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hey everybody welcome to another episode of the Allin pod the notorious threesome
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is here doing the show solo today threesome thle it's a thr it's a thle we have a thruple I think it's more like a
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cuddle puddle okay the dictator chamoth poopaa Rainman David Sachs sulan of science Dave fredberg happy to be here
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with you guys today we are absent jcal taking the week off any other housekeeping let's do it let's jump been
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to it well you announced that we're going to hire a CEO right oh let's talk about that how's it going freeberg in
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our CEO search okay I got to admit I've had a few conversations but I got to get
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through the list there are 240 applicants so far wow wow and there's some really like great people in there
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so we need to figure out how we're going to manage this but I think we're pretty
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excited I can't believe so many people want to work for us that's insane there's some really great folks I think
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the Jim you posted it and people were pretty positive right generally positive not everyone it was it was really
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positive yeah I mean I think that people were very excited about the fact that we were
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going to try to kind of like professionalize us a little bit more so let's just talk about that we did The
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all-in Summit in September we thought it went really well folks really enjoyed it the
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survey data the folks that attended was really positive so we we want to do that
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and do more of that live inperson stuff we all have full-time jobs and other things to do so we need
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someone to come and run this as a business and organize it and Carry It Forward a little bit for us and so we're
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really excited to hopefully get someone that can scale this no ads ever no subscription fees nothing's going to
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change about the Pod so it's a media and events business and it might become a cpg business as well
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meaning was it cpg's consumer package Goods that's right TXS you're that is the correct use of the acronym
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David congratulations your first product uh would be what tequila I would do like a tequila or
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like a hard Seltzer or something like that that seems to be a big growth category or we could figure out
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something very orthogonal I mean Mr Beast did candy bars and we found out at the all Summit that he's doing something
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like 250 million a year in Revenue growing very fast yeah we could do saxs nuts the sax nuts be too big to eat you
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wouldn't to fit them in your mouth Jamal they just be old and salty let your win
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ride [Music] David we open source it to the fans and they've just gone crazy [Music]
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with well I think the other thing that's worth figuring out is this idea of like
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what is what does the community really look like I think that's the biggest that's the biggest upside for the CEO is
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like is it physical places like zero Bond or is it virtual sort of like Community oriented things is it some
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combination of the two I'm really interested in trying to figure that out and and what answer they come up with
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then the other thing that I would really like to experiment with quite honestly is if we could do a little bit of a tour
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I just think it would be super fun to kind of go to like five or 10 cities and just kind of like crash those places and
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have like a big get together and talk to people and do a big Q&A I think the thing that is really fun is just the
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interactive Q&A just because it allows everybody to get involved and then to be able to do dinners with each other and
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like there's just a really amazing community so that person should be able to figure this out I don't know the
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answer to it but I I'm hoping they figure that out we should give a shout out to the guy who did the interview
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video or submitted you see that that's like a 4-minute video that somebody submitted
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his by video on on X I think I was on his podcast Sean you were I was on his podcast like a year and a half ago I
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think can we pull it up welcome welcome to my five minute job application to become CEO of the all-in podcast this is
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the American dream baby that's great well he posted a tweet the day before saying if it gets a
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thousand likes he'll submit an application and instantly got a th likes and then he put that video together so
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great job Sean I will be calling you later for your second round interview I think you're well qualified after that
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submission but I do remember like at the all-in summit I've never been to a conference where I'd say like 95% of the
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audience was actually in the theater for the entire content session like they really sat through it it was really
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engaging so I think that's the sort of product that I'd love to bring bring out more which is some of
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these important conversations with people that can provide a perspective that folks might
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not be getting elsewhere Jam you also mentioned on Twitter that you're doing more content like you're you called it
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learn with me what is that yeah I mean well I've been doing this for a while but I just wanted to wrap it up and kind
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of make it into a clean kind of produ eyes service so you know I have this newsletter that I've been using weekly
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to just kind of share everything that I read but then I thought okay why don't I
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actually like really invest just a little bit of time every week to curate that even a little bit more and then
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write little summaries of probably the three most important news topics of the week and I just kind of give an insight
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into my process so when I read all of this stuff usually two to three times a month but the average is around twice a
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month I end up writing an essay and it's like one or two pages really quick and I
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just keep them for myself and it's like right now I'm just I just finished one what is the Federal Reserve and the
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reason I did that was because dren Miller was on TV and was talking about all this stuff and I just wanted to
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remind myself about why the Federal Reserve exists the way it does but basically what happens is from these
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quick essays and from what I read I typically start every month a deep dive where my team and I we probably
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allocate at least a month to a month and a half where we figure out something in
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really excruciating detail and we generate a slide deck and a write up and then we take that and we go and we ask
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bunch of experts what they think and then we only keep it within ourselves but then I thought you know what why
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don't we just start sharing it so the reason I'm doing this is really to keep myself accountable to keep learning
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because I feel like in the last few years the thing that I lost most when things were going crazy was just the
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incentive to learn and I thought if there are other people around me that are also relying on this I'll be more
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accountable and obviously to the extent that this thing can actually be self funding then I can take some of that
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Revenue reinvest it in more research Associates maybe publish more content but it's kind of like all the
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information I wish I had so that I could make better decisions I'm just going to
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kind of take what I have share it with everybody and kind of go from there so we'll see so you're charging for the
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kind of higher end part of it at the end of it like it's kind of like I would say
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most of it is free the Twitter spaces obviously is not because the point of these or these X spaces is we just don't
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want a bunch of bots controls but there's a bunch of people that signed up to be a subscriber so we'll do q&as
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monthly for subscribers and then once a month I'll publish a deck and like I said if you want the full one then you
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can be part of like a paying Community otherwise you'll get some portion of it for free and then you'll have cash to
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reinvest in doing more content is that like right now I have a couple of research assistants that really help me
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and we have a pool of experts that we use but if this thing picks up some steam and we can have enough Revenue to
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hire three or four more ra maybe at some point instead of monthly we can go by weekly I don't know but the
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idea is just to focus on sort of what I think is interesting so that I can have a general view of of things so that I
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can make better decisions and like I said to the extent people are interested now they can follow along at any level
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there you have it so people can go to your Twitter to see it right yeah okay by the way the other thing is it's kind
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of cool to be in this like content creator economy you know that's the other thing is like I don't know about
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you guys but I feel like I'm on the sidelines looking in at Trends now whereas before I was in the middle of
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them like Web 2.0 social I was right in the heart of it and I was like okay this
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is amazing and then as an investor in SAS and deep Tech I was kind of in the middle of those as well that felt great
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but this last push in AI I'm like wow I'm really on the sidelines looking in or this content creator stuff so I think
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it's it's a good forcing function for me to kind of learn as well to be active in
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the content creator economy basically to understand it better yeah I don't know how else I'll ever learn how to because
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like I I could read all the stuff I want just so you know you do a podcast that a
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lot of people listen to yeah but I think that that's like a it's the lowest order
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bit quite honestly you know when you see like what Jimmy Donaldson does or even like Kim Kardashian what
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they do as content creators it's just an intense process that then creates all this upside so even if what I want to
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have a more informed view of where Allin needs to go I want to be a little bit more on the ground and actually in the
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engine room doing it for myself yeah since we started doing the Pod sax has been creating a ton of content too I
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mean saak you wrote a piece this week didn't you and on Ukraine or like the the time article on Ukraine didn't you
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yeah yeah like you weren't doing a lot of content before we started doing the Pod right no he was he was writing like
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a lot of blog posts on SAS those were excellent he had like an occasional blog post but he's like super active now
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particularly on Twitter no like has that changed a lot well what basically happened is I
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would Express political views on the Pod you know on a weekly basis and I wasn't
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really tweeting much about politics but then it all kind of bled together I mean
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once you start talking politics on a pod people were clipping it they were putting it on Twitter and then I have to
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respond to it maybe correct yeah Mis interpretations or respond to ATT or whatever so it all the politics and
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business stuff just kind of bled together on Twitter it' be nice if I just had two accounts and people could
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just follow me for what they wanted to follow my substack is just business and then I'll occasionally write an oped on
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the political stuff so I've written a few on free speech and then I've written a few on Ukraine and so I wrote a piece
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for responsible statecraft this week on Ukraine which was based on a Time Magazine story that came out and then I
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did a version of it on X kind of a long post which I called the Ukraine Wars kronite moment which descri the the
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kronite moment in the Vietnam War was that Walter kronite who was the top newscaster America's most trusted man in
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the 1960s he went on a fact-f finding mission for himself to Vietnam and he came back and he said the war is
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basically unwinable and that's when the public sentiment really turned against the Vietnam War it still took us 5 years
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to get out of bit but what kronite said there's a great quote from kronite which
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I included at the end where kronite says it is increasing clear to this reporter
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that the only rational way out will be to negotiate not as Victors but as honorable people who lived up to their
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pledge to defend democracy and did the best they could so that that's basically what happened in 1968 what happened this
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week is that Time Magazine wrote a cover story on zinsky where the main sources for the story were all of zelinsky's
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AIDS and advisers and what they told the time reporter was effectively this war is unwinable and moreover zalinsky is
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delusional that was a word they used delusional in in not confronting the battlefield realities that the Ukrainian
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Army had been decimated and delusional in the sense that he refuses to engage in peace negotiations with the Russians
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he's utterly unmovable on this idea that Ukraine's going to somehow Prevail and the troops in the field are basically
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saying that they cannot follow the orders they're being given they literally they can't Advance they're
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being ordered to advance and the officers in the field the Frontline commanders are rejecting the orders
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because they've been decimated so badly and they they consider the orders to be impossible so I consider this to be the
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kronite moment of the war when zelinsky's own Inner Circle is saying that the war is lost and the only
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question is when are we going to realize that and start negotiating are we going
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to continue until the very end here with zinsky in this psychological bunker that
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he's created or are we going to recognize reality the way that kronite urged the
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nation to in 1968 do you think these AIDS to zalinski proactively reached out to the
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journalists to try and get this story published how does a story like this come about that provides this kind of
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revealing Insight on the supposedly inner chamber in zinsky operations that can shed so much light on the challenges
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and with him and with the operation really interesting question and I think the starting point for understanding
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that is that this writer Simon Schuster of Time Magazine wrote the in-depth profile zinsky for times person of the
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year at the end of 2022 so this reporter cannot be accused of unor this this is the person that
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profiled zinsky as person of the year yes yes exactly oh wow so so they so through that he probably had contacts in
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zin's inner circle and doing his Preparatory work for that article back then absolutely yeah and maintained
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those relationships and has a back Channel now to be able to get this sort of insight well he was physically there
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I mean I think he was physically there to write the person the your profile and he was physically this isn't some like
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weirdly planted this is like a legit source well that's my whole point is that this this reporter is and and Time
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Magazine obviously is mainstream media and this writer has given favorable coverage to zalinsky in the past and I
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believe that's what led to him having this kind of access to zelinsky's Inner Circle so you have to take all of that
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into account the key question Sach is does this change anything so does this article change the sentiment of
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political leaders in the US or is nothing really different that we still need to defeat Putin continue to feed
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the war machine continue to support the effort against Putin or does this start to beg the question hey maybe we need to
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look at this tactically and and make a change is anything actually going to change from any reason to think that in
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a certain sense this article isn't saying anything that's new I mean the article basically says the same things
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that I've been saying the same thing the same kinds of things that Professor Mir
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shimer has been saying Professor Jeffrey Sachs the all the critics of this war have been saying these things for a
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number of months which is the Russians are winning there is no feasible way for the ukrainians to evict the Russians
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from their territory we are out of artillery and other types of ammunition to give them effectively the war is
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unwinable we should negotiate so a lot of people have been saying that for a long time but what's different now is
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that if you believe this publication and this writer which I do because of his access it's zelinsky's own Inner Circle
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are now saying those same things so in other words the so-called Putin talking points that we're always accused of are
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coming from inside the house yeah and to me that's what makes this a kronite moment now will policy makers in
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Washington changed their tune or Chang their perspective on this probably not the uni party of both Republicans and
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Democrats are still seems to be a majority who want to fund another 61 billion for Ukraine so is this
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penetrating The Blob I don't think so I mean but again think about Walter kronite in 1968 the country basically
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came around to his point of view after that but it still took five years to get out of the Vietnam War so I think that
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this week was a Watershed in terms of the way that public perception is going to evolve over the next few months but
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it seems like the policy makers in Washington are the last ones to get the MEO well let's see what happens I mean
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I've shared my point of view for a couple of years now I think the US is in a call it subconscious conflict
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escalatory state that would continue to drive us into these sorts of it's great for
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markets seems to be great for markets conflict is great for markets you're saying no no no no the the fact that it
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seems like there's a terminal outcome and all we're debating is whether zilinsky sees it is actually
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very reassuring for the market oh you think the markets you think the markets recognizing that there may be an end to
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the Ukraine conflict well I I do think I I do think in part I don't think it explains why it's up necessarily today I
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think that's more because I think I I mentioned this before but the end of the fiscal year for m UT funds was October
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31st and so there was a lot of selling going into October 31 just to capitalize tax losses and tax loss Harvest but that
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leaves them with a lot of cash and so starting November 1st which is day one of the new fiscal year mutual funds are
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not allowed to really own cash that's not why you pay them and so they're going to be active buyers so that's why
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in the short term the market is up but if you think about the overhang of risk that we've
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had right you had one Forever War and now the beginning of what potentially could be another Forever War that's
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definitely a dampener on market demand right and and and sentiment and investor confidence but if a story like this is
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true it actually takes one of those big risks off the table which is this idea that now it's like every other kind of a
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thing which is it's the reason we spend money there is not to win something that's winnable it's just graft it's
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just typical corruption and the article says that quter Ukrainian officials saying that people are stealing like
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there's no tomorrow right right so that that the US unfortunately enables in many places that's not new and so to the
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extent that that's now more of the status quo that's reassuring for investors because we're not talking
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about a war we're just talking about bleeding more money which I'm not saying is right but
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it's morally more acceptable than the alternative so there you have it it's generally good for markets now that
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leaves I think Israel Gaza as a risk and I think people and I think the markets still view that as a potential
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War and the longer that goes on I think that there's a very good chance that we drisk that as well as
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again not a war but part of that cycle between Israel and Palestine which is conflict timeout conflict timeout
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conflict timeout and so if what we think is now this is just a version of conflict timeout and the market Dr risks
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that then it's actually pretty positive for equities for startups because now the
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FED has a reason to actually say okay the economy is cooled off inflation is calm it looks like the markets are
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stable let's cut rates right let's let's reintroduce some demand into the market
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it's generally a good thing and if if there's no reason to be risk off people will use that as a reason to be risk
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on yeah well treasure yield the 30y year cracked is yeah it's down uh cracked days0 days or three days yeah so
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don't you think this is because the forecast or the outlook for Q4 or q1 next year it's starting to go down quite
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a bit that people are starting to see more recessionary indicators so you had this like Peak four .9% growth rate and
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then inflation seems to be tamed quite a bit too I think to be honest the look through on q1 looks also pretty good and
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Q4 looks healthy as well so for example Shopify their read through on GDP was actually pretty healthy hary was on I
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think it was CNBC I saw this morning basically saying he thinks consumer spending is still strong and it's still
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there so I think in terms of just like economic strength I think it's pretty decent actually I think what Chang for
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the market was the fed's rhetoric and I think that they were holding on to this option that they were going to show up
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out of nowhere with another 25 or 50 basis point increase and I think that that's fundamentally now off the table
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and I think that that's really hardening for the market that's good for the market grow stocks are ripping a firm
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tuner are up 20% today ripping ripping ripping open door ripping door Dash ripping all these companies are up 20
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and 25 and 30% it's crazy yeah so are we calling bottom stxs well maybe I mean I don't know it's
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so hard to predict the markets but if you believe that there's more upside to rates than downside
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meaning that the odds of a rate decrease are much greater than the odds of a rate
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increase from here then there is upside to valuations particularly for gross stocks also for distressed real estate
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because all these things get more valuable when rates are lower so if you believe that we're going to be in a in a
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cycle of rate decreases and that whole thing has played its way out then everything's going to Rally well let's
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talk about real estate because I think that's one of the biggest overhangs right now that hasn't fully been
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accounted for there's you know $3 trillion of commercial real estate loans sitting out on Commercial Banks balance
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sheets in the US today 3 trillion it's an insane number and we were all talking over T
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the other day as you guys know about this building that's being shopped and got some attention on Twitter I think
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the it's 115 samom you guys know this building I've lived in San Francisco for 20 how long have I lived there 20 some
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odd years now so I know this building and it's 125,000 foot building that's going to likely be fully vacant
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in call it two to three years so the guy puts it up for sale the equity owner he
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puts the building up for sale and he's basically like running auction on it and the Brokers are all saying hey it's
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currently at 199 bucks a square foot which translates to $25 million it'll probably get done at 300 bucks a square
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foot which is about $38 million for the building the problem is if you look at the debt on the building there's 53
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million of debt B OFA owns that note so Bank of America in 2016 issued a $54 million note on this building if this
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deal closes at $39 million the equity owner who's running this auction to sell the building makes 0 all that happens is
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that money pays down the debt and the debt only gets 7 cents on the dollar and B of A has to take a write down on the
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rest so there's a rumor that in this particular case what's happening is the equity owner of the building is putting
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it up for auction to show the bank hey this thing's only worth 7 cents on the dollar for you on your debt you should
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restructure my debt so apparently there have been a lot of building owners that have been going to their Bank and saying
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Hey I want to restructure my note I want to have longer payment terms I want to keep the rates lower for longer I want
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to have some of the debt forgiven anything they can do to get the cost of the debt down because the overhang of
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the debt on all these buildings is so significant these buildings cannot make money and the owners will never make
00:24:14
money so they're like why am I even wasting my time so they have one option which is to hand the keys back to the
00:24:19
bank and say here you go you auction it and sell it good luck and the other option is to go to the bank and say hey
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restructure my debt let's figure out a deal here's the problem the $3 trillion of debt that we just
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mentioned that's sitting on all the bank's balance sheets is all being held at par they're not discounting it at all
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and they're not marking it as being impaired in any way so as soon as they have to start writing this stuff down
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the bank's balance sheets all get impaired and so there's a real risk in the market that I don't think's been
00:24:45
fully accounted for that we're starting to see the cracks and to chim's point this might accelerate either fed action
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or as I've mentioned in the past I think the federal government steps in and starts to issue programs to support
00:24:58
commercial real estate developers and owners SX I know you've been following this quite a bit you know maybe you
00:25:03
could share your point of view and if I'm off on this in terms of how significant of a problem this is how you
00:25:08
know how much of the three trillion of debt really is impaired and by how much should it be impaired do we think
00:25:13
massively I think it's a huge problem if you talk to anybody any of these uh commercial real estate developers or
00:25:20
sponsors they'll tell you many of them are just kind of hanging on by their fingernails I mean it's really ugly and
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you know how dist things are when you actually look at some of these sales that same account on Twitter that you
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posted he's got like a a tweet storm here showing about half a dozen of these sales that have happened in the last few
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months and buildings are now selling for $2 to $300 a square foot in San Francisco these are buildings that could
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have sold for a th000 bucks a foot you know a couple of years ago and now they're selling for 2 to 300 the
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replacement cost if you were to try and recreate these buildings from scratch given how expensive it is to build in
00:25:57
San Isco and how complicated the entitlements process is probably be 1,200 plus a foot so these buildings are
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selling for 10 to 20% of their replacement cost these are fire sales if you look at
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the loans in the in the San Francisco commercial real estate market do you think that the loan value is probably
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impaired by 40% because that's roughly what it would say on that 115 Sansom building is BFA would probably have to
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take a 30 40% markdown on their debt do you think that's the right way to think about the numberers 30 to 40
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you could figure it out this way a typical commercial real estate deal is about 13 equity and 2/3 debt so somebody
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bought a building at call it $1,000 a foot they would have had to have put in call it 333 of equity 666 of debt yeah
00:26:43
now if that building is only worth I don't know 200 250 a foot there's $750 of loss per foot right and only 333
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roughly half of it is equity so the debt is taking a huge haircut there too yeah
00:27:00
debts about 40 50% right yeah and no one wants to recognize that loss the equity
00:27:05
holders certainly don't because they get wiped out and even the banks are reluctant to recognize that loss because
00:27:10
who knows what that could trigger when their balance sheets are so impaired so what where these people gonna come from
00:27:18
suck where they where like this is my this is my big problem with this argument is I I think that numerically
00:27:24
you're right that there is this bottoming or there is just like a lot of value to be had right the the problem is
00:27:32
and I'll and I'll give you an example of a company that I own so it's not even a
00:27:36
company that I'm just a minority investor in we used to be in San Francisco and we went virtual now all
00:27:45
the salaries are pegged to San Francisco salaries but now everybody's sort of like everywhere throughout the country
00:27:50
we don't have an office space and I'm really struggling trying to figure out how to actually bring everybody together
00:27:57
and my choices were I thought okay well let me find what it would cost to actually run this place in San Francisco
00:28:03
and my my Opex would have gone up 15 20% just for the building so then I'm like okay well where else can I go and it's
00:28:11
like well I could go to a place like Las Vegas and I could put the people there it's an hour so it's close by we
00:28:19
can fly there whenever we need to it's got no tax so maybe that's an advantage for the
00:28:26
employees and so I'm in this constant hamster wheel as an owner of a business I can't get people into the office if I
00:28:32
do bring them into the office it's super expensive and it bloats my Opex so I'm just trying to figure out how does that
00:28:39
get resolved for people like me so that we want to go back to San Francisco and rent those buildings that are so cheap
00:28:45
those buildings are going to have to get written down first so I set up my company in 2006 and I was paying $22 a
00:28:51
square foot for my first office in '06 and then we ended up getting a really nice office and I think we ended up
00:28:56
paying like3 to 40 bucks a square foot by the time we move to a super nice office around
00:29:03
2010 but around that time which was also when GFC happened the global financial crisis in 0809 and that's when rates
00:29:10
dropped to zero and that's also when all startups and tech companies said hey let's start setting up in San Francisco
00:29:16
because it's mostly young people that are Engineers now they mostly want to live in the city they mostly want to be
00:29:21
single and have a good life here rather than go live in Suburban Silicon Valley and so real estate shot up because rates
00:29:27
were zero all the tech companies were setting I mean sax you had Yammer in San Francisco didn't you were you in the
00:29:33
peninsula yeah yeah and that was like the place to have your company was in the city and so I would argue like if
00:29:39
you go back to the ' 0809 era that's really when San Francisco started to take off and it was almost like a bit of
00:29:46
an outlier of a bubble that started all the way back then and then you know the Zer environment kept things moving up
00:29:51
and up and up over the years that followed I do think that this like this Market will likely normalize back back
00:29:57
to pre 2010 pre 09 and that's when rates were like in the 25 to 35 bucks a square foot range
00:30:05
for you know but are you saying that I will move back to that building and I'll and I'll move my company back there when
00:30:10
it gets repriced yes I do think so are you sure I don't see how I don't see how the market stays where it is yeah jamas
00:30:17
argument is basically on the demand side basically saying where is all this demand going to come from I think you
00:30:21
could give it to me for zero and I wouldn't bring my team back there I'm just asking like again the math all
00:30:26
makes sense on a spreadsh but the big issue is as an owner of a company why would I ever bring my team back to that
00:30:32
place and I'm struggling even at like Oh you mean because it's a nasty City because it's all messed up the city's
00:30:37
messed up first of all what if you're if you're asking me to blow my Opex 10 20%
00:30:42
the answer is absolutely not will I do that then if you're saying well chath how about at zero let's just go to zero
00:30:48
right it's free take the building yeah I still wouldn't do it because then these
00:30:51
people have to move from all around the country come back here and all of a sudden just live in a slimy dungeon
00:30:59
yeah so how does that get solved so that building should be zero Zach do you own
00:31:03
buildings in San Francisco what's your answer as a landlord yeah I only own buildings in Jackson Square which is
00:31:08
like the one decent part remaining of San Francisco and which is actually where people want to be and we've seen
00:31:13
pretty good leasing activity there because it's as people get driven out of Market Street and out of s they actually
00:31:20
they substitute to Jackson Square look I think Jam makes a good point which is the demand picture for San Francisco is
00:31:26
really unclear there's something like call it 30% vacancy so there's an enormous number of these zombie
00:31:32
buildings and it's really hard to understand where the demand is going to come back to fill them now the
00:31:39
counterargument to that is yeah but it's so cheap I mean these buildings are so cheap they're basically selling for
00:31:46
almost land value that's Jam's point it's like it goes to zero yeah so if there's a recovery then it's very
00:31:52
asymmetric right I mean you could get three or 4X upside on your money very very quick quickly rates come down over
00:31:58
the next couple years you could refile your Equity out so that's the counterargument is yeah we're not
00:32:04
exactly sure where the demands comes from but if you are willing to have a long-term Outlook like five or 10 years
00:32:11
then there's a pretty good chance that it'll come back somehow I think one of the things that has to happen in order
00:32:17
to Foster that demand is for there to be some fundamental changes in the politics
00:32:21
of the city and the question is how does that happen and I think one of the ways
00:32:25
it could happen is the city starts facing huge budget shortfalls which are coming there a there's going to be a
00:32:31
huge budget shortfall over the next year and next couple of years because there's
00:32:35
no activity I mean a third of the economic activity of the city has just dried up and what about the rest of the
00:32:41
country so tell me like if if this is what's happening in San Francisco what's happening in Boston Dallas New York City
00:32:47
well I don't think those areas are as impaired they don't have the vacancy rates that San Francisco does I mean so
00:32:52
if you look Major Market has 30% so just coming back to my prior question if you
00:32:56
were to assume San Francisco commercial real estate debt is impaired on the order of 30% what do you think the debt
00:33:03
load for the for all commercial real estate around the country is impaired is it 10% 15% 20% I don't know I mean I I
00:33:12
think that you probably for San Francisco I'd say probably half the debt should be written off I don't know what
00:33:18
it is for the rest of the country there's already half a dozen these buildings that have traded in the range
00:33:22
that we're talking about and there'll be about 20 more that are coming to Market
00:33:26
that'll trade in the next year it's going to be fire sale after fire sale and you you have to clear out all of
00:33:33
this bad equity and then you've got to clear out all this bad debt and the market can reset itself look chath has
00:33:40
has asked the you know $64,000 Question here which is when will the demand come back and what will it consist of and
00:33:48
that is the leap of faith here that you have to make just to finish the point I was making the city the politicians are
00:33:54
going to be under extraordinary Str stress because there's not going to be any budget so what are they going to do
00:33:59
are they going to lay off half the city employees reform pensions and salaries or are they going to start to realize
00:34:07
that all of their crazy transfer taxes all their crazy regulations and entitlements need to be stripped away to
00:34:13
start fostering real activity in the city are they going to start investing in police again are they going to start
00:34:17
cleaning up the city are they going to act as a partner to business I mean that's where the incentives are going to
00:34:23
be is for them to start acting like a partner again and that's a huge leap of faith given how crazy leftwing the
00:34:30
politics of San Francisco have been but they may not have a choice because it's going to come down to do we fire half
00:34:36
the government employees or do we start working with business instead of driving
00:34:40
them out of the city I don't want to get too caught up in San Francisco politics
00:34:44
and San Francisco as a region I think you know we' we've hashed that one out but the bigger question is if there's
00:34:49
this impairment on three trillion dollars of commercial real estate debt across the country who eats the loss so
00:34:56
who owns all the equity in these buildings and where does that ultimately flow through to what are the second
00:35:01
order effects and who owns the debt and where does that all flow through to we know the debt sits on the commercial
00:35:06
Banks do the bank stocks get beat up the Market's been cognizant of this folks have been shorting and selling Regional
00:35:13
Bank stocks and then Bill gross the well-known Bond Trader used to run Pimco came out this week and said hey I've
00:35:19
been tracking all these Regional Bank stocks they're down so much it's insane they're they're trading at a huge
00:35:25
discount to book I'm going to start buying and then this morning he put out a tweet saying I'm buying these stocks
00:35:30
and he listed the names of the bank stocks he's like the Bottom's been hit do you buy that I mean is is this
00:35:34
already been priced into the market that this debt is going to be written off at
00:35:38
some point and all these balance sheets are impaired because these banks are trading at a big discount to book value
00:35:42
so well book well Book value is a term that you need to put in quotes so my question would be what are the rules
00:35:48
around the real Mark to Market because I think that when we talked about the banking crisis the biggest problem was
00:35:53
these guys were playing fast and loose with valuations and so are these things actually valued to Market and do they
00:36:01
have to they're not yet no that's the point that's why they're trying to avoid these sort of these book values are
00:36:07
ilate yeah and that's why they're trading at a discount but Bill gross is now saying they're trading at such a
00:36:11
discount to whatever the accounting is that they're like now well below the fair value that's the argument for San
00:36:17
Francisco real estate I sorry that at least for these fire sales that are happening yeah well SX let me ask you
00:36:23
one more question so I mentioned the Biden program Biden announced this program which is effectively $45 billion in
00:36:30
federal money to convert commercial buildings into condos and residential buildings he basically relies on a 1998
00:36:38
transportation and infrastructure bill that provides authority to the federal government to issue low interest
00:36:43
interest loans for specific infrastructure projects if you're a developer is it realistic that this
00:36:49
money is going to unlock potential for increasing affordable housing density in urban centers by converting Office
00:36:56
Buildings into residential buildings people talk a lot about these office to residential conversions the problem is
00:37:03
it's easy to say and much harder to do most commercial Office Buildings don't meet the structural requirements or
00:37:10
architecturally they're not really suitable if you think about most commercial Office Buildings they've got
00:37:17
really big floor plates and if you think about like restructuring them into Apartments there's not proper window
00:37:22
coverage there's not proper utilities so it's a lot hard than it sounds and I'd say most Office Buildings don't meet a
00:37:32
lot of the requirements for this but I think what's good about this executive order even though I don't really believe
00:37:38
this is a great use of 45 billion is that it's sending a signal to all of these cities all these local governments
00:37:45
that we need to get with the program here in other words you've got you know a blue executive sending a message to
00:37:51
all these blue cities and states that commercial real estate is in distress and you need to loosen up your
00:37:57
entitlements you need to loosen up your regulations it's sending a message to the city of San Francisco and all these
00:38:03
other cities that you guys need to start doing positive things and this is my point about will San Francisco start
00:38:13
acting like a partner for Real Estate development which is how you make real estate work or will they continue to
00:38:19
drive all of these crazy regulations so I I mostly see this Biden program as symbolic I see but the question is
00:38:26
whether the symbolism will actually drive better Behavior by these blue cities I
00:38:31
personally think they're just trying to find more ways to pump money into supporting commercial real estate
00:38:35
markets because of the issues we just highlighted and I think this is the first of what will likely be several
00:38:40
programs to support framed as things like affordable housing but really designed to support the economic loss
00:38:47
impairment that's going to be inevitable at some point right but but you know you
00:38:50
can't you can't convert an office building to a residential building without resoning typically totally yeah
00:38:56
yeah then this is where you need action by these City governments they've got to
00:38:59
reone they've got to reduce the regulations they've got to eliminate these transfer taxes um they have to
00:39:05
make these project yeah exactly they have to make these projects economically viable I think that we'll be able to
00:39:11
look back in San Francisco will be an incredibly measurable experiment on the return on invested
00:39:22
capital on the return on invested capital of Progressive left ideology and it will be a great case
00:39:32
study now if it works it will prove that all of these ideas that were kind of talked about in kind of like high
00:39:41
intellectual circles has some value and if it fails which it looks like it's failing it'll
00:39:48
never be tried again for a very long time either way you're going to have a very clear answer and the good news is
00:39:53
we're we're probably another five or 10 years away from that bottoming well actually can I ask you a quick question
00:39:59
Jam so there was a article here saying that the city Controllers Office for San Francisco has released its projected
00:40:09
budget shortfalls for the coming years it's almost half a billion for 20242 reaching 1.3 billion in
00:40:18
2728 so what do they do about this I mean they money they'll borrow money and you you can look at all of these other
00:40:26
municipalities around the country as examples but counties and municipalities and cities that are in much worse fiscal
00:40:33
shape than San franisco was able to stay incompetent for a lot longer and so that
00:40:39
Delta te of incompetence tends to be about 5 to 10 years I would say the midpoint is eight so if we're starting
00:40:45
now you'll probably see some rationality by 2032 2033 right that's how much borrowing
00:40:54
David I think you can tap in the in the mun Market because you know again this is sort of the the double-edged sword
00:41:01
right like when you're a Triple Tax advantag borrower you can paint the case for being in San Francisco which is part
00:41:08
of California etc etc etc and your alternative is to own something in a state that's not nearly as economically
00:41:15
vibrant it's a pretty easy case to make to be able to borrow the money I think and so the problem is that it'll take
00:41:20
like I said another probably eight years 10 years so before the the spigot gets turned off and they have to make some
00:41:27
harsh changes so they'll keep running this experiment for at least I think if you want to be conservative for at least
00:41:32
a decade another decade so they'll just pile on the debt until pile on the debt absolutely I don't want to keep harping
00:41:39
on San Francisco let's let's move on to we work because we work feeds into this real estate piece I don't know if you
00:41:44
guys saw this article that U Wall Street Journal reported that we work it's going
00:41:48
to file for chapter 11 as early as next week they have a significant debt burden
00:41:53
owed to SoftBank Vision fund as part of their go public they've signed leases in
00:41:58
Office Buildings in San Francisco and elsewhere around the country $10 billion in total lease obligations due starting
00:42:05
in the second half of 2023 through the end of 27 and after that an additional $15 billion starting in 2028 and as of
00:42:13
June we work had 70 777 locations including 229 in the US in major cities the business made about call it 840 million
00:42:24
bucks in Revenue last quarter so that works out to call it a $3.5 billion Revenue run rate with you know
00:42:31
$10 billion of lease obligations starting next year so the business is just drowning in these lease obligations
00:42:36
and to restructure 777 lease obligations in this environment that we're talking about while doing what jamat is saying
00:42:44
lowering rents to attract employers to show up and actually rent space from them is obviously causing the business
00:42:51
model to distort even worse than it has been historically they burned $8 billion
00:42:55
doll of preash flow in since Q4 of 2019 8 billion of free cash there's no question that that wework has been a
00:43:04
capital destruction machine that being said I actually think that some private Equity player is going to buy this out
00:43:10
of bankruptcy and make a fortune I agree with that too because out of those 777 locations a lot of them are good
00:43:19
locations and have good tency they probably generate good Revenue the problem is that the leases are just bad
00:43:27
and bankruptcy gives you the power to break those leases or renegotiate them so a really smart private Equity player
00:43:33
would come in here and say okay we're going to take these locations we're going to divide them into three buckets
00:43:37
bucket number one is we're going to get rid of them because they're just bad locations we don't want them there's
00:43:42
just no occupancy bucket number two is we're going to go to the landlord and say that sorry like this lease doesn't
00:43:48
work for us we will be willing to work for you as an operator of the space and you'll pay us a fee and a REV share on
00:43:56
whatever it makes but we can't pay you a guaranteed rent so that's bucket number
00:44:01
two and then bucket three which will be the best locations they'll go back to the landlord and say Here's 60 cents on
00:44:06
the dollar we're willing to pay you this in in rent that's it if that's not good
00:44:10
enough for you we're breaking the lease we're out and those landlords are going to have to accept it because who they
00:44:15
going to get who's any better and they don't even have the ti they don't have the capital to put some new tenant in
00:44:21
there and even if they could put someone in there it's not going to be at a rent
00:44:25
that's much higher than 60 cents on the dollar because we work made a lot of these top of Market leases so I think
00:44:32
the landlord will take the bird in the hand so think about it some private Equity player goes in there renegotiates
00:44:37
all these leases sheds the bad ones and all of a sudden the business is going to
00:44:41
make a lot of money and the reason why it's going to make money is because we work poured all of this uh Capital into
00:44:49
renovating these spaces and making them really nice I mean if you go into a Wei work they are really nice spaces and the
00:44:56
reason for that is because we work spent billions of TI dollars making these things incredibly nice was that a wise
00:45:04
investment no it was a terrible investment but that money has been spent and already lost that that Capital has
00:45:10
been wiped out so whoever buys this thing out of bankruptcy now is going to be the beneficiary of all of those
00:45:15
absurd TI dollars that were spent when Adam Newman oh my God you just convinced me let's go buy it let's put it in a bid
00:45:24
is it filed is it filed the Brilliance of Adam Newman was somehow convincing wow all these investors to put in
00:45:32
billions of dollars into TI money on the theory that it was a software business this was never a software business it's
00:45:38
a real estate development company it was reges it was reg it was so I got soft Bank put in a total of $16.9 billion in
00:45:49
equity and debt oh my gosh is that incredible who did oh my gosh sof sof which is mostly through the vision fund
00:45:57
which is as you guys know 45% Saudi money it was Regis with much better design but that design came at a huge
00:46:03
expense which was again this overinvestment in in TI dollars combined with the fact that they had no
00:46:10
discipline around signing leases and they have so many topof Market lease deals yeah but again that's all fixable
00:46:17
for someone who comes in old saying in real estate that it's the third owner who makes all the money like the first
00:46:23
owner who does all the ground up they lose a fortune and they blown out then the second guy comes in and thinks that
00:46:29
they're going to make it work but they can't make it work either so then they get blown out and it's finally the third
00:46:34
person who comes in who makes all the money and that's gonna happen here too oh my God that's just fantastic this is
00:46:40
a story of the ages let's transition from one bubble to the most recent bubble so AI regulation given the frenzy
00:46:47
and frothiness and fear-mongering on AI destroying the world which I would personally argue as largely fear
00:46:56
porn the Biden Administration took it upon themselves to try and be leaders in regulating Ai and published an executive
00:47:03
order on October 30th this long anticipated executive order covers a very broad range of
00:47:09
matters in 111 page order document covers very specific actions in very detailed terms it uses technical terms
00:47:16
of Art and I think it creates as much confusion as it does provide Clarity it's an executive order so it's not
00:47:24
legislation and there's much in here that some would argue needs to be legislated as an executive order it can
00:47:30
be overturned very quickly and easily by the next Administration it largely demands voluntary action from technology
00:47:38
companies to submit their models infrastructure and tools for review for proof of safety don't forget the equity
00:47:47
and inclusion there's an equity inclusion component which is that your models have to account for diversity
00:47:52
equity and inclusion diversity equity and inclusion there's a phrase from the executive order the term dual use
00:47:57
foundational model means an AI model that is trained on Broad data generally uses self-supervision contains at least
00:48:04
tens of billions of parameters is applicable across a wide range of contexts and that exhibits high levels
00:48:10
of performance at tasks that pose a serious risk to Security National Economic Security Public Safety or any
00:48:15
combination of those matters none of which ultimately describes end points none of which describes loss or
00:48:22
applications to me this is the biggest problem I see with the executive order and with the approach to AI regulation
00:48:28
broadly particularly with what's being developed and has been leaked in what terms of what's being developed out of
00:48:33
the EU which is that many of these government agencies government actors are trying to Define and regulate
00:48:42
systems and methods rather than regulate outcomes and applications for example if
00:48:47
you were to say you cannot commit fraud and falsely impersonate someone using software you can rightly say that it
00:48:56
follows the rule of law and we should be able to adjudicate that cleanly in courts instead to have government
00:49:03
agencies and have what this executive order describes as a chief AI officer in every Federal agency responsible for
00:49:09
regulating the systems and methods of all the actors and all the private companies that are building software to
00:49:16
say this is the scale that your software can get to you could have a certain number of parameters if you're bigger
00:49:22
than this number of parameters we have to come in and check your software creates an outlandish standard and one
00:49:28
that makes absolutely no sense particularly in the context of the pace of AI progression remember the paper
00:49:35
that was foundational to Transformer model development which is what a lot of people call AI today which is develop
00:49:41
these llms and so on came out in 2017 and wasn't really widely adopted until 2018 as a standard we're five years into
00:49:48
this so the way that we're making models the types of models we're building the scale of the models the number of
00:49:53
parameters being used the pace at which these things is changing is staggering we are only in the first inning and so
00:50:00
to come out and say here are the standards by which we want to now regulate you this is the size that the
00:50:05
model can be these are the types of models it's going to look like medieval literature in three years none of the
00:50:10
stuff's even going to apply anymore I'm just really of the point of view as you guys know that the market needs to be
00:50:16
allowed to develop if we don't allow our Market to develop in the United States India and China and Singapore and other
00:50:24
markets will get well ahead of us in terms of their model development and their capabilities as a nation and their
00:50:30
capabilities as an industry and the more our government actors step in and try and tell us what systems and methods we
00:50:37
are allowed to use to build stuff the more at risk we are of falling behind that's my general statement on the
00:50:42
matter I'll pass the the uh the mic I mean jamat you were advocating for AI regs a couple months ago I think right I
00:50:48
mean where does this fall with respect to what you were advocating for and what you were concerned about well I had a
00:50:54
very specific lens that I viewed this stuff through and they didn't really address it I think that this was a
00:51:02
little bit of a kitchen syn EO and I think what probably happened was depending on look I I I mean I think the thing is
00:51:12
like look they when this process first started it started in the Senate and it started
00:51:18
with the majority leader Chuck Schumer and I met with Chuck and then I met with Chuck's team and then it morphed into
00:51:24
this much bigger thing and I think it morphed into a lot of people trying to do the right thing meeting with a lot of
00:51:33
very important and very famous people and I think somewhere along the way it just became
00:51:40
this convoluted and Confused document because I do agree with you that it's not super coherent there's a lot of
00:51:47
arbitrary requirements you know like there's like I think there's a requirement here that at a certain
00:51:53
number of parameters you have to like self-report yourself to the government which is like what does that even mean
00:52:01
why why is that even important so it it's it's just a lot of random stuff so it just seems like anybody who had the
00:52:07
ear of the people writing this had a chance to write something in so it's a little confusing it's not
00:52:16
going to do the job and I think that you're right in two or three years we're going to look back and this is going to
00:52:20
look medieval I'll just say I'll point out another point just one of many that I could highlight in this document I
00:52:26
read most of it they say you know there's got to be legislation on watermarking AI content think about that
00:52:32
for a second what is AI content we've been using Adobe Photoshop for 30 years to change photographs and change
00:52:41
documents we've been using various tools for doing audio generation and music I mean there's no music that doesn't run
00:52:48
through a digital processor of some sort there's no video there's no movies that
00:52:53
don't have some degree of CGI elements or some degree of post production digital rendering integrated into the
00:53:00
video itself what makes something AI is it the fact that 100% of the pixels are generated by software what if it's only
00:53:08
98% is Pixar AI because all of Pixar is made on computers is the autotune hip hop artist AI because his voice isn't
00:53:17
coming through on the audio track so what is AI in this definition the fact that any piece of content needs to be
00:53:25
watermarked if it's AI I think is one of the most outlandish infringements on First Amendment rights I've seen and
00:53:32
doesn't really understand any s in any sense how software is generally used in the world today which is frankly
00:53:40
everywhere and to say that now there is a certain definition of a certain type of software that we're going to
00:53:46
arbitrarily call AI we want to Watermark the stuff and we want to get a stamp on
00:53:51
that content so the government can track it and audit it I think is absurd sax over to you yeah okay three three quick
00:53:59
points here number one AI has been convicted of a pre- crime this this EO it describes it describes this Litany of
00:54:09
horribles this parade of horribles that's gonna happen unless you know the wise people in the central government
00:54:16
like Joe Biden and KLA Harris guide its development so that's what the EO say is
00:54:20
going to do is guide the development of this technology because if we don't it's
00:54:23
going to result in all these horrible things happening Steven sinowski who was a key executive of Microsoft in the I
00:54:29
think going back to the 80s wrote a really interesting blog post about this where he he was there at the beginning
00:54:35
of the PC Revolution with the dawn of the microprocessor in the 70s and 80s yeah and he pulled a bunch of books off
00:54:41
his bookshelf from that time period which were sort of these sci-fi books like forecasting Doom infringement on
00:54:48
privacy one was called The Assault on privacy another one was called electronic nightmare another one was
00:54:53
called the rise of the computer State and so on and so it was also predicting all these horrible things that would
00:54:59
come from the birth of the computer and it would put all these people out of work and so on totally but nobody
00:55:08
allowed these fears to guide the development of the industry there was no executive order at that time saying that
00:55:15
we're going to guide the development of the micros processor to avoid all of these arms that haven't occurred yet and
00:55:22
instead we're taking a a different approach here and he makes the point that if the industry had been guided in
00:55:28
that way then it never would have achieved the potential that It ultimately achieved and furthermore he
00:55:33
makes the point that a company like IBM would have been more than happy to work with The Regulators to say yeah let's
00:55:38
define a bunch of these rules to make sure that it doesn't go in this dark direction that everyone thinks it's
00:55:43
going to go in and you would have gotten very extreme regulatory capture can I precog one of the crazy lines in this
00:55:49
thing here are the precogs what here's one when a foreign person trans acts with an infrastructure as a service
00:55:57
provider so Azure Google Cloud Amazon to train a large AI model with potential cap with potential capabilities that
00:56:05
could be used in malicious cyber enabled activity they propose regulation that requires that I ask provider to submit a
00:56:13
report so if you you have to know you have to know if a foreigner is using your apis on AWS and then file a
00:56:25
TPS report oh my God what is going on I have a clarifying question what happens if you're a foreigner that's on an H1B
00:56:33
at Facebook or you know Microsoft good question well technically a foreigner right and then chamath meanwhile
00:56:40
remember when SpaceX is now being sued by the doj because they haven't employed enough
00:56:44
foreigners so it's like they outlaw both sides of it so that you're you're in non-compliance
00:56:53
just by existing if you you know what I mean is by death if you uh employ foreigners in the creation
00:57:05
of these very sophisticated Technologies you're creating a national security threat if you exclude them you're
00:57:10
violating their civil rights and these are regulations are promulgated by two different parts of the government so the
00:57:15
the the government is basically getting to a point where no matter which side of
00:57:20
the regulation you choose you're going to be a non-compliance somewhere and this is just a recipe for the government
00:57:25
to basically take action against anybody who they don't like politically yeah now
00:57:29
on this pre- crime point you know one of the crazier stories that came out and I
00:57:34
think this was in variety is that Biden grew more concerned about AI after screening the most recent Mission
00:57:39
Impossible movie in which the villain is a sensient AI that seizes control of the
00:57:46
world's intelligence apparatus is that true that's not true well that's what the story said didn't the Press reporter
00:57:52
ask the press secretary this and this was was the response who said this the white house chief of staff I guess said
00:57:59
Reed said Reed who yeah wow unbelievable the crazy thing is that I think the reason they're putting out this story is
00:58:04
they don't want to admit how the EO really happened which is a bunch of lobbyists came in and like you said a
00:58:10
lot of powerful people from Big Tech they're all clamoring for regulatory capture they're all clamoring to define
00:58:16
the regulations so that they can benefit themselves and keep out new entrance because one of the big targets here is
00:58:22
going to be open source software so if you for example open AI which is no longer open it's closed Source the
00:58:29
number one thing you want to do is pull up the ladder before open source software can get a lot of momentum and a
00:58:37
big part of the regulation here does apply to open source software I think one of the most problematic things about
00:58:42
this just to move on to the next point is the way that it's not just this 110 page EO that's being promulgated the
00:58:51
directive is for all these other parts of the federal government to start creating their own regulations so it
00:58:56
says here that the National Institute of Standards of Technology will develop standards for red team testing of these
00:59:02
models it directs the Department of Commerce to develop standards for like you said freeberg labeling AI generated
00:59:08
content it directs explicitly the FTC to use existing leg regulation to go and legislate it it requires the FCC to
00:59:17
think about Spectrum licensing rules through this lens you're absolutely right it activates every agency of the
00:59:24
government to create more bureaucracy it no more importantly it creates Authority
00:59:28
for agencies of the government to go into private servers and run audits you're allowing the government for the
00:59:34
first time ever to have access to private information private Computing infrastructure rather than do what the
00:59:40
job of the government should be which is to regulate the outputs to regulate the
00:59:44
outcomes to regulate illegal and illicit activities rather than um regulate systems and methods that as saxs point
00:59:52
out are prec convicted of a crime there is no crime until a crime is committed and so this idea that the government can
00:59:58
come in and regulate and keep a crime from being committed by auditing and managing all the systems and methods
01:00:05
that software companies are using puts the United States at an extraordinary and unfair disadvantage on a global
01:00:11
stage by the way and by the way llama 2 is out there Hardware is out there all the tooling is out there for others to
01:00:17
start to get well ahead good news about the immigration thing there is they actually on the other side do streamline
01:00:23
the immigration process for people with AI or other critical Technologies so on the one hand we should be able to hire
01:00:30
them but then on the back end we'll have to file a TPS report about what they do
01:00:35
let me just finish my point about all these different agencies being directed now to promulgate regulations and by the
01:00:40
way there's some new committee or Council that's being created of 29 different parts of the federal
01:00:47
government that are now going to coordinate on this AI stuff so it's going to be a brussel style bureaucracy
01:00:53
what's going to happen is that with all of these different bodies issuing new regulations it's going to get more and
01:01:00
more burdensome on technology companies until the point where they cry out for some sort of rationalization of this
01:01:08
regime they're going to say listen we can't keep up with FCC and Department of Commerce and this nit Standards Board
01:01:15
just give us one agency to deal with and so the industry itself is eventually going to cry uncle and say like please
01:01:22
just give us one and you're already here people like Sam Alman and so forth calling for the equivalent of atomic
01:01:29
energy commission for AI this is how we're going to end up with a federal software commission just like we have a
01:01:35
FCC to run uh big Communications and we have a FDA to run big Pharma we're going
01:01:42
to end up with a federal software commission to run software big software and the thing to realize about AI is
01:01:49
that functionally there's no way to really say what the difference is between AI and software in general every
01:01:55
single technology company it's look in Valley has AI on its road map it's a new Computing Paradigm everybody is
01:02:02
incorporating it everyone is using some elements of AI so this wave of AI is just becoming software so we're going to
01:02:12
take the one part of our economy that has been free market and relatively unregulated which is software it's like
01:02:19
the last Bastion of true entrepreneurial capitalism and we're going to create a new federal
01:02:26
agency to manage it that's where we're all ah headed here and we're going to end up as an industry
01:02:34
in the same place that Pharma has ended up or Telecom has ended up which is you go for permission to Washington no I
01:02:43
Nick can you just put this up so I I did you know write a blog post sort of asking for this AI regulation and and I
01:02:51
do think like the model of the FDA is probably the best one where in certain use cases I do think that you can create
01:03:00
a Sandbox where these things can be tested and I think can be evaluated the problem is that this
01:03:07
legislation or this executive order doesn't really do that so the way that I wrote this was well what are the
01:03:13
arguments against what I'm proposing and unfortunately I have to say every single
01:03:18
one of those arguments is now valid so I I think that we should have in the direction of like a simplifying
01:03:26
assumption which is that most of this stuff is just software and there are going to be some very specific kinds of
01:03:32
businesses that before you take it to Market you should do something that's equivalent to sticking it in a sandbox
01:03:39
letting people see it and and I think it's easy to Define what those are actually and the fact that we didn't do
01:03:44
that and we have this overly generalized approach is going to create more chaos and people will not know whether they're
01:03:50
in violation or they're in support they're going to be sort of preg guilty as you said sacks of a pre-
01:03:56
crime it's just going to it's just going to be chaos so I think smus board for politicians because everyone's going to
01:04:03
be lobbing them to try and shape the regulations the way they want I think it's going to be a schoras board for
01:04:10
lawyers yeah I me everyone's going to hire lawyers and lobbyists and policy people to try and shape these
01:04:16
regulations good time to bet on India thank God for Mark Mark Zuckerberg and the open sourcing of the Llama 2 model
01:04:23
it's entirely open source right I mean I think the biggest thing with llama 2 that I find problematic is that it has
01:04:28
these arbitr arbitrated thresholds on the number of users one can have yes before you have to go back to Facebook
01:04:34
so yeah it's 700 million I think right yeah yeah before I give all the credit to Facebook I'd rather say that I think
01:04:40
there are a lot of Open Source Alternatives including mistol that I think are much better yeah and uh free
01:04:46
and open and in the clear where you can have unencumbered growth not dependent on anybody
01:04:53
else yeah yeah but I think your free your larger point about us versus India versus China I think this could have a
01:05:00
major impact on our Global competitiveness of course because as you look around the what's happening in the
01:05:06
American system there are so many things going wrong right our fiscal situation is untenable we're mired in massive debt
01:05:13
we have tremendous internal division in the country many of our cities are r with crime you just look at the number
01:05:19
of people living on the streets it's not good I mean you know there's a lot of indicators that America's in Decline
01:05:25
we're involved in way too many Foreign Wars so there's a lot of bad things happening however the one bright spot
01:05:32
that America's had going for it now I think for decades is that we've always been the leader in new technology
01:05:38
development I mean we're the ones who pioneered the internet we're the place where mobile took off we're the place
01:05:44
where the cloud took off and everyone else has been playing catchup with that and I think we are in the lead in terms
01:05:49
of AI development I mean other countries are doing it too but I think that we are
01:05:53
in the lead and and it's not because of the involvement of government it's because we have this vibrant private
01:05:58
sector that's willing to invest risk Capital where you know that nine out of 10 checks that you write are going to
01:06:05
zero but that one check that one out of 10 hopefully could be a huge outcome so we've had this incredible
01:06:12
ecosystem of software development that is free and unregulated that is clustered around Silicon Valley but it
01:06:18
you know radiates out to many other places and the only reason that ecosystem has thrived and survived is
01:06:25
the reason that bill Gurley stated at all in Summit which is was it 2200 miles away from Washington and Washington has
01:06:34
generally kept its Ms off and now we are headed to a place where not just AI but
01:06:40
basically all software companies are headed for regulation and like I said right now it's 29 different agencies
01:06:48
promulgating the regulations but where this is going to end up is that the industry is eventually going to beg
01:06:54
for its own agency just to rationalize all the spaghetti of different regulations we are eventually going to
01:07:00
beg for our federal agency Overlord just to rationalize this whole mess and sadly
01:07:06
I think that's where we're going to end up and a lot of what is special about our industry which is that two guys in a
01:07:11
garage really can get started in a completely permissionless way I think that's going to be jeopardized if that's
01:07:17
the end game that's genius I think that is the end game I mean do you think that
01:07:20
they wrote this thing in a way just to create enough confusion where we just cry uncle and say just regulate us give
01:07:26
us one mute yeah look I don't know if it's that conscious I think what it is is there's a lot of politicians in
01:07:31
Washington and Biden and Harris definitely fall into this category who just think that Central planning or the
01:07:38
central guiding of the economy or aspects of the economy to avoid certain problems that they think they can do
01:07:44
this they think that they are wise enough to do this or maybe they're cynical and they just know this a
01:07:49
pathway to campaign contributions but either way they kind of believe in this approach and they threw the kitchen sink
01:07:57
at this 110 pages every agency is's now going to be writing thousands of pages and I think where it's going to end up
01:08:04
is with a new agency to manage software so I think Sach it's a the point you're making is one that some folks in Silicon
01:08:13
Valley have felt for a while which that is that a lot of the freedom and opportunity that the United States
01:08:22
offers pioneers and entrepreneurs has been realized and born out in Silicon Valley that's feeling like it's
01:08:28
been styed in a number of ways but the events in Israel couple weeks ago in my opinion
01:08:38
seems to have shocked a lot of people that are traditionally very liberal Democrats into being redpilled I have
01:08:47
had a number of calls with individuals over the last few weeks that have historically been very dieh hard blue
01:08:54
liberal Democrats have spent their their time with NOS with nonprofits with various efforts to promote liberal
01:09:03
causes and these are folks who may or may not be Jewish but who have been so shocked
01:09:10
by what's happened in Israel and how many liberal organizations have created this
01:09:18
narrative around being pro Palestinian in a way that is being deemed and coming across as highly and in many cases is
01:09:26
very much anti-semitic and so I've had folks say I'm giving up everything else I'm doing
01:09:32
and all I'm going to do is change the causes I'm working on now and I have just been redpilled do you guys and and
01:09:40
Sham you shared your story on our show a couple of weeks ago the clip of you saying that went viral on how you kind
01:09:47
of recognize that maybe Trump was a good president in the context of what you're
01:09:50
experiencing with the Biden Administration now we're seeing what the bid Administration now you seem to be
01:09:56
like the case study that I'm now hearing more from Silicon Valley folks yeah about this the shift I think that over
01:10:03
the last three or four years my political positions really haven't changed that much but I think what's
01:10:13
happened is that the the political party that I've historically been affiliated with has just kept lurching further and
01:10:21
further to the left and so it leaves me looking for a new home I think and I think that there were a lot
01:10:33
of people that thought they were signing up for a set of beliefs around Free Speech around being pro Reproductive
01:10:40
Rights around being supportive of lgbtq issues but also supportive of a rational
01:10:49
approach to the border and reasonable fiscal discipline these are all seem to just be totally
01:10:55
out the window so I understand because I've I've actually talked to a lot of my friends
01:11:01
and my friends some of them have been huge donors to both Elite colleges and the
01:11:10
Democratic party and they've paused all of it and it's definitely given me pause and
01:11:17
I'm just trying to figure out where to go from here because I think the reality is that this is a really crazy situation
01:11:24
so I think that there's just a lot of people that are in the center that don't really belong anymore the way that the
01:11:29
Democrats represent themselves so there's clearly something going on that we just need to get to the bottom of
01:11:35
here because I think it's not probably the Democratic party that a lot of people thought that they belong to do
01:11:40
you have other friends and folks that you know that have traditionally been Democrat donors in Silicon Valley
01:11:45
chamat that you see are now maybe considering shifting where they're giving money to
01:11:51
Republican party candidates and causes I think it's easy to say that amongst my friends it's in the billions of dollars
01:11:58
that's been paused that's insane that's a lot of money Z you used to be part of a niche
01:12:06
in Silicon Valley Silicon Valley Republican Niche is your Niche growing I think so I actually made a list of I
01:12:14
think eight issues that have driven the shift and when you say there's been a shift right I wouldn't say that there's
01:12:20
been a shift all the way to the right but I think there's a shift from the left to the center by the way that
01:12:25
statement is consistent with what I've heard personally from a lot of folks which is I consider myself a Centrist
01:12:31
now that I see that some of these liberal causes are so they're extreme from my point of view right so let me
01:12:38
rattle off what I think the key drivers are number one Reckless fiscal and monetary policies coming out of
01:12:43
Washington as drunen Miller says we've been spending like drunken Sailors number two the Dismal state of San
01:12:48
Francisco because of crime drugs homelessness and so on and we all know that's an stream one party government
01:12:55
number three the runis coid policies they botched the science they harmed the educational development of kids and they
01:13:01
also harmed work Culture by making employees feel permanently entitled to work from home so that's number three
01:13:07
number four this long con of reg regulatory capture in both Washington and Sacramento that we just talked about
01:13:13
with AI people are waking up to that number five the Betrayal of true liberal values like free speech and open inquiry
01:13:21
number six the way that Tech Visionaries like Elon have been targeted for harassment by leftwing politicians
01:13:27
remember Biden said we need to look into the guy Raina Gonzalez was even less subtle she said simply Elon Musk number
01:13:34
seven the growing awareness that wokeness has gone way off the rails uh we saw this even before the Israel Hamas
01:13:41
War but now I would say number eight is this war it's really thrown gasoline on the fire by showing that wokeness leads
01:13:49
to this simplistic breaking up of the world into oppressor and oppressed categories and what we're seeing is that
01:13:57
there's a lot of people in the woke left who are basically cheering for a terrorist organization and they're able
01:14:02
to rationalize atrocities because of this simplistic woke dichotomy that being said I do think
01:14:09
it's possible to support the desire for a Palestinian State and a two-state solution without falling into that
01:14:15
bucket I want to be clear about that but I think that there's been way too many people on the woke left who have blly
01:14:21
disregarded the atrocity and were basically cheering for Hamas from day one on this thing and I think that has
01:14:28
woken up a lot of liberals both Jews and non-jews who saw Jews as allies on the left and when they see Jews being
01:14:36
attacked this way that has led them to really I think question their their priors on this what did you think of the
01:14:42
Cala Harris announcement yesterday that they're launching a program to combat islamophobia in the US at a time when my
01:14:51
understanding is many of their Jewish donors are up in arms about their lack of action on
01:14:58
anti-Semitism I mean it just seems it seem turna I mean look I have not seen in this particular case I don't think
01:15:04
I've really seen outpourings of islamophobia to be clear I'm against islamophobia I'm against hatred towards
01:15:11
any particular group including Muslims or Jews to me you know any outpouring of hate towards a particular group is is
01:15:19
bad but yeah this seems like a a problem that we really haven't seen so it seems
01:15:23
a little bit toned deaf and look this administration's been kind of stumbling around on on this whole issue it seems
01:15:29
like they don't really know what to do I don't know how to quantify it I just think it's an anecdote what do you think
01:15:34
no I I like I'm saying I don't know how to quantify it but I think that the anecdote is a lot of folks no no I'm
01:15:41
saying what what do you think what do you feel what do I feel yeah I mean I'm not
01:15:48
a party guy taking a step back this is getting going to get a little esoteric but
01:15:54
I think humans organize into social systems one social system is a family one is a company and I think that the
01:16:00
government is a social system the point of a social system is to get influence to achieve the things you want to
01:16:06
achieve by aggregating together by creating a tribe by creating a system and that's what a government is it lets
01:16:12
a lot of people pull resources to get things done as a group that you wouldn't otherwise be able to get done
01:16:16
individually same with a company same with a family to support each other Etc and I think that the problem with
01:16:23
uh democratically elected governments or all governments for that matter frankly
01:16:27
is like any other system they and I've said this in the past they have a natural incentive to grow I met with a
01:16:34
government person the other day well-known government person and I was struck by the the
01:16:41
tone I I've been struck by the tone on multiple people I've met from the government on here's all the next things
01:16:47
I'm going to get done and here's how we're going to grow and do more and be bigger just like if you're running a
01:16:52
company that's your incentive that's your model of thinking and like with your family you want to grow the balance
01:16:57
sheet for your family you want to have another home you want to take care you want to build security Etc so
01:17:02
governments as an organizing system are no different and so I think that in a democracy over
01:17:12
time there is as sax points out a group of folks who get elected and as a result like a
01:17:20
philosophy that endures in that system that is all about overcoming the power that is that we all view there to be
01:17:28
powers that are keeping us from doing the things we want to do and I think that this is the ultimate manifestation
01:17:34
of what happens is that you push the government to be as big as possible with no end and you push the government to
01:17:42
destroy any system of power that gets in the way of those who are able to vote these folks in and now a lot of folks
01:17:48
who thought that they were supporting liberal causes to help those in need are realizing that you're actually
01:17:53
repressing minorities in the process that there are minorities that are viewed to be powerful like Jews that
01:18:00
there are minorities that are viewed to be unfairly advantaged like those in the
01:18:05
tech industry that there are minorities who are viewed to be unfairly advantaged
01:18:09
like billionaires and I know that this sounds insane to say that those terms but that's the objective is to destroy
01:18:17
any system of power any individual of power that has any form of Leverage over us it's also why I think we've generally
01:18:23
been techn pessimistic in the west since the late 1960s early' 70s is because technology has been viewed as this point
01:18:30
of Leverage for creating a power system for a minority of the people so I I generally view this as part of a longer
01:18:37
Arc and a natural kind of conclusion to this stuff and you know I I'm I'm not trying to be super pessimistic about
01:18:43
where things are going because I do see that the a lot of folks are now waking up to this reality and they're like so
01:18:49
my anecdote is I've had a lot of folks tell me in the last couple weeks we we have to be thoughtful about how we elect
01:18:54
and how we govern so that we create a more balanced so what's the end game in your framework my endgame is socialism I
01:19:03
think that's where things go ultimately long term I think that there's a recapturing and a redistribution of
01:19:08
power and value I think that there's some degradation of the system that erods to looking like something like
01:19:13
France it's not like a nasty and it's like a a slow whimpering like you end up looking like France or something and so
01:19:19
that's my my endgame in that framework and I I I believe strongly is why we talked about this with doo that there
01:19:25
are political actions decisions voting mechanisms that that hopefully we can put into place to stall out and to stop
01:19:32
that from happening uh because I do think that human progress is critical for the Min for the majority of people
01:19:38
that are disadvantaged and we need to enable it okay so I'm guessing you're on the I don't want to be France side 100%
01:19:46
that's right okay so and so what is the I want to be the wild west I want to be the 19th the the early 19th century what
01:19:53
do you think that we should do in America right now I think we should unwind a lot of laws and I think we
01:19:58
should have as a mandate the objective is how do we get more of our economy and more of our people in this country to
01:20:07
be supported by and progress through Private Industry rather than public support the federal government and the
01:20:14
role that the federal government has in funding industry in hiring individuals in pumping dollars into markets I think
01:20:22
has gotten so far beyond the tell that we as we know are being sosed back and forth based on the decisions being made
01:20:30
by the Federal Reserve that should have never been the case the free market should have always been allowed to
01:20:34
operate progress should have always been allowed the government should have stopped people from being hurt should
01:20:39
stop negative outcomes but the idea that the government should come in and start
01:20:42
to run things and employ people and get to the scale that it's gotten to this is
01:20:46
the largest organization in human history the federal US federal government it has got the highest dollar
01:20:52
spend the highest budget of any organization in human history even accounting for the Roman Empire there
01:20:57
should be accountability standards for every law which is how do I know that this thing did what it was supposed to
01:21:01
do and how do I measure if it didn't and by the way if it doesn't and the dollars
01:21:04
aren't returned to me at some multiple we shut that law down we shut that department down we move on there should
01:21:10
be an accountability standard for every dollar that's spent but we don't describe any outcomes we don't say
01:21:15
here's the standard of measure and here's the accountability and if this doesn't work and this dollar isn't
01:21:21
return to us we don't end it anymore and we don't keep doing this thing over and
01:21:24
over again and then layer something else on top and layer something else on top and then you've got 10 layers of nothing
01:21:29
accountable to anything and that thing cost 10 times as much to do half as much I am optimistic still I'm always an
01:21:37
optimist oh make sure you put in that caveat good yeah what's going right in your view I
01:21:44
feel like we just killed the last good thing yeah what is going right in your well the AI thing is what really pisses
01:21:50
me off man I mean this whole idea that we're going to come in and tell people how to run businesses I hear you go just
01:21:54
go back but do you think AI is going well right now we have nothing to really show for
01:22:00
it yet so it's hard to say that it's it's cute and it's cool but there's there's nothing really is AI I don't get
01:22:06
the term when I started my company I had people that I called math people and statisticians then it was called data
01:22:11
science then it was called Big Data then it was called ml now it's called AI at the end of the day it's software based
01:22:19
algorithms that use three things data software and statistics and the statistical tools and the approach to
01:22:24
the software algorithm development have changed with the Transformer model that was paper that was described but it's
01:22:30
the same thing we've been doing since the 1960s which is creating packages of software that make predictions and that
01:22:36
do things for us and all that's happened in the last two years is we've seen a piece of software that can communicate
01:22:42
well with us based on these llms and we're like oh intelligence is here you know the first time a computer in the
01:22:47
1960s said hello world everyone was like oh my God we have ai now ai are sensient
01:22:52
it just said hello world well the same thing happened when when big blue which was that big IBM Mainframe beat Kasparov
01:22:59
in chess people are like oh my God AI is just about here because at one time being great at chess was considered to
01:23:07
be only a human capability and if a computer could ever get that good the theory was that it would have to be an
01:23:14
AI but we actually found out that computers could do chess but that didn't make them an AI it just meant that they
01:23:21
could acquire that one capability I think kind of what you're saying is that computers now thanks to language models
01:23:27
have some ability to interface with us using language and to understand Language by itself that is not
01:23:33
artificial intelligence in the way that is portrayed in science fiction movies there's two key things that are
01:23:38
happening one is a new a new modality in human computer interaction through chat
01:23:43
which is incredible and opens up lots of new software applications and markets which I think can be transformative and
01:23:48
worth trillions of dollars no [ __ ] doubt and then the other one is in generative tooling where you can make
01:23:53
art and you can make video and audio and all this other sort of stuff so you're you're creating digital outputs that are
01:23:58
not necessarily text but other forms that also start to represent the expectation that you might otherwise
01:24:04
have and so that is really powerful and opens up all these new models for media content exploring new business models
01:24:11
Etc so both of those are really important new software capabilities that have emerged but this this notion that I
01:24:17
think people confuse AI as being this like we've now got humans in software that can do things
01:24:23
is almost like back in the0 when the computer said hello world and they said the same thing I think that what people
01:24:29
are OD by right now is that a computer's ability to statistically guess has gotten several orders of magnitude
01:24:37
better than it ever was before and so these guesses seem human and lifelike but you'll find the edge cases where
01:24:43
this stuff fails and we'll be asking ourselves yet again in a few years what the next leap is but the
01:24:51
thing that is different is that there is a level of investment multiplied and Nick I I tweeted this so
01:24:58
you can just show the math here there's a level of investment multiplied by a level of improvement in the underlying
01:25:04
Hardware multiplied by a level of improvement in the underlying models that's creating a 400x improvement from the
01:25:14
Baseline every year and so the thing that I think is different is that we are taking this statistical guessing if you
01:25:23
want to just call it that and we're getting exponentially good at it so there is an efficient Frontier at which
01:25:31
point you're like oh my gosh this is as good as certain humans you know maybe not the smartest of the smart humans but
01:25:37
certain humans and I think that that's what's really really crazy and intense right now so I can understand why people
01:25:44
are like we need to get a handle on this but it may kill the Golden Goose although I would just say there is no
01:25:52
Golden Goose yet there's just a lot of really interesting stuff that people can say is novel and it's inspiring to see
01:26:01
but by no means has there been just a proven use case that is 10x in productivity yeah that hasn't happened
01:26:07
yet that's the reason to wait is this whole thing just seems very premature let the technology develop a little bit
01:26:14
let the problems become a little bit clear more manifest let the Ws let the cake bake let the cake bake let the
01:26:20
problems emerge in a way instead of we're guessing about them we can actually see them and also allow
01:26:27
there to be time for solutions to be developed by the industry on its own and we don't need KLA Harris's help or
01:26:35
guidance to do that okay there you have it folks thank you for joining us for another episode
01:26:43
of the Allin pod we hope that you walk away with the utmost of optimism enthusiasm for the world around us
01:26:49
there's awe and wonder outside go take a walk and enjoy it there's so much more than what is on Twitter I leave everyone
01:26:57
with blessings and love gentlemen anything else final words David you better [ __ ] be
01:27:05
there oh for poker yeah I will I will I'm coming last week saxs RSVPs to poker then texts he's supposed to be at dinner
01:27:13
at 7 o' texts at 7:30 I'm on my way 11:00 rolls around no saxs no idea what happened to you you disappear into like
01:27:21
the a triangle of the Bay Area I don't know where you go but you just disappear he gets in an Uber he has him Park in
01:27:29
the airport and he just plays chess gets out of the house all right boys byebye byebye
01:27:38
byebye let your winners ride Rainman David and instead we open sourced it to the fans and they've just gone crazy
01:27:49
with it love you queen of [Music] besties are that's my dog taking your driveways oh
01:28:08
man we should all just get a room and just have one big huge orgy cuz they're all this useless it's like this like
01:28:14
sexual tension that they just need to release your your your be that's going to we
01:28:23
need to get merch [Music] our