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hey everybody Welcome to episode 98 of the all in podcast with us again the Sultan of science the queen of
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quinoa looks like he brought a trucker hat what what are you getting jealous of the Montclair hat or are you just not
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bathing anymore I haven't had a haircut in like six weeks I'm getting my hair cut this afternoon it's not gonna make a
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difference I think what Friedberg is trying to tell us is that he is the Zodiac Killer
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it's long been known all right there he is the unibar uh all right uh and Montclair sax is here with
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his 400 Montclair hat and of course the dictator himself I asked Ron I asked Ron to cut my hair so
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that the white patch is more prominent I think he did a good job do you add the white patch with coloring or is it uh no
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it's natural it's just there it's just there make it look so odd if you were doing it on purpose it's super random I
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like the way it looks I like the way it looks Jay Leno had a look like that I'm about to go by the way you know this in
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the fall it truffle season I like to grow it so that it's more wavy white for white truffle season got it I needed to
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have a reset cut so then we could grow it wavy for the fall for truffle season listen
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sir moth the only thing less relevant to us than your cashmere sweaters is your haircut
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[Music] [Music] I believe all right second now it's the hiring freeze and a reorg at meta he also said
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meta will reduce head count for the first time in its history medicine count in 2023 will be smaller
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than it was this year he called it the end of an era of rapid growth this on top of uh Apple reporting and apple got
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walloped in the market for the first time in forever uh Apple pullback iPhone production for the 14 after slower that
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anticipated demand as I mentioned on previous episodes they've kind of done a gentleman's layoff
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similar to I think meta in that Apple said you have to be back in the office three days a week a bunch of people quit
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so uh you don't have to pay them I guess huge packages when they quit that way Google CEO Sundar pichai also called out
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employees in July as you guys all read and he wrote there are real concerns that our productivity as a whole is not
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where it needs to be for the head count we have Google of course 174 000 employees so I guess the question I
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have for you is are these the last Towers to fall chamoth in this uh pullback that we've seen these are
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companies that don't need to do the layoffs they have tons of cash so they're obviously doing that to maintain
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earnings uh one would and to maybe send a signal to employees that they need to work harder what's your read on these
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this past week's shoes to drop well it definitely is the end of an era I think it is sort of like the the end of this
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phase of big Tech where you had this you know unfettered growth where these business models were largely
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unassailable and they you know we're really just fighting to grow into their valuation and just generate more Revenue
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to justify where they um where they traded at and now it's this next phase where they
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have to operate more like a cash cow business and so you know it's an acknowledgment that the growth is
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tapering it's an acknowledgment that they're going to trade on a pretty tight band in
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terms of multiple which means that they have to manage expenses much more tightly which means that they can't have
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a really broad-based surface area in which to operate an experiment you have to keep the
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experiments small you have to manage your expenses you can't have employees basically you know
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run over the place management has to have a firm hand in in dictating strategy and what people work on
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so I think all of that signals that I actually Jason I don't think this is the end I actually think it's the beginning
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because these companies Apple Facebook Google maybe a little bit Microsoft are the most sensitive to valuation
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because they are the most widely held right these are the these are the you know the equivalent of U.S treasuries in
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the equity markets the safest most predictable Safe Haven in times of stress if you want to own big chunky
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cash flow generating businesses that you know are relatively unassailable you couldn't pick four better businesses
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than those and so the fact that they see enough in the Horizon to say that we need to batten down the hatches should
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be a warning to everybody else uh Freeburg is it as simple as this that the they're moving from Top Line growth
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to bottom line and they're going to need to look at the expenses what's your read
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on this for Silicon Valley well I just want to zoom out for a second because I remember I started working in Silicon
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Valley in 2001 you guys are a little older than me I think but like we were right at the kind
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of year one of the.com implosion and all the Fallout that happened from all the funding that happened from 97 to 99 and
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2000. and so from 01 to O3 it was super like deflationary everyone was cutting costs
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and all the money that had been raised was kind of being pissed away or companies were liquidating and you know
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so on and then starting in 2004 which is actually when I joined Google but there
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was also this big movement starting 0304 of like what people called Web 2 then kind of new business models and new
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businesses started to emerge that seemed to have real traction and real legs and
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it was a different story and a much more rational story than what you saw leading
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up to kind of 2000 2001. and it was around that time when Google started offering these crazy benefits
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right it was like there's a gym and free food and all these amazing workplace and
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suddenly everyone had to do that to keep up right Facebook obviously mimicked it
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all the other big companies mimicked it and then it became Mainstay and they also raised compensation in the valley
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significantly because Google had really cracked a nut on how to extract value from the internet and it really changed
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everything in Silicon Valley and changed everything in Tech because suddenly every tech company whether you were
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Enterprise software or Hardware or an internet eCommerce site to be competitive and hire great talent you
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have to have the same sort of environment High wages great salaries really share the value
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with your employees you know gyms and free food and all this sort of stuff so it's the first time I think in a
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generation since like 2003 2004 that we're seeing things start to turn the other way where instead of adding more
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benefits you know making things more attractive giving more value to employees we're really seeing the
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recession hit these kind of leading indicators of how things are going to be in the valley and as a result I think we
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should expect to see a similar impact on compensation on benefits on value share
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and on kind of proclivity to hire an opportunity to kind of jump jobs and you know opportunities that we've all kind
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of taken for granted over the past 18 years and this is going to be a real shock to a lot of people that work in
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Tech and a lot of people that have gotten used to the idea that every company offers great benefits there's
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always another job to jump to that'll pay you more and that that as that engine of growth that was really driven
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by these big companies by Google Facebook Apple starts to slow no one needs to compete with them anymore as
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much and the compensation bands get tighter and the option value gets Tighter and the free stuff gets tighter
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so it's the end of an era and I think it's a new world for tech and and Silicon Valley sex what are your
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thoughts here in terms of startups in relation to Big Tech maybe having these austerity measures kick in and a
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refocusing on profitability the big takeaway here is just that nobody is safe and it's not just starts to have to
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you know tighten their belts it's these big companies too and I think we're headed for a broad-based recession
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that's what it seems like you saw druckenmiller's comments this week predicting a hard Landing in 2023 no
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one's talking about soft Landing anymore in fact I think we're all wondering who's flying the plane so I think we're
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headed for a pretty big recession and I just take it in a slightly different direction I'm down here in La had dinner
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the other night with a friend who's a showrunner in Hollywood and so a showrunner basically is like the head
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writer and they basically put together the writing team and the you know the content for a show and then they sell
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them to networks he said that like no one is buying anything anymore here that last year you had there was tremendous
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you know activity and you saw like the The Game of Thrones guys you know uh DND they got like a 300 million dollar deal
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from Netflix and Shonda Rhimes yes they did yeah they got like these they were massive multi-hundred Million Dollar
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Deals being made last year and that was just for like future writing deals like Netflix wasn't even buying libraries
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when they did those deals they were locking down talent for the next day yeah exactly so all of that has stopped
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and the reason is that Netflix's stock has been hammered right and only so they not have the capital to do those kinds
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of crazy deals anymore but they know that Wall Street is watching them and so fundamentally they're questioning
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whether a business model even works if they have to spend that much money on content so then all of Netflix's
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competitors basically have stopped so this whole like frothy environment that you had for in Hollywood last year
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that's just over the faucet's been turned off and it's not even turned off to a trickle it's just stopped so you
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think that this like massive asset bubble that we had last year was just in crypto and growth stocks it's not I
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think it actually trickled down into the real economy because Netflix is one of those gross stocks the money then flowed
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into writers in Hollywood and then lots of other places this is one small example right that that this asset
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bubble wasn't purely just something that's going to be localized to crypto it affects real people in the real
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economy and we are just beginning to see the unwind of that yeah what's absolutely correct I think
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is people were more risk taking they had free Capital they wanted to place more bets and sure why wouldn't you bet on
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the Game of Thrones writers for the next decade but looking at this is going to be fantastic for startups I mean the
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startups I've worked with over the last five years have been they always come to
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me oh I got a developer but this person's got three offers from you know Facebook Google and they're like how do
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I land this person they got 300 000 a year offering a million dollars in rsus and
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basically Founders had to say no I can't get that person and so they had to get creative and they would hire people
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Ukraine Uruguay everywhere in between to try to find developer talent and they had to get creative now all of those
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people are not going to have four job offers they're going to have no job offer so they may have gotten laid off
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uh and those crazy unrealistic out of school deals are going to be gone and this means massive
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consolidation of talent you look at the startups uh Community right now tons of companies are just going out of
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business they're packing it in those people are going to go work at the other startups that are stronger so whoever
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makes it out of this as a startup this is how the cycle restarts is Talent then consolidates on the winners it would be
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like taking the NBA and getting rid of the bottom you know 10 teams and just telling the best players there move up
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to the other teams and uh everybody else you're out of the league so I I think this is incredible setup for 2023 for
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startups to consolidate Talent so I'm I'm actually excited yes it's another data point that again I said it last
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week I'll go out on a limb and predict my equivalent November fall predictions last fall it was at the markets were
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going to Coop the bed my prediction now is that I think the markets are bottoming and consolidating
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yep 100 and this is the time I think to start nibbling and start getting ready to really rip the money in and I think
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there's enough signals every day that kind of like tell me at least that on the margin
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it's time because I think the markets do a reasonably good job of digesting news
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and then pricing the forward reality right like today's price is really everything we already know and so the
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real guess is what's about to happen in the future and from my perspective I'm actually pretty starting to get a
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little constructive here I think that um when when companies like Facebook really
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do this and you know like if you think about it one way the financial markets have always had this thing that we have
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called the fed put what does that mean a put is essentially the right to sell something
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and what Market participants have always known for the last decade is that if things got very hairy if there was
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uncertainty in the market the Federal Reserve would and they have consistently stepped in to create a buyer of Last
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Resort and so it always eliminated that last part of true you know Supply demand balance because
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they would just come and say don't worry in many ways in Tech what the big tech companies were were
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that you know you could never really find what the true market clearing price for an engineer was or what the true
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amount of expenses you should spend on office space or you know free services because you always always had these
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companies which was an escalating arms race you know if one company had a massage
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the next company had gyms in massage and physical therapists and the other company would have buses to take you to
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the gyms in massage and therapists in the next company would have protein shakes that were freshly made you know
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and it just kept escalating and escalating because the costs didn't matter and they wanted if nothing else
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to get that marginal engineer or product manager or business person to work at their company
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which eliminated the risk that they would actually start something to disrupt them
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blocker strategy is very real you should on the blocker strategies is very real so when you take this big Tech put
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out of the market you will get true price Discovery and you will find out what the real price
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should be for this kind of an engineer that kind of a product manager you'll find out what are the real expenses you
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need to bear in order to build a real lasting business and you'll be able to sort through all of that stuff out so I
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think it's a really good moment and again it's yet another indication to me that I think broadly speaking
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the markets are now starting to stabilize all the irrational Behavior is starting to exit the system the party is
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in the last few hours volumes going down the alcohol has been taken away people are hanging around with a little bit
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lights are coming on they're like I've been here a little too long and I think that that's a very healthy
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process for an economy and I think that that's what's happening right now so I'm
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constructive I'm a little bullish I'll go I'll go out on a limb I think you know we could be three to five percent
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from the lows but we're more near the lows than the highs it certainly feels like the double bottoming out process
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was the The Bouncing along the bottom and yeah who knows how hard the landing uh is but I think it's a great setup for
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startups and people who want to start companies I don't know if you saw a girl who did a great interview
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that trended on the Twitter and you're just saying this is the best time to start a company and I have to agree with
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him like you're going to have talent available and like who are you competing against for buying ads like there's so
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many marketing opportunities available the first thing to go in a down market like this is advertising and marketing
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so and by the way we will we will also relive what we have empirically known to be true and it's
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been it's been pretty well proven the Investments that one makes in this period will probably be the best for
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many many years to come because they'll have the most asymmetric upside and that
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was true in 2008 and 9 and 10. it was true in you know 2002 three and four you I mean you're talking
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incredible companies just in those two periods think about this atlassian Tesla Uber Google Airbnb Uber Instagram
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WhatsApp incredible businesses that have created tremendous value and so there are businesses that have been invested
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in for the first time in 2022 and will be invested in for the first time in 2023
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and 24 which will be the leading winners of this next phase and this next leg up
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and so the real opportunity is to find out who those companies are and get behind them I think 100 as I always tell
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people fortunes are made in the down Market they're collected in the up Market Freeburg what are your thoughts
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here in terms of the startup Community or company Builder uh and talent because that that seems to be the piece that uh
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could be a silver lining on all of this uh Maelstrom that we're going through I mean technology always marches forward
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so there's always you know there's always progress to be to be had and to be made
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that's one universal truth about it's weird that we call it an industry because a lot of technology companies in
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Silicon Valley today don't sell technology to other companies which is how Silicon Valley started
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nowadays Silicon Valley is Reinventing other industries by being technology LED and that is certainly still true because
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there are so many I hate using the term but undisrupted Industries to pursue efficiency gains across and
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Technology built in Silicon Valley can can drive that now when I say Silicon Valley I don't mean the physical
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location anymore and that's the confounding Factor here which is that there does seem to be this
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distribution opportunity that's also emerged at the same time where people are doing remote work and
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work from home and distributed Workforce models that seem to be highly effective
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you guys talked about atlassian I don't think they ever had an office right I mean don't most of the people work from
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home there and I think that the success that's been seen in software companies that have operated that model
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also changes the calculus because not only are are wages lower and therefore the cost
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of operating is lower not needing a fancy expensive office in San Francisco is needed
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but you can also access far more Talent than you ever could before you don't just need people to live in the Bay Area
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or New York or LA or wherever you're operating from so from a software perspective this is
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an amazing time I'll tell you there's a flip side to this like in life sciences real estate is more expensive than it's
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ever been right now in the Bay Area to get lab space there's a total dearth of space
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so there's certain segments that I think uh lab space like a specific a specific
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designation I mean there's a revolution and genomics that's totally transforming
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all of biology and human health and what I'm saying is like do you need a certain
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type of location that's sanctioned for that yeah yeah lab space is a certain kind of build out and it's not you know
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and so there's a certain amount of square footage and it's being built out a lot around the bay area but
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um the thing about life sciences companies is you do have to operate physically because you're doing some
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you're building something physical and so that is an industry that continues to remain very well
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funded and very competitive and I think you know there's still tremendous value and by the way there's a lot of public
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companies to invest in not on the primary basis but that are tools companies that are benefiting greatly
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from the continued demand and and growth in spending in that category sex let's talk about competition you know a lot of
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talk you know of these large companies pursuing many different verticals we talked about anti-competitive stuff Lena
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Khan the bundling in the suite of products at Microsoft other firms now you have uh all these being cut
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death to the Roomba death of the room by the way did you see the letter to the FTC about I guess she
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sent a letter about the Roomba I mean Senator Karen is just too much man I mean there's a lot of other stuff going
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on but you can let the Roomba slide that's not important oh you know all the things that are going on right now in
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2022 it's the Roomba that gets on the that gets that's above the line at this point believable oh my points actually
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is sleepwalking oh my God what is going on no there's a there's a famous history
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of world war one called The Sleepwalkers because that's basically what it felt like is they just slept walked their way
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to World War One basically what should have been a minor Regional War the third Balkans war that nobody should have
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cared about nobody should have cared about this Franz Ferdinand guy except for you know the austrians and yeah
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exactly but the whole world basically got themselves invested in this thing and it feel and this is what we're
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worried about we're worried about the Roomba when the administration is sleepwalking its way into the next World
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War well I do not want Amazon okay to control my vacuum cleaner I'm just gonna put that on the record okay because you
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know where the dirt is they know which rooms are dirty what happens if they get a hold of the Roomba I'll tell you what
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happened happens the next thing is they're going to go after Dyson okay and then once they do that they're going to
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put chips in these things and all of a sudden they're going to know exactly what Jason said what are you eating
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where your dust bunnies are yeah all of this stuff it's This Must Be Stopped Lena Khan now no but to the point of
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competition you you you're seeing cuts to you know all the uh non-core projects at these big companies this is going to
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be great for startups right like the idea that Facebook could focus on you know a fourth fifth sixth thing is going
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to go away yeah well look you're right that great companies are built during downturns uh PayPal was built largely
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during the downturn the starter pack created Yammer was built largely during a downturn so listen there's going to be
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opportunities Innovation doesn't stop just because we're in a recession or depression but I gotta tell you I unlike
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tremath I'm having a hard time finding a silver lining right now uh part of it is
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the comments that druckenmiller just made which and he's been right about this stuff we've been talking about his
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predictions for over for a year on this podcast and he famously shorted the pound uh for George Soros that was one
00:22:13
of his first things started but yeah since then um he's one of the most successful macro traders in the world
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and and you know universally respected and I think deservedly so remember he said that that this was in mid-2021 he
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said that the Fed was engaged in a radical uh monetary policy because even though
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we were starting to get inflation it was around five percent then that they were
00:22:36
so engaged in this Bond buying program they're still bought like 160 billion of bonds and he is the first one waving the
00:22:42
alarm bell saying what are they doing and now his predictions have come true I mean we're in a inflationary spiral and
00:22:48
his prediction now is his Central Outlook is that the Dow Jones will be in the same place
00:22:53
where it is today in 10 years and he made the point that yes Equity markets do go up in the long term but how long
00:22:59
term are you talking about from night from roughly 1966 to 1982 the stock market was sideways Japan had a lost
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decade as well like this is not unprecedented after an asset bubble right and then from the Great Depression
00:23:11
it took until 1955 for the stock market to recover so in the long run the stock market will go up but it could be you
00:23:18
know we could have um a flat decade this is his prediction right but he's very smart guy and and
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then on top of that that's not to say that you can't be one of the ones who make money during that period because
00:23:30
lots of people do but we're in for I think a very tough economic period because of just this radical uh
00:23:39
expansionary fiscal monetary policy we've had basically the fed and the administration printed the last two
00:23:46
administrations but especially this one printed 10 trillion dollars over the last couple of years
00:23:53
most of that was under Trump but continue no it's not 100 I'll pull it up in a second but anyway keep going we had
00:24:01
Biden basically kept digging this hole we had the two trillion dollars of American Rescue plan which we didn't
00:24:07
need we just had uh another two trillion of the infrastructure Bill the inflation
00:24:13
reduction act 500 billion for student debt yeah exactly so Jason what are you talking about and this was all after the
00:24:20
emergency was over but I think I think that you guys are debating the wrong thing I think that what drucken Miller I
00:24:26
think by the way just to be clear both drucken Miller and I can be right which is he's commenting on
00:24:33
the real world economy going into a recession what I'm saying is that the stock market tends to be 9 to 12 months
00:24:38
ahead of where we are Nick throw up that chart please that I asked you guys to share just to give you guys a sense of
00:24:43
what I mean by this by the way while you're doing that jamas Jason look I will agree with you that a lot of this
00:24:48
is 7.8 trillions more than Biden but fine a lot of the stimulus happened under Trump
00:24:54
you're right because that's when basically covet happened remember in the in that Q2 of 2020 quarter the economy
00:24:59
shrank at a 30 percent annualized rate everyone thought we're going to a great depression and that's why they passed
00:25:05
all the stimulus by huge bipartisan margins director Miller's best point is that this is all post-vaccine right yeah
00:25:11
yeah so look and I think we can definitely go back and second guess what happened during the Trump Administration
00:25:18
there's an old saying that many of the worst ideas are bipartisan but and so you know the spending that happened in
00:25:24
2020 was clearly bipartisan and maybe it went way too far but in the last two years like drug said it was post-vaccine
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post-emergency and they kept spending and it's not just Administration it was the bond buying program of the FED where
00:25:39
the economy was already fully back and they bought another 160 billion of bonds yeah I think I think the thing is that
00:25:45
you know I think Stan is a proven Republican so maybe he is speaking a little bit of his book as well I think
00:25:53
it's fair to say that both Trump and Biden did not help but overwhelmingly I think where the where the problem stands
00:26:00
is a central bank that was the same through both of those administrations and I think we should probably focus on
00:26:06
them because you're right what they did was excessive and what they essentially said is that if there is volatility
00:26:13
Beyond a certain amount and people cry Uncle we will not allow the markets to sort themselves out in an orderly way we
00:26:22
will step in and that's what you know again what we just talked about the Central Bank put in this case the FED
00:26:27
interventions yeah and these interventions really uh pervert a market because you don't know what's going on
00:26:33
and that has huge ramifications in the real economy so Nick if you just throw up this chart the the thing that is
00:26:39
really important here and what this chart shows is essentially all of the hiking cycles that we've gone through
00:26:45
since 1983 so 83 87 89 94 9904-15 in the current one and here's what I just want to call out for you
00:26:54
guys what's incredible is that other than the one in 83 so this is sort of like you know
00:27:01
that last big one what we've seen is that the stock market has a tendency to immediately go to the conclusion
00:27:12
very early on in a rate hiking cycle and now why is that important for normal folks listening to this thing well the
00:27:20
reason why that's important is right now we're in month seven of a cycle we obviously don't know how long it's going
00:27:25
to be but the odds are improving every day that we're near the end versus the beginning
00:27:33
and why that's important is again if you're thinking about when to you know buy equities for example this is a
00:27:41
really instructive guide because what it tells you is the closer we get to the end
00:27:46
or more importantly the closer we psychologically know that the end is coming we start buying and that and that's just
00:27:53
a broad-based statement that has been true so you know what you see right now I think is really interesting which is
00:27:59
that despite all the bad information oh my gosh the nordstream pipeline blew up could it have been sabotaged was it
00:28:07
the CIA was it the Russians oh my gosh big Tech is slowing spending and firing people China's in a coup I don't know if
00:28:15
you saw that rumor yeah how about something more benign you know the the US you know us yuan is really trading in
00:28:22
a crazy way the U.S euro is trading in a crazy way the U.S pound is going crazy despite all of that
00:28:28
every time we trade down the market consolidates very quickly and we sort of like so I think we're forming
00:28:36
a bottom I do think that Stan is right we are going to see a hard Landing recession something will break in 2023.
00:28:44
I hope it doesn't I hope it doesn't affect a lot of normal people but it's likely but at the same time to find hard
00:28:51
Landing us so I'll tell you in a second but at the same time I think what's happening is in the equity and financial
00:28:55
markets we are consolidating a bottom because we're seeing through to that end state
00:29:02
and this is where cheap Equity gets bought so why is there a reason to sell now I think a lot of the people that are
00:29:08
selling the smart money sellers that I talk to are essentially right now selling to book in capital losses to
00:29:17
offset other capital gains from this year a term that's called tax loss harvesting and so if you have gains
00:29:22
through this year which some of us do this is the great moment to just sell the losers to book the loss to net it
00:29:30
out so that you can minimize your taxes for next year that's probably I think where we are at
00:29:35
and I think that's why they're still Consolidated by so what is the hard Landing Jason if I had to predict I
00:29:40
think what David said is absolutely right you're going to see unemployment get to an awkward and uncomfortable
00:29:46
number five six percent I think could be something that we see and I think you're going to see a lot
00:29:53
more companies pull way back on their spend because demand is going to really modulate uh
00:30:00
you know I'll give you a crazy example you know what happens to all the people in the United States that are on armed
00:30:06
mortgages right adjustable rate mortgages when those things reset they're going to reset two 300 basis
00:30:14
points higher their monthly payments are going are going to go nuclear it's already happened I've literally had a
00:30:19
family member call me about this and they were like what do I do so in the UK in the UK 40 percent
00:30:26
of all mortgage dollars are interest only arms that will reset in January to around four percent
00:30:36
forty percent can you imagine how upside down the UK economy is going to be when
00:30:41
people have to spend three and four times more together and then people have to go to work so people who have not
00:30:47
been participating are going to have those bills come in and they're going to have to go to work they're going to have
00:30:50
to go to work yeah so free bird what do you what do you think uh hard Landing here and then what do you think 2023
00:30:57
looks like in that regard uh looking pretty bleak do you buy that we're bottoming out now as chamatha's
00:31:04
sort of hypothesizing I mean I'll tell you I was running some back of the envelope
00:31:10
math you know how much debt there is in the world take a guess 200 couple hundred trillion
00:31:25
200 trillion about 300 trillion yeah that's um debt owed by governments businesses
00:31:34
and households and if in response to the inflation which is response to fiscal stimulus which is a
00:31:43
response to the entire economy of the world shutting down for a couple of months
00:31:47
we end up raising rates from zero to five percent that's uh 15 trillion dollars of annual Debt Service
00:31:58
which is like 18 of global GDP like that The Debt Service alone but what does that mean that means that for
00:32:09
every dollar transacted no it means nothing tax it no it means what does it mean like so so what so I'm
00:32:16
saying that there's a massive squeeze hap that's gonna happen right and so what ends up happening ultimately
00:32:21
is because you could run this across local governments I think it means demand destruction I
00:32:27
mean if you're in debt households yeah thick no no I'll tell you I'll tell you about what it means
00:32:34
but it means nothing and I'll tell you why these people keep because you can print more money you print more money
00:32:40
I'm sorry to be the bearer of bad news but like it is not as if we have a law a constitutional law or it's not as if
00:32:47
governments have collectively decided that you cannot have debt to GDP uh above a certain number that doesn't
00:32:54
happen guys we passed 100 under Obama and we've just kept printing money so whether we like it or not and I'm not
00:33:00
saying I'm a fan of this or it's right we are kicking the can down the road and what we're doing is we're extending the
00:33:07
maturities you know you'll eventually have 100 Year government bonds okay just like you have like now you know
00:33:14
multi-decade long corporate bonds we missed a chance for that we missed it because brilliant Yellen actually said
00:33:21
no to that when when rates were like near zero and we had the opportunity to refinance the U.S government debt using
00:33:28
long-term rates basically long-term bonds and actually was Trump who you know crazy Trump who suggested let's
00:33:33
basically shift the debt to 100 Year bonds and she said no you have a dollar right so the the problem is that we have
00:33:41
all the short-term debt and look at what just happened in the UK when Liz trust tried to prop up the uh Bond rates by
00:33:49
basically intervening she was basically an inflationary policy to fight an inflation the markets puked all over
00:33:55
that and that's when their the pound hit you know exactly there's only so you have to have a buyer of the debt right I
00:34:03
think the list trusting is really actually a microcosm of how unfortunately Western governments are
00:34:08
working but I think there's a silver lining like she basically came in a day after she got elected and said okay
00:34:13
guess what guys at the same time I'm going to massively cut taxes and I'm going to give you fiscal stimulus I'm
00:34:19
going to cap your energy bills and I'm going to have these huge transfer payments from the government into the
00:34:24
hands of uh of uh British citizens I'm not going to comment on whether that's right or right right or wrong
00:34:31
but the financial markets to your point David absolutely hated it and within a few days you basically saw the pound get
00:34:38
crushed but then what did you see you saw the bank of England decide that Financial stability was more important
00:34:45
than financial viability meaning the things that she wanted to do were not viable so you could have let the
00:34:51
financial Market sort this out which would have forced the prime minister to basically abandon the policy but instead
00:34:58
the Boe said now we're on the unlimited buyer of UK guilts which is the name of the UK Bond and everything snap back
00:35:06
we're back to where we were before her speech and before the chancellor of the exchequer speech and so it's as if
00:35:11
nothing happened and that's what's so insane to me which is that even though the bank of England by the way in the
00:35:17
next week or two are going to raise rates 140 basis points 140 basis points almost double what the FED is
00:35:25
that is they're doing both at the same time they're both raising rates and they're acting as a backstop for bad
00:35:31
policy and this is what's wrong right now in the world we do not have a real check and balance so my point to
00:35:37
Friedberg is just that I'm like emotionally on your side but the problem is with these folks keep
00:35:45
getting bailed out David they're just going to keep doing this stuff and there's no end in sight well and the the
00:35:49
consumer doesn't get bailed out so that if you look at it on a micro basis instead of a macro basis you're correct
00:35:54
these governments will just bail people out even if they make bad decisions as we're seeing but then the person whose
00:35:59
uh variable interest mortgage just kicked in has 500 less a month in savings so they're now not going to buy
00:36:05
an iPhone 14. they're not gonna upgrade their car every six years they're gonna do it every eight years so the demand
00:36:12
destruction that's happening is going to be quite severe and that's going to reduce money then monetary velocity and
00:36:19
then we mark my words the Federal Reserve will intervene this is why I think we're in a bottoming process I
00:36:25
think the the bleeding edge of the Smart Financial actors are actually on Sax's side and friedberg's side
00:36:33
but then they're taking that next intellectual leap and saying okay well what happens when Apple basically says
00:36:39
hey guys I'm gonna have to fire 15 of my employees I think what happens is the fed
00:36:43
intervenes and I'm just using apple as an example but there there is a threshold of demand destruction Jason I
00:36:49
think you're right where we have the fed put come back on the table and the markets just go Bonkers so they instead
00:36:54
of doing 75 basis points two or three times they're just gonna be like yeah I'll do 50. we'll throw it down no no no
00:36:58
no no no no no they're gonna they're gonna get to four and a half very quickly and then this Something's Gonna Break
00:37:04
like all these guys are saying I think they're right and then the fed put comes back on the table and we'll have this
00:37:10
we'll have the UK you know the UK thing happened in what six days bars will play out over six or nine
00:37:17
months but it's going to play out the exact same way and freeburg's right you know
00:37:21
we should have capped debt at you know 100 of GDP or less and sax is right we should have issued 100 Year bonds at
00:37:28
zero rates when we had the chance we didn't do either of those things that's so incompetent sex I mean there
00:37:33
was no need to have rates this low for that long and it maybe they could just keep them
00:37:38
at some average number instead of going down to zero or that's spiking back up and just steering you know spitting the
00:37:44
steering wheel uh you know so violently why don't we have some basic uh concept of maybe not having zero rates and
00:37:51
keeping them at two percent or something reasonable so you have some dry powder well if you go back and and listen to
00:37:57
what the FED said and Drug makes this point they were all worried that they got there was an inflation print a few
00:38:02
years ago where I was at 1.7 percent and they all started panicking about not being at two percent so for a point
00:38:08
three percent move that they try to engineer they opened the floodgates okay and that's basically what happened and
00:38:14
that's why he's so critical of it the other thing is the federal remember the FED said we're going to be data driven
00:38:19
but then the data came in last summer we got that surprise 5.1 print and they dismissed it as transitory so they said
00:38:28
they're going to be data driven but they weren't they they were dismissive now on
00:38:32
what basis did they conclude transitory like what was the proof for that there was no proof that was a
00:38:39
political consideration the administration and Yellen is a big part of that immediately reacted to basically
00:38:45
downplay the news I mean they PR did I mean they didn't want to admit that there was a problem they went from
00:38:51
transitory to this is permanent to next six months but during and now we're at hard Landing like right these people are
00:38:58
not competent are they just not competent no I think they're really I think they are competent but I think
00:39:03
that they're a little bit fighting with one hand type behind their back I think if you had to take the other side sacks
00:39:08
you know the problem is they have a very specific strain of data that they focus
00:39:13
on and that data has all these weird anomalies to it like you know they should look at rent data but the way
00:39:20
that the rent data works is that you know you bleed it in one-sixth a month over six months just as an odd example
00:39:28
or like use card data only comes in a certain way so I think they're driving in the review mirror I think there is
00:39:33
something to that I think it's simpler than this which is listen I think all politicians do this which is when they
00:39:38
get bad news they want to spin it and they're going to delay acknowledging the bad news as long as possible so what
00:39:44
happened last summer when this inflation started they all dismissed it it was all
00:39:48
a talking point I mean every single one of them and here's the crazy thing is Jay Powell he's the only Trump official
00:39:54
who got reappointed by Biden by a huge majority how do you think that happened and when did it happen it happened at
00:40:01
the end of May last summer so just when this inflation print came out and yell into the administration were saying it
00:40:07
was transitory that's when Powell was up for renomination and he swept through the only Trump appointment to basically
00:40:15
be renominated without even a question by Biden why because he got on board the talking points he wasn't gonna basically
00:40:21
Buck them at that time so he waited six months he bought into the talking points
00:40:26
that was a hundred percent political 100 I told you I read Paul it's a very compelling argument I read them there
00:40:33
it's really compelling it's really it's sad but compelling sax you should read the Paul volcker uh book keeping at it
00:40:39
he basically says Reagan came to him off site where they knew they wouldn't be recorded and told them do not raise
00:40:45
rights uh so this idea that the FED is independent like history now has shown us it is not like the the there is
00:40:52
massive uh political pressure on them I I think especially at the time driving in the review mirror clearly the data
00:40:59
they have is not great and then all this data is nuanced you know jobs and this massive amount of jobs we've had in this
00:41:05
country is because of you we have a new immigration policy we don't let people into this country we kick out phds that
00:41:10
we trained and then housing we have eye buyers buying this so to your point jamoff I think a lot of the data has
00:41:16
changed and they're they've got a bad data set they have a bad dashboard and they're driving with bad information
00:41:21
they don't know their Direction they don't know their speed perfectly if you want more Fidelity on the data you're
00:41:26
right if you went to a board of directors meeting for your company and said how's the business doing and the CEO
00:41:32
says well you know well we're going to have data from six months ago and it's like okay I got that but what about like
00:41:38
last week uh you would fire that CEO to your point Jason um and these things are knowable today
00:41:45
like there are businesses for example that are selling billions of dollars worth of like iot sensors here and there
00:41:51
energy sensors here everything is connected to the internet everything is automated everything is running in code
00:41:59
um you would think that the government would say there's a national level directive here to get this into some
00:42:04
kind of a system that we can use because these decisions are becoming more and more important
00:42:09
I think that would be a wonderful idea and a project and what had huge value a Manhattan project for understanding
00:42:16
the economy on a very granular level we you invested in a startup at one point I
00:42:20
remember I heard the pitch where they had people around the world taking pictures of food prices Africa India the
00:42:27
United States anywhere and then putting them into a database normalizing them so
00:42:31
you could know the price of tomatoes or potatoes on a global basis you know and normalizing all that data they don't
00:42:36
seem to have this data there they're talking about August data and it's you know we're now in October
00:42:42
it's a really odd situation I think you know our friend Brad grosser made this point which was
00:42:48
that look in this last fomc meeting the FED raised their forecast for what the neutral interest rate would be from
00:42:56
three and a half to four point six percent so in two months they raised their forecast by over 100 basis points
00:43:02
what is that based on like is there a model I assume there is a model I assume there's data so why don't they just open
00:43:07
source that why don't they let the markets like see the model they're using so we have a little more predictability
00:43:13
of course they always have the discretion to bucket or not follow it or whatever or change it but like you know
00:43:20
wouldn't that be a better approach is to like let us see the data and the models
00:43:24
in real time as it's happening and then the community like like an open source project could actually like Fork the
00:43:31
model and actually create like better ones well to your point to your point like there's the the FED is actually
00:43:37
known as the gold standard of transparency so the IMF has kind of like a a view in how all these central banks
00:43:42
act last week they actually explore created and this is good this hurts me to say Canada
00:43:51
because of their lack of transparency apparently Canada doesn't even put out minutes
00:43:55
and so they're like hey Canada you uh you guys like yeah and you know well Canadians are I mean the Canadian
00:44:01
government at least like total moral virtue signalers but they don't value transparency apparently
00:44:07
but to your point David there is a lot of opacity in these things that really determine
00:44:13
how the real world works and the impacts the individual people are going to go and get ratcheted way up and nobody
00:44:19
really knows what to expect even though the data is there sitting in plain sight
00:44:24
I think two things can be true I think the Fed the process of setting Central Bank
00:44:34
rates by the Federal Reserve should be reset I also think that it could be true that
00:44:42
the FED is not responsible fully for a lot of the conditions we're now facing we did have a bunch of policy decisions
00:44:51
that the whole world got swept up in and seemed to accept as appropriate at the time when we shut the global economy
00:44:58
down and there was some weird assumption or belief that fiscal policy would allow us
00:45:05
to soft land or recover out of that and at the end of the day all that fiscal policy did and I remember I was speaking
00:45:13
with a smart person at the time and he said all the fed's going to do is they're
00:45:19
just going to inflate everything and it's going to take a while and everything will inflate and that way
00:45:22
everyone will feel good for a while but you can't just stop the spigot of capital moving Goods moving and services
00:45:27
moving for months on end and assume that the repercussions will not actually be felt extremely harshly and at some point
00:45:35
things are going to come home to roost and that is what's happening there was no winning solution for the fed or for
00:45:41
any Central Banker in light of the policy decisions that were made to shut the global economy
00:45:47
down when covid began not to argue whether or not that was appropriate but that was simply a statement of fact I
00:45:54
said it before and I don't understand if you were to take a first principle's point of view on this today and say hey
00:45:59
let's create a central bank and how should it operate you would take all the data from into it from PayPal from visa
00:46:06
from MasterCard from the internet you would take all of that data you would let the algorithms or the AI or the
00:46:12
software figure out what is most predictive of certain inflationary recessionary totally and growth
00:46:20
indicators totally and you would basically say look X percent growth X percent inflation solve for what the the
00:46:27
central bank's interest rate should be and it should vary at a hundredths of a percent or a basis point every day
00:46:34
and every day the rate is reset and the software resets it and to have you know some degree of human logic or oversight
00:46:41
seems appropriate but to have a decision made in quarter percent increments once
00:46:46
every couple of weeks uh seems seems kind of Arcane so I think both things are true the FED isn't necessarily fully
00:46:52
responsible we all want to point fingers you know we can point fingers at at the
00:46:57
the Mania that swept over the entire world when we started our podcast and everyone was like what the hell is going
00:47:04
on why are we locking down the world and this is nuts and it felt nuts and the response may or may not have been
00:47:09
appropriate but at the end of the day there was a cost and the cost is going to be born for very likely a decade or
00:47:15
more if we are able to get through it all a lost decade is a possibility handset central banks can be Rewritten
00:47:21
so yeah well I think there's actually two original sins of the economic crisis we're in one is lockdowns you're right
00:47:26
like that was a fiasco it didn't do anything to stop kovid it was an economic disaster and then we
00:47:32
overreacted to lockdowns by them printing all of this money both fiscally and through expansionist monetary policy
00:47:39
so freberg's right about that I but I think the other original sin here is the the QE and the zerp right the zero
00:47:46
interest rate policy that began in 2008 2009 we broke the glasses emergency totally yeah and then it just became
00:47:54
standard like it was on autopilot why did we keep printing why did the government keep buying it was a long
00:48:00
tail event that became the mean problem is that every time government is a bad idea I mean it's just yeah Milton
00:48:07
Friedman once said there's nothing quite so permanent as a temporary government program how many times have we seen this
00:48:12
every time the government's supposed to do something on a one-off emergency basis like zurp it ends up becoming
00:48:17
institutionalized we still have kids in schools in California wearing masks I mean that it's the same crazy thing that
00:48:23
people cannot get off these programs the the thing about zurp which if you look back
00:48:28
what really happened if you think about like how people live their lives every day what what if what has happened in
00:48:34
our view of government and politicians it's really eroded since 2007-2008 right there's huge amounts of rancor nobody
00:48:42
gets along everything tends to happen on partisan lines and the reason I think that that was allowed to happen or that
00:48:49
accelerated is actually because of zurp because if you think about it if you had
00:48:53
failed policy right and the economy was completely broken politicians would actually have to get
00:49:00
together and try to solve the problem themselves and the last time they really did that was actually in the great
00:49:06
financial crisis if you look at tarp and if you look at how all of these smart people actually had to get together in a
00:49:12
bipartisan way to figure out how do we bail out America and prevent a banking crisis that was the last real effort
00:49:19
that touched a lot of people but then David as you said on the heels of that we broke the glass and we've been
00:49:25
fighting ever since and the peak of that fighting was basically Donald Trump getting elected and so I think like what
00:49:32
it shows is that if you have these irrational Central bankers that will or that are willing to
00:49:38
constantly bail people out you will never get a high functioning government because policy is irrelevant good policy
00:49:45
doesn't matter I think our policy doesn't matter if any of it goes wrong the central Banker will come in and bail
00:49:52
us out well and the the second and third order impact of these is can become quite acute and just for people who
00:49:58
heard the word zurp like three times zero interest rate policy basically keeping interest rates very low very
00:50:04
dangerous to do because you get [ __ ] like this like look at the number of unemployed people
00:50:10
per job opening and if you just look at this like ratio this is the number of jobs per unemployed person it gets way
00:50:17
out of whack and then if you look at this other chart just in terms of the total number of job openings you know we
00:50:22
started we talked about this earlier in the Pod hitting 11 million to burn that office crazy then what happens if you
00:50:28
have too many jobs you don't let immigration you you don't have a functioning immigration policy well then
00:50:34
you get this great um you know people quitting their jobs quiet quitting and then
00:50:41
the Boomers saw their net worth go up so high because of their retirement accounts because of the stock market
00:50:47
boom and because of the housing boom you had all these rich parents now who are bailing out their kids who refused to go
00:50:54
to work and labor participation goes from 70 down to 62 these are the unintended consequences of zurp that you
00:51:01
know now how do you get a generation to go back to work if their parents have you know a two million dollar home and 3
00:51:07
million in stocks or a million dollar homes yeah and that's what they're doing now
00:51:12
they're like we're going to break this we're gonna we're gonna get Google and apple who have unlimited cash to do a
00:51:18
riff those companies don't need to do a riff they're doing it because they have no
00:51:22
choice now because they want to break the economy so hard Boomers have 71 trillion in
00:51:28
assets over March I mean the wealth transfer that's going to occur between these two generations is crazy why would
00:51:33
any U.S except for Millennial with a boomer parent even go to work if they've got a million U.S Boomers have 71
00:51:39
trillion dollars in assets is that what you said no yeah that's the number I have here so an entire turn of global
00:51:45
GDP in savings that's about one-seventh of the world's total assets it's just a lot of Locked Up well
00:51:52
and this monetary policy was done by Boomer 70 trillion controlled by 76.4 million people yeah
00:52:00
so if you want to really talk about the you know the rich in a global context the Richer very specifically U.S Boomers
00:52:09
yeah that's one-seventh of the world one seventh of the world's assets is controlled by 76 million people how much
00:52:16
of it is their homes I mean they were they were at Woodstock they you know they lived the best life
00:52:22
in the best times they enjoyed the most of the peace dividend in the 80s and the
00:52:27
90s and the 2000s they are the ones that control everything it's pretty crazy it's I think it's less like Jeff Bezos
00:52:39
and Gates and musk it's Boomers that if you want to go and really zoom out and get it right it is Boomers
00:52:47
it's one percent of the global population that controls one seventh of the global wealth and they're all in the
00:52:54
united U.S Boomers hiding in plain sight U.S Boomers there you are well once these housing prices decline and the
00:53:00
stock market declines that number is going to shift and that really is what's fundamentally happening with the fiscal
00:53:05
policy and the effects that's happening today it's happening today which is a redistribution of that value because
00:53:11
we're basically deflating all those assets now we're deflecting the average Boomer is and we're going to deflate
00:53:18
real estate assets I mean if you just do the math on that back of the envelope these boomers are worth a billion a
00:53:23
million dollars each like think about that like every Boomer is worth 900k a million something in that range 1.2
00:53:30
million I mean it's bonkers that's the average that's how much wealth they have Bonkers
00:53:38
you you two are a boomer Jacob no we're Gen X we're Gen X can we get the worst we had
00:53:45
the we had like we got really shafted it's like you know we grew up with flannel
00:53:49
Alanis Morissette Alanis Morissette no hold on hold on Smashing Pumpkins 93 was probably the best year Smashing
00:54:00
Pumpkins ever did it for me Billy corgan's voice was always like ah yeah really annoying Rage Against the Machine
00:54:05
can we do a quick shout out for um Julio sad to hear that he passed we're here for you yeah I mean it was
00:54:13
really sad the guy was uh how old was he 50. were you a big fan of Coolio's I love cool in the 90s his Coolio story
00:54:21
from the Pod when he said Gangster's Paradise I feel you yeah and then when I saw him at Sax's
00:54:27
birthday last year I was like dude I love Coolio I mean I cannot tell you what a big fan I am what was the line
00:54:34
you said to him you said I feel you I said I appreciate you I appreciate you I appreciate you
00:54:40
we fly down for the birthday they you know they shuttle you on the cars from the plane to the to the house
00:54:46
we get to the house and you know we're all waiting of course sax is late two and a half hours to his own party we're
00:54:52
all hanging out starving but then we go into the party and then they have like uh Coolio shows up so we're like sitting
00:54:59
down to dinner for course two all of a sudden pop comes out of the the woodwork Coolio I lose my [ __ ] I run up on the uh
00:55:08
so dance before I grew up Coolio like it's like high school jams man I mean that's like in the car cruising and at
00:55:14
this point I'm like seven tequila watermelon Tequilas in so I'm playing oh my God
00:55:21
on the Dance Floor you know jamming up to Coolio I think Kaleo thought I was sex you know because he's like yeah he's
00:55:29
like oh two South African Jews you guys all look the same Coolio comes up starts
00:55:33
high-fiving me and hugging me and I'm like What's Up Coolio my God this is like a dream come true he's like hugging
00:55:39
me his face is right next to my face I didn't know what to say and I like I'm I'm I've had a little bit of tequila and
00:55:45
I and I whisper in Coolio's ear I'm like oh no I appreciate I appreciate you I appreciate you wow
00:55:59
oh my God I think I saw Freeburg throw his panties on stage 201 yeah know what to say I mean what do you say
00:56:10
clearly clearly you don't know what to say yeah my team my my team and TPB they had a they had a cameo made for me of
00:56:18
that Coolio sent in it was super heartfelt and awesome sax posted it on the internet I think yeah retweeted it
00:56:24
yeah retweeted it and it was uh I don't know man it was uh he was he was actually a super nice guy great guy and
00:56:31
uh it was super sad yo Dave it's your friendly neighborhood Coolio bro I'm out here on the golf course thinking
00:56:40
about you I appreciate you man so I want to wish you a very very very happy birthday man
00:56:48
you feel me I want you to drink it I want you to smoke good I want you to eat good I want
00:56:54
you to have some fun bro go big do it right yo Dave happy birthday man from Coolio
00:57:02
Shaka Zulu man well all the stories are coming out now and not your experience was not unique he touched everybody he
00:57:10
met literally these college kids were like genuine very kind like yeah he was a real super friendly and like you know
00:57:17
and and like wanted to ask about you I mean it's like a very like I could have been a politician if you
00:57:22
didn't become a music a music Superstar he looked incredible he looked like he was 25. I mean he literally went to
00:57:33
these college kids met him he went back to their like you know uh frat house he cooked them dinner and then he got a
00:57:40
guitar out with them and he sang gangster paradise with them and he like orchestrated it with the crowd singing
00:57:46
whatever he was then there was a video of him in Dublin on the bar singing can I just say something to I I've given the
00:57:53
message uh before yeah before but like you know take care of your health yeah take care
00:58:00
like there there are these incredible drugs I just want to call out Health as wealth
00:58:07
if Lipitor for example or Crestor or these statins are not working for you there's this next Generation kind of
00:58:13
drug called the pcsk9 inhibitor which essentially is uh effectively a gene therapy that's modeled after this very
00:58:21
specific group of folks in the nordics I believe who actually have effectively immunity against heart disease and so
00:58:28
it's taken 20 years to refine this drug but this drug is a wonder drug and you know there are versions of it now that
00:58:33
are injectable you know once every six months or whatever so go and ask your doctor if you're not if statins don't
00:58:39
work for you look at the pcsk9 inhibitor and then separately after you're 45 or so you should
00:58:45
again a CT angiogram because these things are really important or you know a heart flow
00:58:53
where they actually inject a die they characterize all your veins they give you a calcium score
00:59:00
may not prevent this but at least if it's if it's something cardiac related you can get to the bottom of it and it's
00:59:06
a knowable thing nowadays yeah rest in power to um our friend and uh yeah take care of yourselves your health
00:59:14
and uh speaking of Health shout out to Gwyneth Paltrow uh G pal uh who in her group newsletter pointed out that
00:59:23
she loves the all in pod and has to be honest she's obsessed with the personalities a little bit
00:59:30
anybody want to handicap that listen let's be honest uh what doctors say not you if that's what you're trying to say
00:59:36
I've met her actually doctors say she's a delightful if you want if you want to live in health after a meal the best
00:59:42
thing to eat is a little dark chocolate hmm do you get your dark chocolate from goop do you have goop dark chocolate
00:59:49
Jason I was trying to make a story where I am the dark chocolate where I'm saying
00:59:52
that I am her favorite personality you [ __ ] [ __ ] so you're handicapping that you're her favorite she said she's
00:59:58
obsessed with the personalities plural I'm gonna I'm gonna where did she rank her besties I need to know I'm gonna
01:00:04
rank as rebirth oh really you think she's a free person that makes that's on yeah okay
01:00:10
then me then you okay I'll take it the fact that Gwyneth Paltrow even understands like
01:00:17
who we are is a win in my book so I'll I'll be number four on her list but uh G pal if you could rank the besties in
01:00:23
your next newsletter that would be appreciated and we'll we'll take rank your besties
01:00:31
all right if sakshi wants some red meat you'll I I saw you wrote a piece you want your red meat should we throw it to
01:00:37
you yeah yeah all right I think we we need a Ukraine update because I mean we're talking about all the reasons that
01:00:44
there could be a silver lining or the Market's bottomed out I don't think you can know for sure that the markets are
01:00:50
going to bottom out unless you know that there's going to be successful resolution of this Ukraine war at least
01:00:56
a non-escalation of it and all the things that have happened in the last couple weeks have been
01:01:01
on the road towards escalation exactly so in the last like just few days you've had zelinski saying that they want to be
01:01:07
admitted to Nato you've got Putin basically annexing or saying he's going to Annex the Don bass and somebody we
01:01:14
don't know who but according to radic Sikorsky who's the Polish foreign minister he think the U.S somebody blew
01:01:21
up the Nord pipeline so what is the common denominator did they say was blown up was it one or two was this
01:01:28
so it was the one that was actually like working what is the common denominator of all these things they're all
01:01:34
eliminating key elements of what a peace deal would look like so everyone understands that a peace deal would
01:01:41
require uh zielinski to give up on NATO it would require Putin to make some compromises likely in the Don bass and
01:01:50
it would require the sanctions to be lifted and the energy flows to be turned back on well so now those things
01:01:57
basically have been removed from the table or at least potentially that's what's happening so I don't see how
01:02:03
you're going to get a peace deal now and so if you remove all the off ramps what's left escalation
01:02:10
wow so it seems to me this thing's just going to keep escalating I thought you wrote a good piece in the American
01:02:14
conservative should America go all in on Ukraine if you haven't read it it is 80
01:02:18
of rehash of what we've talked about here for the last year but there's 20 new in it I think and I thought what was
01:02:25
interesting uh in terms of new stuff you put in the piece and it's a good summary
01:02:30
of you know poker strategy versus what's going on here is that we've already proven you know if you did want to prove
01:02:37
that Russia is not a threat with the exception of their nuclear we now have proven that they're really not going to
01:02:43
be able to do a domino and go into all these different countries with the exception of obviously the threat of
01:02:48
nuclear power so I thought that was well that was really a point yeah yeah what I
01:02:52
was really responding to in that piece is the assertion by the media that Putin is bluffing how do they know that
01:02:59
you know how do they know that like you know I think all of us understand poker pretty well and none of us ever would
01:03:06
have the confidence to assert that we know exactly what cards our opponent holds in any given hand and how exactly
01:03:14
they'll play them what do we do what do smart players do we put our opponent on a range a range of possible hands of
01:03:22
possibilities and then we evaluate what did their previous actions tell us what story are they telling through their
01:03:28
previous actions well what story has Putin been telling this is not a guy who Bluffs in my opinion or at least that is
01:03:36
not the story there's a chance he he would pop off a tactical nuke it's a non-zero chance if that if his life is
01:03:43
on the line he is incentivized to use every weapon at his disposal to try and prevent his violence his life isn't on
01:03:51
the line here he can he can back out oh yeah but where's this thing headed if there's no compromise I I think they you
01:03:56
know I I I'm gonna stick with my original prediction that we wanted to you ankle Putin we wanted to prove he
01:04:02
didn't have you know as much strength as he did and we wanted to exhaust his resources so we could finally
01:04:08
basically get him out of office at some point so I do think regime change via exhausting him and I think it seems to
01:04:14
have worked we have exhausted you're agreeing with me I agree that we have exhausted his I
01:04:21
mean he's proven he can't fight a ground war right I mean that that's a pretty oh
01:04:24
he's escalating now he's escalating you think he's just gonna roll over he's not
01:04:28
going to roll over I think he but I think what we've proven haven't we is that he can't fight a ground war
01:04:34
effectively he doesn't have the Army he doesn't have the weapons uh compared to the west and he's been exhausted you
01:04:41
know and I think his he's spent now the only thing he has left is what you're talking about is the new corruption
01:04:46
literally no no well no there's there's more intermediate options first of all he's just called for the the
01:04:52
mobilization of 300 000 more troops so that's going for step one people are coming into the country yeah exactly
01:04:58
look there's gonna be very high yeah they're gonna be very high costs on the Russian side I would not assume that
01:05:05
means that there's something in it for us even with this um you know the the conscription he's doing this draft he's
01:05:13
doing forced draft I mean he is kind of redundant but um this conscription or draft whatever
01:05:18
you want to call it has proven that he doesn't even actually have the standing inside his own country people are
01:05:23
leaving they're breaking they're looking up how to break their arms like it's it's pretty dark I think you're making a
01:05:27
lot of assumptions there just like the media who are saying that he is definitely bluffing what I'm saying is
01:05:31
we cannot know that he's definitely bluffing no the United States of America is blessed with being the most safe and
01:05:38
secure country in the world and really in human history and the history is full of humans constantly being at war with
01:05:46
each other so that is a really valuable thing that we have why are we so secure we're surrounded by gigantic oceans we
01:05:53
have these gigantic moats in addition thanks to the wisdom of the Monroe Doctrine for 200 years we have prevented
01:05:59
any great powers from getting a foothold in the western hemis Fleet we are completely dominant here and no one
01:06:04
could ever stage an invasion of the United States we only have one one vulnerability just one icbms that's
01:06:11
really it so what are we doing we are basically engaging in a proxy war with the person in the world who has the most
01:06:17
icbms and we are basically putting ourselves on an escalatory path with him this would be like if Achilles had gone
01:06:25
in front of the walls of Troy and basically taken off his armor and stuck his foot in the air and drawn a little
01:06:31
Bullseye around his his heel that's what we're doing the other side in the world
01:06:35
why would we do that why would we do that if they are the last real um threat and they are the Achilles heel
01:06:42
if we can uh they're not the last threat they're not the last threat we're never
01:06:46
going to be out of threats okay well we got two major ones with icbms but anyway
01:06:51
it looks like we're in the end game now what do you think happens here we're not
01:06:54
in the end game we're on a path towards escalation because all the off-ramps have been removed that's my point and
01:06:59
instead of saying instead of trying to find a diplomatic solution first of all we keep removing off-ramps and then we
01:07:05
we blithely disregard the threat to ourselves by saying he must be bluffing this is incredibly stupid questions hold
01:07:14
on a second the better question to ask is what's in it for us what's in it for the United States of America what is the
01:07:20
vital interest that compels us to risk our security there isn't one this Don bass region hold on this donbass region
01:07:28
is the Franz Ferdinand of this situation it is not historically important to us we have invested in it all of this
01:07:36
importance and we are potentially turning a regional War into a World War we are sleepwalking towards this unless
01:07:43
somebody finds an off-ramp we are escalating our way into a much larger conflict that is my point
01:07:49
and I don't see how anyone I don't see anyone should re-enter the markets with this geopolitical risk hanging over our
01:07:54
heads yeah this is kind of like what I said a few weeks ago and JP Morgan put out a analyst report today saying that
01:08:01
they were shifting from being you know call it roughly positive sort of like chamoth's Point earlier about
01:08:08
being a little bit constructive in the markets right now and coming in and finding opportunities to buy
01:08:12
to realizing that the sum of the portfolio of tail risks right now you know outweighs the upside that may
01:08:22
arise from finding these low priced opportunities in the market and that seems to be the prevailing Market
01:08:27
sentiment right now is that there are too many of these moments that while each one of them is low probability the
01:08:36
impact is of such high severity that the aggregate value expected value or expected loss of all of them is actually
01:08:43
quite significant and that is heavily Weighing on the market and so huge amount of point I think and to the
01:08:48
question earlier about market conditions one Catalyst for upside in the market while there is fiscal strain and
01:08:54
economic strain and growth strain there is also this geopolitical strain in the market if one or more of these things
01:09:00
starts to resolve I think that weight starts to come off the markets and you can see look I can see the market taking
01:09:05
off like a rocket if Ukraine gets resolved and I do think you're right it's all fat tail risk that's about to
01:09:11
get resolved I think that can potentially be the political motivation here which is
01:09:16
that enough people like chamoth and you start making the calls to your representatives pointing out how
01:09:23
strained the market is because of this tension in the region right now that maybe there is some path to resolution
01:09:29
that becomes more active rather than passive because of that this may be a little controversial so we can talk
01:09:34
about it but I um think that the markets would have reacted much much more negatively
01:09:41
to a nuclear incident three months ago then now and may not even react as much as we may think it would three months
01:09:50
from now but what do you mean by nuclear incident you may not goes off or just a threat
01:09:57
you're saying if Putin blows up a new the markets may not react that much I think that the markets are
01:10:03
basically um ring fencing Russia Ukraine risk in terms of currency and stability but
01:10:13
that's sort of now gone away we've ring fenced the energy risk because it looks like energy reserves in
01:10:21
Europe are actually going to be pretty meaningful they're going to spend whatever it takes so all of the second
01:10:26
and third order effects it would be a humanitarian crisis which would be horrendous okay but the markets don't
01:10:32
whether we like it or not react to humanitarian crises they react to the second and third order economic impacts
01:10:39
of those things and if you actually try to think about what the second and third
01:10:43
order economic impacts are you're seeing many of those things get solved and so what it would be it would
01:10:50
be a highly isolating effect it would be a humanitarian atrocity he would be completely cornered from a from a
01:10:59
worldwide perspective um the the the monetary and fiscal implications of that um may not be as meaningfully disruptive
01:11:09
today as they would have been three months ago that's what I'm saying well it's one thing I should clarify I
01:11:15
like friedberg's analysis of the fat tail risk because I'm not saying it's likely that this conflict goes nuclear
01:11:20
but I don't need there to be a high likelihood in order for me to be very concerned about it because of how
01:11:27
disastrous an outcome that would be so if you're doing an expected value analysis it's really hard to analyze the
01:11:34
expected value or negative value of a of a low probability disastrous event right
01:11:40
that's the classic fat tail risk I do think that if the markets think they have priced in the effect of this war
01:11:47
then I think that's an argument for a lot of downside to this Market because it seems to me that we're on a one-way
01:11:54
ratchet here all the off ramps for us a piece or a diplomatic solution have been
01:11:59
systematically taken away and all that's left are potential escalations so no I hear you but how do those translate
01:12:06
those escalations to outside of those two countries and into economic terms for the rest of the
01:12:12
world oh my gosh well I mean if the war spreads here I'll give you a couple of scenarios I mean
01:12:17
well here's one I think we're just assuming that China is going to stay out of it imagine if you're China and you're
01:12:22
watching what's happening and you're worried that actually Russia could lose this war so badly that it emboldens
01:12:30
Hawks in America who want to Target China next you know who are basically on This Global struggle against autocracy
01:12:37
you're going to look at that and go wait a second is it really in our interests for Putin and Russia to be completely
01:12:44
toppled by This Global struggle against autocracy it seems to me they could enter the Russian side not militarily
01:12:52
but in terms of support so they would have an incentive again not to lose an ally and then by the same token I think
01:12:59
the Russians could lash out I don't think they're going to go nuclear right away but I think they could pull a
01:13:04
grozny I mean don't you think that is well when you know in the Chechen War when Russia was losing they just rubbled
01:13:13
Grazie I mean they basically level it to the ground so I mean Putin hasn't done anything like that yet but if he's
01:13:18
facing defeat isn't that something that would be on the escalatory ladder is to basically start leveling Ukrainian
01:13:25
cities destroyed infrastructure and then what is the response to the West yeah I
01:13:31
know I know because the West may say you know what that's unacceptable to us I agree no no I I look I'm not debating
01:13:36
how bad all of these things are I'm just asking the question what are the second and third order
01:13:41
economic impacts because the market doesn't reflect human atrocities we may want it to but it just doesn't do a good
01:13:48
job of that it does do a reasonable job of reflecting a discounted set of events
01:13:54
in the future related to economic events and impacts and all I'm saying is that you know the most obvious impacts of
01:13:59
this war have been to currencies to Commodities and to energy and the world has had
01:14:06
six or seven months to reroute what they've needed to roughly solve a large percentage of those problems it doesn't
01:14:14
take the fact that this is a bad war and it should end I'm not saying any of it right right no
01:14:19
I look you make you make a good point which is that look the Market discounts cash flow so how do the cash flows get
01:14:25
impacted you maybe write that valuation multiples have gotten close to correction but I think the thing that we
01:14:32
don't really know is what earnings and profits and revenues are going to look like next year and part of that is about
01:14:37
the hard Landing right like how inflated are all these companies revenues and earnings because of what are you I hear
01:14:45
you but this is why that chart is so important every other time except in 1983 in modern history so the modern
01:14:51
history that we have all lived says that the stock market Bottoms in the first third
01:14:58
of a process and so if you think that this process ends in 24 that's a roughly 24 month
01:15:04
process 21-month process we're in month seven we're in the power rally of what would map to the last six or seven
01:15:12
patterns of behavior yeah I mean I I guess you may end up being right about this prediction I
01:15:19
guess what I'm saying is that I personally would not want to enter the market until some of these fat tail
01:15:23
risks are taken off the table oh yeah well talking about nibbling in the market for a second I'm not saying
01:15:27
they're likely I'm just saying that yeah I understand obviously none of us want this to happen I'm just asking a very
01:15:33
specific question which is and making an observation which is I wonder how the markets would react and I I I don't see
01:15:40
it being down a thousand points and that may be wrong but by the way it could certainly be shocking to to see that
01:15:46
yeah the diversity of views that you guys all share I think really represents the market
01:15:54
what view do you have you too you have a view dude I I'm like what the [ __ ] wow what is your hand no but what is
01:16:04
your view here's your view that we're okay we're about to just go through the toilet like what is your view
01:16:09
from an equity Market's point of view oh just in general yeah like Equity markets
01:16:13
your temperature how do you feel like how do you feel yeah I'm worried about money not moving
01:16:18
what does it mean money not moving I'm really anxious about invested dollars everyone seems
01:16:25
I think I mentioned a while ago that dollars were kind of locked up in March and then I went to this conference and
01:16:30
people were like yeah we're loosening up and making a plan again in July because
01:16:34
the market was kind of turning back up and now Equity markets are turning down Bond markets have turned down interest
01:16:39
rates have spiked and there's a bunch of these currency problems so I'm very nervous
01:16:45
about the flow of capital which I remember happening in 08 and I remember happening when we were all joking over
01:16:52
text when covet happened and we're like hey the market can only go down 10 a day
01:16:56
for so many days in a row and everyone was kind of like you know Jamal was talking about wearing jeans instead of
01:17:03
he's like I could just wear the same pair of jeans for the rest of my life or something that's true demand destruction
01:17:11
yeah yeah he's like I don't need fancy clothes I can just wear the same clothes I have let's go into a storage locker to
01:17:16
pull those clothes out right on sale rent the rent tomorrow the CEO of Laura Piana did send me a note after
01:17:25
that podcast he's like is everything okay [Applause] indicator of economic health is the rate
01:17:35
of rotation of chamat's closet because that is he's like you know what I can take this season off I'll just wear last
01:17:42
Summer's season I would guess that the rate of rotation of chemov's closet is probably
01:17:48
predictive of IPO Market you know what I was I was there last one rotating it I'm
01:17:53
rotating it so maybe that's a good sign the economy is about to read it again I'm ready to take some companies public
01:17:58
no no I'm buying I'm buying stocks because I was at chamat last week and it was supposed to be black truffles and
01:18:03
then he jumped the fence all of a sudden white truffles over my shoulder I was like chef chef chef
01:18:11
all right Lesson Four The Dictator uh the prince of panic attacks the Sultan of science the queen of quinoa
01:18:20
himself so see the Kevin Hart show if you're in San Francisco or San Francisco he's hilarious and uh for Montclair
01:18:27
Ambassador David sacks the dictator himself it's moderate and we'll see you on episode 99. love you guys love you guys
01:18:38
we'll let your winners [Music] somehow [Music] we need to get Mercies [Music]