruised in some ways i think they're licking their wounds but they're mostly waiting they're they
00:53:22
do not find a compelling reason to buy right but they have to buy at some point right chamoth this is their business
00:53:29
no well uh find other opportunities their business is to make money relative to their index
00:53:35
and so if their index gets torched they doing nothing makes them look like geniuses
00:53:39
um so they don't necessarily have to buy at any point they just need to make money at in the end
00:53:45
so right now we're in a situation where the markets are looking for a direction retail seems to think that direction
00:53:51
should be up hedge funds don't have an opinion are saying we're just going to wait this
00:53:56
thing out okay meanwhile the data at best is a question mark and i think that's the that's the tension we have
00:54:02
right now in the stock market is the psychological desires for this thing to be over
00:54:08
meaning i think people want to hear inflation is done we're starting the recession
00:54:14
give us three or four quarters we'll be out here's a steady state interest rate let's go tech people want to accept the
00:54:19
reality freeberg does that mean that we're bouncing along the bottom for the next year and then this is the time or
00:54:24
the opportunity to buy it i want to give financial advice but what are your thoughts if hedge funds in retail are
00:54:30
kind of waiting in the way asking me if the stock market is at the bottom are we bouncing along the bottom yes or
00:54:36
what would you how would you describe the next year if you were to look at it what do you think i'll tell you guys
00:54:41
some stories i i went to a conference in march with a lot of uh fund managers probably managed several
00:54:49
trillion dollars in total people were like in shock and awe at that conference because they had taken
00:54:55
such significant write downs and they were still getting written down so all their investments were off they were off
00:55:01
40 from the peak they were freaking out things were collapsing no one was doing anything they were all sitting on the
00:55:07
sidelines hanging out waiting i went to a conference last week and so the tone and the demeanor was just like
00:55:13
morose last week i went to a conference with a lot of managers also probably managing trillions of
00:55:19
dollars across the pool and people were just kind of they had accepted this new reality and they were
00:55:27
kind of willing to look at new things and you know they were no longer engaged in
00:55:31
trying to shore up just their portfolio and a lot of the stuff we talk about which i think is tactical on the ground
00:55:36
how do we deal with our businesses and our portfolio of investments that we actively work with in the private
00:55:42
markets they were much more interested in kind of starting to explore and think about
00:55:46
new things and i hadn't seen that three months ago so that's a positive sign from a market
00:55:51
participant point of view i think that folks have kind of call it accepted a new normal an inflationary
00:55:58
normal a high volatility uh normal uh you know a normal of uncertainty a normal of kind of recession
00:56:06
and as people have started to kind of um internalize that new normal i think they're now starting to say okay what
00:56:12
should my action plan be and that action plan is i've got trillions of dollars of
00:56:16
capital sitting on the sidelines what should i start to do with it so you know my my very very very anecdotal
00:56:23
experience has been that significant market participants i think are going to start to perk their
00:56:28
head up this quarter and start to think about doing new things what that translates into in terms of you know
00:56:34
stock price movements and indices i don't know i've always said that there's going to be a huge variation in outcome
00:56:40
during this big this year and some industries some sectors some types of businesses will outperform
00:56:46
others and so i don't want to create generalized statements about indices but i do think that capital activity is
00:56:52
going to start to come back this quarter where people are going to start to think
00:56:55
about what to do rather than pull everything out because of the massive shift that's happened in the past couple
00:56:59
of quarters sax what are you as a market participant thinking you're looking at series a's
00:57:06
maybe doing some opportunistic flat rounds are you looking at the startup market mid-stage market and
00:57:13
saying hey this is an opportunity maybe i should start looking to put some money
00:57:17
to work in the next six to 12 months or are you we're still investing you're still investing yeah so as a market
00:57:23
participant you're investing what are you investing but we see that the pace of deal making has slowed way down
00:57:28
because founders know that valuations have gone down the fundraising environment is tougher so last year
00:57:33
they're raising every nine months now they know they should probably be raising it once every two years so the
00:57:38
pace has slowed way down that's a good thing yeah i think it's happening it's more
00:57:43
it's healthier yeah it's more normalized you know last year the companies that could race did raise they
00:57:50
have big war chests so i think there's going to be a delay it's definitely a slower period we've done a couple of
00:57:55
growth deals recently i think the fact that tiger and the other kind of crossover investors the fact they've
00:58:00
pulled back way back from venture markets gives smaller firms like us an opportunity to do growth deals so how
00:58:06
did you make the decision to invest in those companies they're both companies we've known for a long time have wanted
00:58:12
to honest for a while so you know the the opportunity arose to invest and it was way less competitive
00:58:18
than it would have been so this is what you call opportunistic yeah we've basically done two deals in
00:58:27
the last like four months and that's what was your pace let's say 18 months ago it was a little faster than that for
00:58:35
sure there's just more deals happening so interesting if you want to think about
00:58:40
tail risk where there's some event that can massively shift the market you know the indices south right make them go
00:58:47
negative and everyone pulls money out of equities or out of bonds further there are some of those events brewing
00:58:54
right we've talked about the consumer credit i want risk we talked maybe taiwan maybe um this emerging market crisis
00:59:02
that that may kind of be emerging these are like little turtles putting their heads out they may not come out but
00:59:07
there's enough of these turtles now you know kind of circling you that you know there's still reason to be wary whereas
00:59:14
let alone a black swan event which would be these are just like significant known risks yes no known but significant
00:59:23
risks right yeah and if any of them do kind of take off um you know we're already in a very
00:59:29
shaky kind of period right now where we're trying to manage inflation and recession
00:59:33
and you know businesses are trying to raise capital and again this is why a lot of biotech companies are trading
00:59:38
below cash because the expectation is they're not going to be able to raise capital i mean anything will go out of
00:59:43
business boom you know you start to see things go so i think that's the reason people
00:59:50
investors portfolio managers are not going to kind of rush back into putting more money into equities is just you
00:59:57
know sitting around waiting to see how a few of these things resolve um you know before kind of taking action
01:00:02
but there are companies that do not face the risk of ruin they just are sitting on so much cash they have so much
01:00:06
revenue that there's no chance of that yeah i've always said it doesn't matter if you find a great business and you
01:00:11
believe in that business over the very long run you don't need to worry about timing the markets
01:00:16
you put money in that business as long as you get a fair valuation for it today relative to what it should be priced at
01:00:22
based on what markets are telling you well 20 pe would be more than fair history who knows but like whatever that
01:00:27
whatever that is but if you find a great business that you think is going to compound value for you
01:00:32
over the very long run market cycles don't matter and long run you mean a decade yeah call it a decade and you
01:00:38
know saks is business that he's invested in these are tech companies that i don't
01:00:42
think they're planning to go public next year he's making an investment in a business that he considers to be a great
01:00:46
business that can compound value not compound valuation but compound business value meaning they can do
01:00:53
something more valuable next year than they were doing this year and continue to accrue an advantage in their business
01:00:59
that allows them to accumulate earnings over time or accumulate revenue that ultimately translates into earnings over
01:01:04
time and there are many businesses that are public that that operate like that that regardless of any of these turtles
01:01:09
popping their head out those businesses will perform well over the next decade and i think you know that's always a
01:01:14
great place to invest so so we basically went from d-day saving private ryan and
01:01:19
seen you know in the first quarter to now people have accepted we're in wartime and we're not shell-shocked and
01:01:25
some people are looking for opportunities chemoth you found an opportunity maybe
01:01:28
you could talk about the deal you did this week um you know i tend to agree with
01:01:33
fredberg i mean you find these businesses that you like and if they appeal to you and you do your work
01:01:37
that's the most important thing you shouldn't be afraid to write a check can you stop right there and just say
01:01:43
define what you mean by do the work because everybody here should say that what does that mean for an investor for
01:01:48
somebody like yourself what is doing the work mean it really depends on the sector so for example when you know when
01:01:54
when we were uh when i was trying to underwrite open door what i really wanted to understand was
01:02:00
you know what do take rates look like in all these various markets how do i think
01:02:04
take rates will evolve here how do value-added services work what kind of margins can you sustain what is the
01:02:10
sensitivity of different parts of the real estate economy to interest rates you know that's an example of work when
01:02:16
i was underwriting so far you know what you're trying to understand is you know how do banks
01:02:21
generate net inc net increased income you know nim um how does that change over time how
01:02:26
does bank charters change that um you know how do loss rates change in in you know times of um economic
01:02:34
expansion versus recessions how do you price all of that into a fair fair value of a business
01:02:39
it's just a lot of really detailed diligence to understand all the facets or as many of the facets as
01:02:46
possible of a business that allow you to have a clear eyed sense of what's possible then there
01:02:51
are others which are pure technology bets where you try to understand either the biology
01:03:00
or the technology so in the case of the deal that i did you know today or this past week
01:03:05
myself um a bunch of family offices around the world um led by a great chairman pablo lagaretta
01:03:13
who started a phenomenal business called royalty pharma which is public carlos slim a bunch of folks we put in
01:03:20
about half a billion dollars to to help advance into you know uh clinical trials this business that's
01:03:28
trying to provide a solution to chronic kidney disease so in that example it was
01:03:33
a lot of scientific diligence on what are the existing solutions how do they work what is the mechanism of action
01:03:40
inside the body how is this the same or different um what is the early data say um how are
01:03:47
the clinical trials structured and then you come to an answer um in this case i decided the bet was worth taking and you
01:03:53
know like free tell us the name of the company uh and what they do the company is called pro kidney and basically the
01:03:59
idea is that it uses your own body to help heal your kidneys if you are on the verge of chronic kidney disease or you
01:04:06
are getting dialysis etc and essentially how it works is it removes cells from your body
01:04:13
from your kidney actually and then it does basically puts it into a centrifuge does
01:04:18
some specific things to it grows and amplifies certain cell lines from your kidney and
01:04:23
then re-injects those back into your kidney and tries to improve what's called your egfr which is your estimated
01:04:30
glomular filtration rate which is essentially a number that we can use to estimate how
01:04:36
efficient your kidneys are and essentially when you are you know a type 2 diabetic or you have chronic kidney
01:04:42
disease or kidney failure or you're on dialysis it's because that filtration capability has failed
01:04:48
and so all these toxins are getting pushed back into your body and so yeah we took a you know half
01:04:55
a billion dollar shot i wrote 125 million dollar check i hope it works that's amazing freeberg we saw some
01:05:01
satellite images this week uh biden i guess announced them they looked pretty trippy explain to us
01:05:07
what the downstream effect of what is i think the the most clear picture we're seeing
01:05:14
of the cosmos ever created and what that could actually do for humanity well this is short and this has nothing
01:05:27
they specifically had him share it which i think maybe they were looking for a mini win or something good
01:05:32
for him um it hasn't he has nothing to do with this program um i i don't mean i just mean that like the scientists and
01:05:38
the engineers that worked on this for many years deserve all the freaking credit the james webb telescope is a
01:05:44
space telescope just like the hubble right remember the hubble space telescope and this is a massive
01:05:48
improvement over the hubble so imagine you're you're in a boat and you're trying to look at the bottom of the
01:05:53
ocean you take a bunch of inocu pair of binoculars you look into the ocean and you try and see what's at the bottom of
01:05:58
the ocean how hard that would be right there's all this murky stuff in the water it's going to be really hard to
01:06:02
see it the the reason that we create a space telescope is so that the same problem that we would have looking at a
01:06:08
telescope through the earth's atmosphere doesn't impact the light coming into the
01:06:12
telescope and so there's so much stuff in the atmosphere right there's miles of molecules and dirt and dust moving
01:06:18
around so by putting a telescope in space we get rid of all that murkiness and now we can really capture the light
01:06:25
that is coming from far far away concentrate that light onto really sensitive photo detectors these are
01:06:31
photo detectors that operate at nearly the coldest point in the universe negative 263 kelvin
01:06:39
and that photo detector makes it extremely sensitive and using a 20 foot wide mirror we can capture all the light
01:06:47
that's coming in concentrate onto the photo detector and and read that light um and so why is this important why is
01:06:54
this interesting well people get really excited by and flip out over the cool imagery that they see these images these
01:07:00
colorful images of galaxies and stars far far away what we're really doing is we're not just looking far away we're
01:07:06
looking back in time so these um these images come to us from galaxies that are 4.6 billion light years away so it took
01:07:14
4.6 billion years for that light to reach our planet and we're actually seeing what happened in the earlier part
01:07:20
of the universe and we're seeing how these uh galaxies uh formed how they're moving how they interact with one
01:07:25
another how the plants planets interact with one another but what a lot of people miss that i think is the most
01:07:30
important thing to highlight as an astrophysicist when you're looking through telescopes and gathering
01:07:35
telescope data you're not looking for imagery like we looked at today that's really good to sell the story and get
01:07:39
biden to do a press conference what they're really looking at is spectrographs and a spectrograph is uh
01:07:45
you know uh it shows for every wavelength of light across some spectrum what the intensity is of that that
01:07:51
amount of light that wavelength of light and particularly the james webb telescope has incredible micro shutter
01:07:58
arrays an incredible sensitivity that allows us to go from near infrared to infrared and some visible light and look
01:08:03
at that spectrograph why is that important because if you can capture the spectrograph in a very high resolution
01:08:10
way for a sun or for a planet far away it can tell you very specifically what the movement is and what the chemical
01:08:17
composition is of that object and from that we can start to do incredible research and infer very important things
01:08:24
about how planets form how stars form how many places like earth might be out there how things are moving how much
01:08:31
mass or matter there is in the universe and there are two very very big question
01:08:36
questionable phenomenons in astrophysics right now one is called dark energy one's called dark matter turns out the
01:08:42
majority of matter in the universe is undetectable and there also is this really weird
01:08:48
energy force pushing on everything in the universe causing the universe to accelerate its expansion so the universe
01:08:55
is expanding everything's moving away from itself but it's not just expanding and slowing down it's expanding and
01:09:00
speeding up and so having this sort of instrument in space that allows us to capture in a
01:09:05
very high resolution way using spectroscopy and other tools that astrophysicists use and better map out
01:09:11
how this is happening in different parts of the universe starts to give us a better sense and allows us to kind of
01:09:17
inquire and start to develop theories around what's really going on and i want to say
01:09:21
one more thing because because a lot of people think that this stuff is just so esoteric and it's like super interesting
01:09:26
why are we spending 10 billion dollars in this most applied engineering and the technologies that we've developed as a
01:09:32
species started out initially as pure research with no freaking clue where it was going to go to
01:09:38
imaging dna penicillin electronics mri machines so many of these capabilities evolved from scientists
01:09:46
just querying the universe and asking questions and gathering data and all of a sudden they came across something
01:09:52
developed a theory built an application of that theory and a technology emerged that changed the course of our history
01:09:59
as a species and that's the reason to do pure research and that's the reason it's
01:10:04
so important for us to put 10 billion dollars into a program like this we're going to discover amazing things with
01:10:09
this tool and it will ultimately hopefully yield advances for humankind that we cannot even contemplate today so
01:10:16
it could be energy right i mean understanding dark matter energy totally and then maybe has
01:10:20
changed everything in energy right jkl think about it one day there might be a capability where we say there's a new
01:10:25
class of matter and a new understanding of energy that we can then apply in some
01:10:29
form of physics on earth that we can do something interesting with and we have to be able to query and understand the
01:10:34
universe to do that could we measure there we go could we measure the matter from uranus yes okay no it's coming i
01:10:41
mean the hubble telescope actually if correct me if i'm wrong here it actually told us the age of the universe
01:10:48
how much dark matter is in uranus a lot a lot you're full of it um but we now know i mean hubble told us the rate
01:10:55
of expansion of the universe and it also told us the age of the universe and we found all these other planets totally to
01:11:01
freeberg's point about you know looking you know through the through the muddy water
01:11:06
here's a great visualization on the left you have hubble on the right you totally
01:11:10
web and if you slide this you can just see like just how crystal clear and these
01:11:15
images are and from my understanding we found some number of universes already that we
01:11:20
didn't know just from the first images by the way i want to just give everyone a heads up this imagery looks beautiful
01:11:26
and i'm going to print out a big one i'll put it behind my friggin desk here because i think it's so fantastic
01:11:30
astrophotography is one of my kind of all-time you know favorite forms of art but um remember this is
01:11:36
imagery that was actually captured in near infrared and infrared spectra and then they converted it to visible light
01:11:42
to make it look cool so remember that these images you know that these clouds if you were actually there don't
01:11:48
actually look at like that color but it's a very cool way to visualize the density and the the spectral changes
01:11:54
where does this sit for you in terms of your excitement between the new season of doctor who yeah and the foundation
01:12:02
series let me give you let me let me just give you guys one more kind of yeah really interesting if if you start
01:12:08
at our sun and you look at the sun it's super bright if you go at the speed of light for four
01:12:12
minutes you reach the earth or a couple of minutes you reach the earth look backwards six minutes or seven minutes
01:12:16
whatever it is look back and now the sun looks like it does in our sky if you go
01:12:20
for another couple minutes you end up looking back from saturn and the sun starts to look like a star i
01:12:26
mean that's how how dim it gets now imagine continuing to go at the speed of light for another hour you look
01:12:32
back you'll hardly be able to differentiate the sun from the rest of the universe now do that for 4.6 billion
01:12:37
years and you're shooting away for 4.6 billion years now look back how freaking hard
01:12:42
would it be to see anything that's the technical capability we just put into space we've built a 20 foot wide mirror
01:12:49
to concentrate the light the photons that traveled for 4.6 billion years lost all of their density lost all of the you
01:12:56
know completely dimmed out completely diffused and we're capturing a few of them
01:13:01
run that concentrated way onto a detector for minutes at a time and generate this image it's really profound
01:13:08
how technically complex this is and again that technical complexity can ultimately yield other technological
01:13:14
tools that we could use in all sorts of industry so i just i just want to highlight that i posted it for you guys
01:13:20
uh it's an incredible story but basically this program was riddled with delays and things that weren't working
01:13:26
and then they put this quiet very assuming engineer in charge of it and he completely turned
01:13:32
the whole thing around and it's one of the most incredible quotes what's his name let's give him a shout
01:13:36
out his name is greg robinson and he turned a 10 billion dollar debacle into a groundbreaking scientific mission
01:13:44
this is the quote from the wall street journal the the quote from the nasa uh the head of nasa's
01:13:51
science mission directorate thomas zurburkin says it all there's a huge distance between success
01:13:57
and failure and only a few actions that move you from one to the other he said greg robinson worked such wonders that
01:14:06
his boss calls him quote the most effective leader of a mission i have ever seen in the history of nasa unquote
01:14:14
really incredible uh this project yeah the 11 billion big challenges robinson yeah and this has been going on for i
01:14:21
guess 20 years now uh this process of getting this built in 10 years of really intense building what
01:14:27
would the next and then we'll we'll switch over to politics for a quick second as we as we wrap up here freeberg
01:14:32
what's the next telescope because obviously if we've gone hubble to web what would the next
01:14:39
one conceivably look like and with the timeline for that is there another one that's going to come and then what would
01:14:44
that enable because it does feel like if we accelerate this we're going to really
01:14:48
get a deep understanding of the universe that this seems to be accelerating our understanding correct and our technology
01:14:54
is obviously accelerating so it feels like we could you know send another one of these out in the next 10 years that
01:14:59
would dwarf this one's capabilities yeah so a lot of um uh telescopes operate at different
01:15:05
wavelengths and they're meant to kind of pursue different missions so you know there are there are some telescopes that
01:15:10
are already operational and kind of the gamma ray spectra but really there's a we i don't know if we ever talked about
01:15:17
this on the show but one of the really interesting areas of inquiry uh is these gravitational wave detectors
01:15:24
and there are new more advanced versions of those systems starting to come online
01:15:28
those are not space-based telescopes uh they're and we can talk about that another time um
01:15:33
but uh they're creating new methods of inquiry where we're not capturing photons light coming from far away we're
01:15:40
actually capturing the waves of gravity coming from um interactions of matter around the
01:15:46
universe and it's a new way to kind of observe the universe those telescopes represent a new class of inquiry that
01:15:51
was just kind of you know discovered a few years ago and proven out and now there's there's a lot of work going on
01:15:56
into that area and freeberg you had something you wanted to give a shout out to yeah i just sent you guys a photo of
01:16:01
a new dog i adopted last week her name is we flew daisy out from virginia daisy is one of 4 000 beagles that were
01:16:10
rescued from a facility in virginia that was shut down by the doj this facility was investigated by peta
01:16:18
and the humane society and they basically shut this facility down this is in the united states
01:16:24
we only do animal testing on beagles they're the only dogs that we do animal testing on because they can put up with
01:16:29
pain and they have a high tolerance and a high threshold for pain it's a really awful fact we need to change that in the
01:16:34
united states the fda does not provide good guidance on this so pharma companies pesticide companies makeup
01:16:40
companies very often test on beagles so this company um you know that was operating this
01:16:45
beagle facility in virginia was shut down for um you know ethical issues at their facility
01:16:53
and the humane society took control the company's called in vigo their parent company is publicly traded i think that
01:17:00
the fact that we test on these beagles in this country is awful we adopted daisy uh there are 4 000 beagles like
01:17:06
daisy available for adoption i'll put some links in the show notes here people feel free to go and grab them
01:17:11
i'm sure there's a long list the dog is absolutely incredible i think that it's awful we test on dogs in this country
01:17:18
and i think i urge anyone that has influence with the fda to get them to provide better guidance this is not the
01:17:23
law it's not required and they don't provide good guidance um and so a lot of companies de facto and default testing
01:17:29
on beagles when they really don't need to and shouldn't so brooke let me ask you let me ask you a question i think
01:17:33
it's incredible that you adopted the dog i hope all four thousand get adopted um
01:17:38
how should we do testing totally i look i think that there's a there's really important ethical lines here and we can
01:17:44
debate those this is a good nuanced conversation we use mass models in biology to explore solutions for human
01:17:51
disease we we use primate models right which means we use primates we use dogs we use cats we use mammals
01:17:59
there are there are certain things that are obviously not necessary we don't need to take beagles and pour tons of
01:18:05
kim kardashian's newest makeup line in their eyes to see what happens it's not required by law and it's not about
01:18:11
getting some pharmaceutical drug approved this is in an area that i'm you know i'm not going to get into the
01:18:16
debate on on exploring and resolving kind of pharmaceutical solutions and things that can actually treat human
01:18:22
disease where i'm particularly sensitive to is when it's not needed and when we're taking these animals and just
01:18:27
doing awful things to them uh when there's no law that requires it we're not putting stuff in our bodies and this
01:18:33
isn't about you know protecting humans it's really about cover your ass behavior for makeup companies and
01:18:39
pesticide companies that they don't need to be doing and that's really what i'm addressing 3999
01:18:44
beagles to go uh if you adopt one of these beagles send us a photo and we'll share it at the end of next week's
01:18:49
program thanks for letting me say that guys it's really you know i think it's super important and how we treat
01:18:55
uh dogs who are connected to humans in a very special way i think speaks volumes
01:18:59
to us as individuals saks would you like to well on the biden administration talk
01:19:05
about 2022 or give us an update on ukraine i give you the choices i mean it's like elder abuse at this
01:19:11
point i mean i know you're trying to can i ask you a question i know you're trying to team me up here but like all i
01:19:19
can say is 9.1 percent i don't want to beat a dead horse at this point can i read you guys something and you can tell
01:19:24
me there were these uh there's a there's a group called committee to unleash prosperity
01:19:31
but two researchers stephen moore and john decker this is in the wall street journal article i post in the group chat
01:19:36
the pair studied the resumes of 68 top executive branch officials whose work shapes the economy from president biden
01:19:43
and treasury secretary janet ellen to white house special assistants on economic policy
01:19:48
quote average business experience of biden appointees is only 2.4 years what any fresh-faced 25-year-old on wall
01:19:58
street has clocked more private business hours again i'm reading from the journal
01:20:03
article than most of washington's top officials 62 percent have quote virtually no business experience unquote
01:20:11
the average donald trump cabinet official had 13 years of experience in the private economy the author said what
01:20:16
a disaster well somebody like sixty seventy percent of democrats wanna get rid of biden they don't want him to run
01:20:22
again i've never seen a president been defected on been turned on by his own party so quickly into an administration
01:20:30
he needs to take back ownership of the democratic party which means he has to pivot back to the center and he needs to
01:20:35
have a wholesale replacement of the team that he works with on domestic policy it's not working and chamath that
01:20:42
was his pitch we're gonna go back to normalcy he was going to be you know more of a centrist and that's
01:20:48
not what we've gotten but of course he was handed the disastrous economy that trump created why do you say he was
01:20:53
handed a disastrous economy well because of uh covet and because of the massive stimulus that we spent those two things
01:21:01
that was like a setup i mean if trump won a second do you think it would be much different if trump was running the
01:21:06
economy with the setup was there trump probably would have spent more money right trump wanted to spend more money
01:21:11
that's a really good question actually i have to think through that that's a really good question let's move on
01:21:15
what's the update on ukraine there's a really interesting chess game going on right now where the russians are slowing
01:21:20
the flow of gas no no it's better than that it's better than that they shut down nordstream one for their annual uh
01:21:28
maintenance [ __ ] it's supposed to be back up by july 21st and so the real question is what happens
01:21:36
if uh putin hand checks europe and just takes an extra day or two to get that thing back up and going
01:21:44
let me make a prediction right i think the western alliance is gonna fracture come this winter yeah germany's gonna be
01:21:49
freezing the germans are not gonna take this well when they can't put their heat
01:21:52
on listen a a foreign policy based on virtue signaling is one thing when your economy is good
01:21:58
and you're not worried about your energy security and you can heat your homes it's another thing to have a foreign
01:22:06
policy based on virtue signaling when your economy is in recession you got runaway inflation and you're in winner
01:22:12
and you can't heat your homes your morals change real quick don't they yeah three or four months ago the liberal
01:22:18
interventionists were triumphant about this ukraine war there are three big predictions one that ukraine was gonna
01:22:25
win it looked like ukraine was winning the first couple weeks but now it looks like
01:22:28
russia has won this donbass region number two they predicted that we would collapse
01:22:34
the russian economy with all these sanctions the opposites happen we've collapsed our own economy and number
01:22:40
three they predicted this would strengthen the western alliance that's the only card that hasn't you know
01:22:45
basically turned yet and i think it will this this winter i think you're going to
01:22:48
see serious opposition to the way the bible administration has led the western response i think it's well
01:22:57
said that if germany has the gas lines that sri lanka had uh you would see a definite fracturing of how
01:23:04
people look at it just like they flipped last week and they made natural gas and
01:23:08
nukes nuclear power a green energy so yeah their morals and ethics and their virtue signaling go as far as
01:23:16
their wallets and their heat and meals go as we all know this has been another amazing episode of the all-in podcast
01:23:22
for the baron of beagles the dictator himself and the rain man yeah it's definitely
01:23:28
biden's fault now there is no chance for any of us to pass free brook on the popularity he's just he just sealed the
01:23:34
deal with his [ __ ] thing what do we do i'm going to save a whale next week i am going to bring a dog
01:23:41
kill myself how about that oh you're going to prepare dolphin sashimi okay great that'll secure your
01:23:48
part as the most hated bestie we'll see you all next time on episode 88 good luck 88 of the all-in podcast bye bye
01:23:56
love you besties rain man david said we open source it to the fans and they've just gone crazy with it
01:24:13
[Music] besties [Music] we need to get back [Music]