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all right everybody welcome back to the all-in Pod episode 174 almost up to 175 I believe there are a lot of folks
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getting together next week at the all-in meetups around the world to watch the show unfortunately jcal had an oral
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incident this week he will not be joining us I guess he cracked a tooth and couldn't make it so he is sitting
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this one out very last minut decision cracked her tooth eating a bison r about the Salt Lick in hustin which is a true
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story freir I think we found an image of okay let's Jake out at the Salt Lick cracking his tooth on a
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[Music] rib let your winners ride Rainman and instead we open source it to the fans and they've just gone crazy
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with [Music] it all right so we are going to announce be all-in Summit 2024 back to
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LA we had such a great time in LA it was a great location for everyone we really
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appreciated the facilities at UCLA this year we're upgrading the experience once
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again for everyone so the event's going to be September 8 through 10th in La if you haven't seen it please watch the
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recap video from last year we put it up on YouTube and then there's all the interviews from last year are also on
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YouTube we're going to have another amazing lineup of speakers this year and have a much more kind of upgraded
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elevated experience for everyone applications are open today so go to summit. Allin
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podcast.co to put an application in to join us this year as you know we had way more applications last year than spots
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and this year we're going to have all sorts of upgrades we're GNA have transportation to and from all the
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events for everyone a concierge booking service to help you book your rooms and get you set up in La for the trip we're
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doing a full day event on the Sunday September 8th followed by two days of content Dy about town on the first night
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two blowout parties it's going to be awesome so we're really excited about it we've got a much bigger budget this year
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and we're going to try and really make the uh the experience awesome while also delivering the great content so really
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excited to do this again in La I appreciate everyone's support of that we had a lot of debate internally about
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where to take it and we settled on going with what we know and trying to make it a little bit
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better this year so anything else you guys want to say about Summit and there's only one kind of ticket this
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year right that's right so we're not doing like regular ticket and VIP we're just doing one ticket for everyone and
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everyone's gonna get this kind of elevated experience she'll be cool sax just show up would be awesome hope to
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see you there I want to invite a couple of speakers yeah you've got some good speakers I saw yeah it's gonna be great
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when are we gon to start announcing the speakers freeberg we will do that in a couple weeks we already have a bunch
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booked and it's going to be awesome oh that's really exciting that's awesome yeah I know CP you wanted to take it
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somewhere else I mean we were in debate on Vegas maybe going to some other country but uh you went to another
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country where'd you go this week I was in Paris France what were you doing there there's like a important AI
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conference and Jonathan Ross the founder of grock and I kicked it off with like a
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fireside chat for like 45 minutes at the beginning just to get everybody amped up
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and excited cool yeah it was really anything interesting come out of it I think the sound bite that made an
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impact on me was was from Jonathan so I think he did a very good job of explaining where Nvidia is really strong
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which is really in learning and where Nvidia is trying to build the business which is an inference but the
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problem is the features almost compete with each other between learning and inference and I think that that was a
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good clarification and then the second thing is he said that if he deploys his road map he'll have 50% of the available
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inference compute by the end of next year wow based on all the needs of like open Ai and meta and everybody else
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which is a wait but that's a smaller physical footprint is that right and it's just because they can do higher
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token per second less power higher tokens per second across all the major models so it would it would be
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meaningfully less power and meaningfully cheaper so that was a pretty amazing sound bite
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though his his whole explanation was actually really good so I mean if you listen to the spaces we did I thought it
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was good I thought this was even better so I'm trying to get a copy of the of the talk because it was taped so
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that we can kind of post it at a minimum anybody who's interested in studying Nvidia should listen to what he has to
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say because I think the the nuances between us and them are really profound and they were pretty Stark the way that
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he described them so it was cool it was great to be in Paris frankly how does Nvidia respond to this movement or this
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notion that there's an entirely different chip category focused purely on inference do they have inference
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focused chips in development or a different road map that they're going to have to kick up now I mean I think it's
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very hard for them it's it is a structural innovators dilemma and why is that because they've made some
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architectural decisions around things like hbm which is high bandwidth memory or specific kinds of extremely high
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throughput optical cables and why these things matter is that they've gone and bought up the world Supply and they've
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basically bare hugged these markets as a structural part of their design now that
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makes sense and it's very legal the problem is that if you architect around it and go through a totally orthogonal
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design process we're not subject to any of those supply chain considerations and
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I think he explained that really well I didn't understand it in nearly as much detail as I did leaving so I think
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that's an important takeaway it's also really important for for all the hundreds of Chip startups and for these
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Venture investors who are ripping money into these companies to know these differences because if you are investing
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in a company that is subject to you know hbm in their design decisions or these specific optical cables or a whole bunch
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of other things you're going to be in a really difficult spot because nvidia's bought them
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all so I thought that that was a that was really interesting the other thing that Nvidia does brilliantly is what
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Intel did in the 80s and 90s when they wanted to kind of Choke the market for CPU competition which is that they were
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able to define a metric that everybody started to pay attention to which for them was clock speed and if you remember
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Intel would push Moore's Law and they would push transistor density and clock speed as the measurement of value now
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for a lot of consumers none of us knew any better and so every time we saw a new chip we would go through the Pentium
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upgrade cycle because we thought that's what we were supposed to do it turns out
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that clock speed doesn't really factor into speed the way that you think about it and experience it as an end user
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using software and it's the same in Ai and so we talked about that as well so it's an incredibly important company
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NVIDIA is I think they're performing brilliantly they're running many of the same plays that Intel did to try to
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create total dominance but there's some very important nuances around power and around supply chain
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decisions and Technology decisions that frankly some people would think are unsustainable and the more I understand
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them I would be in that camp as well so I thought it was a very important conversation and hopefully we
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can post it yeah it cool it and by the way it's great to be in Paris too what do you think of Paris you know I have a
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new appreciation for what's going on in these major cities I think that all major cities are crumbling I don't and I
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don't mean to be alarmist or very dramatic about that it's just that I spent aot lot of time with entrepreneurs
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that are in Paris and they struggle with the same things that the people in San Francisco
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do and then I had couple of conversations with some folks that are entrepreneurs in London who were
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there and they suffer from the same things lots of petty crime lots of garbage lots of vandalism lots of
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drugs and so no place is perfect it turns out everybody is struggling from a lot of experimentation gone wrong and
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how these cities run that was that was actually my the biggest takeaway outside of the
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actual AI conference itself but that's a western City problem you're not I mean have you visited many cities in China or
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other parts of Asia and is that like a western problem I have not been to China in six years I've been to Hong Kong but
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I've not been into China for six years so I don't know I would say that India has its own
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vagaries so those issues are not the same I've been to Singapore a couple times my kids were just in Japan for
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spring break so I saw a bunch of the pictures those cities look relatively the same very orderly well run clean but
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yeah you're right these Western cities are a bit chaotic yeah sax is this like a western social liberal
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manifestation how cities are being challenged generally M like Malay has I think Malay said this right he said like
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all these Western social liberal beliefs are having lifestyle impact in urban centers well it's hard for me to speak
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to what's happening in Europe but we know what's happening in the United States all the biggest cities are blue
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and they're run by a certain ideology and in those cities we've had now a decade plus of decriminalization de
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prosecution decarceration and the impacts of this are obvious we also at least in San
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Francisco we have subsidies for people who want to live on the streets and do drugs all day I mean it's not prohib to
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do that so all of our public spaces have been taken over by people who are happy
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to take the whatever it is $7 or $800 subsidy and do drugs all day you also had this referendum in California that
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essentially lowered a whole bunch of felonies to misdemeanor basically if you steal less than
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$950 that's considered a misdemeanor now instead of a felony and so there there's
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been a huge increase in crime because of that you know shoplifting just doesn't get prosecuted anymore and misdemeanors
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don't get prosecuted anymore we've had all these sour daas who don't want to prosecute misdemeanors so I think if
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voters had understood that lowering a lot of these crimes from felonies to misdemeanors meant that they
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wouldn't get prosecuted at all I don't think they would have done it but that's kind of where we are but are we seeing a
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rebound from that now Sach is democracy working because I know that in San Francisco we had an election recently
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and in the ballots it seemed to indicate that voters were sick and fed up with the the living situation in the city and
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they're putting different people in office and have an intention of changing the city Charter and
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changing the the laws in the city so that we can reverse this trend is that not where things are I mean like sitting
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you know sitting where you sit like don't you see San Francisco kind of trying to write write itself and as a
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result doesn't democracy work over time yeah it's just that we live in a one party State and that one party has been
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captured by ideologues and so it's very hard to to change it is true that in San
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Francisco there was an election recently and the more radical supervisors were defeated we
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have I think finally a good da in San Francisco but these um radicals have had a long time to entrench their power and
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the party Machinery helps keep them entrenched so yeah I think you can argue that we've bottomed out because the
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public has recognized the problem but it's still very hard to fix and it's going to take a while I think for the
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first time in a long time time I'm more optimistic than not given the people I've seen that tolerated the conditions
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historically have reversed course over the last year and have said we got to act and we gotta yeah you know do our
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kind of Civic process well time with tell you have to remember like when when New York City was a chaotic mess in the
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70s and 80s it took two different mayors and it took almost a decade for that to
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get cleaned up but it took the strength of leadership first David dinkin set the
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framework and then Giuliani really executed Rudy Giuliani and between the two of them and I think what people call
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the broken windows Theory they hired a lot more policemen and they just really cleaned up all of these really bad areas
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and then it had this knock on effect the problem is when I'm staying at a hotel in Paris or when I was speaking to some
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of my friends who live in London it's the same thing it's like the amount of knife crime is so egregious as an
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example that they tell you don't wear a watch I mean I don't I don't wear watches anymore when I go out but what's
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crazy is they will tell you that you'll get stabbed over a phone where it's like
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you don't need to stab me for my iPhone here just take the iPhone so there's a level of lawlessness and petty crime
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that's affecting tourists that to me was like very surprising and so even when I was
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walking around Paris I was like should I really feel scared here and my reaction was no
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I've never felt scared in Paris but then what's ringing in the back of my ears are These Warnings from people that are
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that are that have lived there for 10 and 20 years who've had this stuff happened to them that was really
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surprising to me so that stuff in San Francisco as far as I can tell or any major city in the west hasn't really
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been fixed because you haven't had a shift in leadership yet where they've really said okay we're going to double
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down on policemen and policing and we're going to amp up the punishment that hasn't happened yet well I was just in
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Vegas this week and it doesn't feel how was your trip give us the trip report yeah I went to the Google next
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conference but I will say first off like no crime in Vegas like Vegas is Vegas it's it's a very different
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environment but I yeah I went to the Google next conference I ended up going out because at ohal we did a partnership
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with uh with gcp so we're moving all of our infrastructure and doing a lot of model development on
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gcp and it was great I think there was 30,000 people at this event which was insane have you guys been to any of
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these like AWS reinvent or the Google next or any of these no I have not what I didn't realize prior to
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going to this was how much of an ecosystem there is like you go they they take over the whole Convention Center at
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manderlay Bay and there's hundreds of companies that have built services or build services on gcp that are there
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pitching cios and CTO of other companies and so it's this real Network effect type of business model that I hadn't
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fully appreciated just how like deep the network is and and how entrenched it is
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I I also got to go to this thing where I spent a lot of time with c and CTO at other companies big
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companies and a big takeaway for me that I also didn't realize was how most of them are not on a single cloud
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provider almost everyone I spoke with is on multiple clouds so they're all on like AWS and AER and gcp and they use
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different aspect of each cloud and there's a lot of interoperability between the clouds now which I had
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previously my naive concept of this because I'm obviously not deeply in the space was that a company picks a cloud
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and they move everything over to that one service provider but it turns out that they split and then they allocate
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dollars based on the services and the pricing so it was pretty clear that everyone is it's like a race to the
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bottom on pricing for basic commoditizing services in the cloud like data storage right and then whoever has
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the better higher level Services Whoever has access to better mod or has a lower
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price on running models or on running things like inference that's where the money is made and the gross margin on
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that is quite different and I think that's where a company like Google probably has a much bigger Advantage
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because of the uniqueness and the quality of the models that they've developed but yeah I just didn't I
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didn't really appreciate like how much there was so so my other big takeaway was the cloud is a wide open competitive
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market right now like there is no AWS lockin in this market there's no a zero lock in there's no gcp lock in like you
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guys yeah the lock in comes from the developer services that they provide so both Amazon and Google and I'm I'm
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assuming Azure as well will give you access to incredibly talented Engineers who will help you build production code
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yeah and the ecosystem on how so like a lot of the clouds are competing for the Consultants who actually do the work for
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the big Enterprises so Cap Gemini deoe PWC they have these massive booths facilities and then go and build tools
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for companies is also a key part of the business strategy and yeah I mean it's such a competitive market I did not
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appreciate just like how much of an open game this still was sure it was a great
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great couple days in Vegas and I got to see some of our friends we ducked in and
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saw helmuth in the poker Go studio for a minute some big tournaments going on at
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the ARA it was fun we had a good time okay let's move on so you know on the docket today we were going to talk about
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CPI the March CPI numbers came in from the Bureau of Labor Statistics yesterday higher than forecast at 3.5%
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year-over-year this is up from 3.2% year-over-year inflation reported by the Bureau of Labor Statistics in February
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higher than expected for three straight months now let's pull up this chart next
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as we all know the FED did 11 rate hikes in 2022 and 23 and the intention was that we would see inflation come down to
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their target of 2% and they would start to lower rate rates and obviously we're not seeing that inflation is remaining
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hot things are getting more and more expensive I pulled together some of the numbers on year-over-year price increase
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housing is up 5.7% year-over-year Transportation costs are up 10.7% year-over-year and the highest car
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insurance is up 22.2% year-over-year so the expectation has been that the market will do rate Cuts Larry Summers
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came out and said you have to take seriously the possibility that the next rate move will be upwards rather than
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downwards I guess sax let me let me ask you first for your commentary on how this plays into the election cycle I
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know Biden was expecting a rate cut or several rate Cuts going into the election which usually helps the case of
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the incumbent maybe you can comment on where the the election cycle might be influenced by this inflation report well
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I think it's definitely bad news for Biden I was expecting fed put this year and really the whole Market was the
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market was expecting three rate Cuts this year which would have been really good news for for Biden and I think this
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latest inflation print was kind of a dagger to the heart of of that expectation and I think the Wall Street
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Journal put it best it said here Wednesday's report had been hotly anticipated because fed leaders had been
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willing to play Down stronger than anticipated inflation readings in January and February as as reflecting
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potential seasonal quirks but a third straight month of above expectations inflation data erodes that story and
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could lead fed officials to postpone anticipated rate Cuts until July or later so it's not just the fact that
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this inflation print was higher than expected it was also higher than expected in January and February but
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people were willing to kind of Overlook that saying well maybe it was just kind of a you know quirky reading but now
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we've had three straight months it's pretty clear that the narrative that we had going into this year which was that
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inflation was on its way down that it peaked at 9% uh as the official rate I think in 2022 and then it was going down
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every month through all of 2023 and I think the expectation going into 24 was it would keep going down we get these
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rate Cuts well after three straight months of inflation being more persistent and stickier Than People
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expected I think that narrative is basically dead so I think the narrative now is it's going to be rates are going
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to be higher longer and I think Larry Summers is reflecting that view Larry's going further he's not just saying that
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rates are going to be you know at the current rates for longer he's saying they might actually
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increase and that's a risk yeah last summer he said and this was last summer so almost a year ago he was saying the
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Market's got it totally wrong we're actually going to need much higher rates than the Market's anticipating for much
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longer as well than the market is anticipating and so did Mario drogy both said the same thing no one paid
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attention to him everyone ignored it and assumed that this was going to be a quick rebound to normalization it's
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clear that you know once again Larry has proven himself to be fairly preci understanding where are headed
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Larry Summers has for the most part been spot on from this on this whole inflation question going all the way
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back to 2021 remember 100% 100% in q1 of 2021 Biden's first quarter in office the
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big legislative push was for the $2 trillion covid relief bill this the so called American Rescue plan and Larry
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Summers said that it was it risked inflation it was an inflationary bill it was stimulatory yeah too didn't need it
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the the economy was already coming back and we didn't need it and Biden was risking inflation but of course
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inflation was only at 2% at that point so the administration kind of poo pooed Larry and said you know that's is Larry
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Summers being Larry or whatever and sure enough we were at 5% inflation by that summer and you have to wonder if Biden
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had listened to that advice would he be in a different position right now going into the election I
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think probably he would have been and you got to wonder for what I mean what are that two trillion dollar accomplish
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I mean covid was winding down I mean these were the last bit of stimy checks and payments to these Pharma companies
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and I mean it was basically a grab bag and it was passed on straight party lines and it was just totally
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unnecessary I mean the economy certainly didn't need it and so here we are and I
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think that a a lot of people including the markets thought that Biden was kind of out of the woods that this year we'd
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see the final leg of inflation going back to normal but that's not going to happen and I think you know going beyond
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the political ramifications I think there could be several other knock on effects that we should talk about I mean
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one is for the consumer this means that the cost of borrowing is going to be higher for
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longer that makes it harder to buy a house mortgage payments are higher that also means if there's fewer home
00:23:01
sale transactions that means the price of housing could come down so there could be a correction in that market
00:23:07
second if you want to buy a car your car payment's higher and if you have loans uh your your personal interest is going
00:23:13
to be higher and this is why I think consumers feel like they're worse off than the economic data would otherwise
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reflect and Larry Summers actually had a tweet storm about this about a month ago
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where he calculated that if you included the cost of borrowing in infl that inflation was much higher than
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people thought and that it actually peaked not at 9% but at 18% so Larry had an excellent tweet storm on that and he
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said that the cost of borrowing which used to be calculated in inflation but is not anymore was the reason why
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consumer sentiment about the economy was depressed he said that that accounted for about 70% of it so people should be
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feeling better off because GDP growth is good and unemployment is low but they're
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not because inflation is so high and if you include cost of borrowing the inflation's even higher so
00:24:04
I think this is really bad news for Biden but it it's a story that's been going on now for three years it's not
00:24:10
just this one inflation print right it's funny yesterday Biden said during a press conference with Japanese prime
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minister kashida that he's sticking with his prediction of a rate cut before Year's end but there might be a delay uh
00:24:25
which I think is obviously you know based on what the data is showing and what folks that seem to know
00:24:32
and have been pretty good predictors are saying is unlikely we were supposed to get one in April yeah and we were
00:24:37
supposed to get one in June oh yeah remember the fed the FED Open Market Committee in December stated that they
00:24:43
expected three rate Cuts this year and I think the market in some cases we're predicting as high as four or five right
00:24:49
and now we may not have any and we may actually see a rate hike if you were to follow some well if we if we see a rate
00:24:55
hike before the election I think Biden is toast yeah but I mean I think Summers gave
00:25:00
that maybe a 15 to 20% chance which is it's still not the most likely scenario but uh possible but possible no one's
00:25:08
counting on that in December chamat if you're a Fed governor and obviously the the the
00:25:14
Federal Reserve Board of Governors sets the uh rates they meet and they they make these decisions how influenced are
00:25:21
they politically how how influenced are they by this election cycle and you know
00:25:25
historically this is meant to be a fairly independent board but there's been a lot of consternation over the
00:25:31
last few years that this board acts like almost a political apparatus particularly an election yours you mean
00:25:38
when they're not plagiarizing well tell us what you're talking about it turns out that before I answer
00:25:48
your question that that was a joke Nick you can please show the Tweet but there was an article that came out that said
00:25:55
one of the FED Governors has apparently massively plagiarized most of the work that got her to the position of being
00:26:02
fed Governor yeah so the same thing that happened to the president of Harvard so
00:26:06
TBD what happens to that fed Governor but it seems you know my observation there was just more that it's like the
00:26:12
preferred method of defenestration now of academics and the appara right before if you had right leaning views or
00:26:20
Centrist views you get run out of town and get fired now all of those folks are using these search engines to basically
00:26:28
f fig out really quickly that you plagiarize large quantity of your academic work and that your scholarship
00:26:36
is is a little bit more speculative which then brings into question why do you get the right to to help set the
00:26:42
policy of the most important economy in the world well anyways so that that was that joke but so I think that you're
00:26:48
asking the absolute right question I think that the FED has become increasingly politicized and I do think that there
00:26:59
are actions that foreign governments take to influence the election but I do not think it's what most people think
00:27:07
when I say that most people ideas goes to like some dark room conspiracy theory and misinformation and I think that's a
00:27:15
little bit naive I think the more obvious way in which other governments can impact the US election
00:27:23
is exactly how Sac said which is they know that if inflation ticks High and interest rates are up and consumers are
00:27:29
under pressure and meaningfully displeased with the economy they'll vote out the sitting
00:27:34
Administration and so what can other governments do they can do what they're doing so
00:27:40
Nick I I love this like explanation in three charts Nick chart number one please what is this so this is a core
00:27:49
driver of inflation which is the price of energy and what you see here is that since the beginning of the year oil
00:27:57
prices have gone up which ultimately will translate to into a higher cost of doing business right running your
00:28:03
factory keeping the lights on keeping your home warm getting from point A to point B all of these things go up which
00:28:11
that ultimately get reflected in prices which is what inflation is and so that's
00:28:15
a very bad Trend obviously we had a lot of really good stuff happen through the course of last year but it's largely
00:28:22
reversed itself so it's important to double click into this and figure out well who's driving this is it just a
00:28:29
random act or is it a systemic set of decisions and it turns out it's systemic so if you go to the next chart what this
00:28:36
shows you is what the US has been doing so the United States has clearly created
00:28:42
an incentive to flood the economy with oil which the laws of supply and demand would say prices should go down and by
00:28:52
bringing prices further down they would have further brought down inflation and they would have pulled forward these r
00:28:58
cuts that we had been expecting from the fed the problem is that the rest of the
00:29:02
world actually said no hold on and that's what you can see on the next chart so for every time we were trying
00:29:08
to increase production all of these other countries have been cutting production and this is the change in the
00:29:15
OPEC plus crude production targets of 2024 so what you see here is for every barrel of oil the US would pump out of
00:29:23
the ground more than that one barrel of oil would get actually restricted by all
00:29:27
of these countries on this list which is just to show you that these countries have a very specific view about how they
00:29:32
want that energy Market as and that's just one market but it's an input a key input into inflation and rates to work
00:29:41
so you're saying that the the OPEC has a price per barrel price Target and they're able to manipulate production to
00:29:48
maintain that price Target so while the US is trying to lower the price per barrel these other countries are are
00:29:53
able to have a stronger influence and balance out production to get when you when you make these Cuts Like This
00:29:58
prices will go up because OPEC plus is meaningfully bigger the sum of all the parts of OPEC plus is meaningfully
00:30:04
bigger than just the United States on its own yeah and so the United States May amp up a few hundred thousand
00:30:11
barrels a day but if OPAC cuts by a few million barrels a day you see what you saw in that first chart which is the
00:30:17
price will go up and that's largely why prices have gone up so I think why this happens is because when they see the
00:30:23
United States trying to manage inflation and manage Global rates right because us
00:30:29
rates are not just for the United States they're the they're the trends Setter for everything else I think that in part
00:30:35
there's a decision that this rate philosophy the economic philosophy the political philosophy if they wanted to
00:30:42
support that what they would do is actually also keep prices where they were or increase production but by
00:30:48
reigning in production what you're essentially doing is voting against that entire apparatus right so OPEC and all
00:30:55
of those countries and those decisions are not made by an oil Minister let's be they're made by the leaders of those
00:30:59
countries whose decision then gets reflected by the minister of petroleum or oil in all of these countries is a
00:31:06
vote against Biden and the United States government and the politicization potentially of the fed and then the last
00:31:12
comment is just that when you look at the reverse repo rate which is a fundamental measure of liquidity what
00:31:17
you also see is liquidity very quickly getting sucked out of the system which is also generally a system health check
00:31:25
that the FED uses to make sure that the system is operating as required so in totality what I see is that there is a
00:31:35
structural disillusionment with the current Administration and where people can make decisions in their own best
00:31:43
interests versus the collective interests of the United States in a broader framework that the US may
00:31:49
represent are voting against it and so this is why the idea of a persistent inflation rate is a lot more credible
00:31:57
than it was six months ago and I and I think sorry just the last point and I think it's just what sa says which means
00:32:04
that we're probably now unbalance 5050 between a hike and a cut and I think if you don't see this thing change in the
00:32:10
next three months you're going to see 7525 for a hike of at least 25 basis points and I do think David's right I
00:32:18
don't see how the sitting Administration in any government will be able to withstand the
00:32:24
onslaught of electoral displeasure if rates are four and a half five and 6% going into November Toth if that is I
00:32:34
think everything you said makes sense going into this election rates are high and Andor going higher what does the
00:32:42
Biden Administration do the fact is they are very likely going to come up with a
00:32:48
strategy to try and win votes that will likely involve some sort of stimulatory process would be my guess and that
00:32:56
stimulatory process may look something like more student loan forgiveness more debt
00:33:02
forgiveness she had a whole speech about debt forgiveness and here's here's the irony the actions that the
00:33:08
administration is likely to take to support themselves in the election cycle are likely going to further fuel
00:33:16
inflation and that's the biggest concern and worry I have is that there's almost
00:33:20
this inevitable set of behaviors that are coming down the pipe here over the next few months because of the inflation
00:33:25
report that are actually going to make things worse not better I mean to to your point Biden just announced a new
00:33:31
student loan forgiveness plan remember the Supreme Court invalidated his last one so now he's trying again and it
00:33:36
would potentially give loan forgiveness to something like 30 million borrowers so yeah they're going to try and buy
00:33:42
votes but I think it's already very late in the game to be trying to do that I think that's what they've been doing
00:33:47
over the past few years I mean Biden has been a huge spender you know he passed the the covid relief bill he passed the
00:33:54
inflation reduction act which was a ridiculous name for was it 750 billion of of more
00:34:00
spending and uh there was the chips act which yeah and there was the chips Act and the infrastructure Bill and then
00:34:08
remember he wanted four and a half trillion of build back B on top of that and he wanted even more he didn't get it
00:34:13
any event I think that this is a classic case of Biden spent the last three years
00:34:19
making his bed and now he's going to have to sleep in it and if in fact inflation is persistent and sticky and
00:34:26
not going away and he doesn't get rate cuts again this may cost him the election but
00:34:30
but look I want to move beyond the political aspect of this and just talk about some more of these KnockOn effects
00:34:35
because we talked about the impact on the consumer there's also an impact on investors there's an impact on the
00:34:42
government and there's an impact on on the banks so let's just deal with the banks for a second we've talked about on
00:34:49
the show how commercial real estate developers are hanging on by their fingernails right now you know they they
00:34:56
basically borrowed huge amounts of money to buy commercial real estate when rates
00:35:00
were really low and they did so at high valuations now there's been a huge correction on that market and they
00:35:05
cannot pay back those loans and they can't get refinanced so what's happening well they're working with the banks to
00:35:12
restructure those loans to tack on the interest they can't pay now to the end of the loan and then the bank will hope
00:35:19
and pretend that they'll be able to get paid back one day it's called extend and
00:35:23
pretend well the extend and pretend strategy could work if you believe that r cuts are coming really soon because
00:35:29
you just need to hold on until the rate cuts are here and then you can get refinanced at lower rates but if rates
00:35:35
are going to be higher longer that strategy is not going to work and you're going to see more and more real estate
00:35:39
sponsors throwing in the towel and banks are going to end up foreclosing on these
00:35:44
properties and you're going to see more and more fire sales there's a really dramatic example just the other day in
00:35:48
St Louis a building that was bought a few years ago for $200 million just fire sailed at $2 million I mean 99%
00:35:56
reduction this is like like crash level that's for the equity right yeah no this
00:36:01
is like the price of the deal I mean I asse the equity was completely wiped out yeah I guess they sold it for three and
00:36:07
a half million are you sure that's not the equity that's got to be the equity there's no way that's the no it's just
00:36:11
the price of the building okay I don't know I mean with the debt it's got to have the debt
00:36:16
attach way look I mean either way it's a total wipe out for the equity holders yeah but it's also going to be a wipe
00:36:22
out for the bank that made that loan originally yeah or that bought that loan when is packaged into cmbs or whatever
00:36:29
it was so I would expect that if rates stay higher longer that's going to create tremendous stress on Commercial
00:36:35
Real Estate and and therefore on the re Regional banking system that made all these loans to commercial real estate
00:36:42
developers so that's knock on effect number one knock on effect number two is is the government's cost of borrowing
00:36:48
the 10e rate's already risen to 4 and a half% now and if rates stay higher longer as more and more of the
00:36:54
government debt rolls it's going to end up getting refinanced at higher rat and the need to refinance all this
00:36:59
government debt is going to continue to put pressure on the bond markets and I think this is why Larry is fundamentally
00:37:05
pretty bearish on rates going down is the government's financing costs are so huge and they continue to grow we're
00:37:12
adding something like a trillion dollars of new debt every hundred days there have been some reports of this yeah 7.6
00:37:18
trillion is getting refinanced of old debt in the next 12 months right 7.6 is sitting around 2%
00:37:28
and now it's going to get bumped up to close to 5% right which adds which adds an incremental $210 billion a year of
00:37:36
Debt Service expense just on the debt that's getting refinanced in the next 12 months not to mention the deficit not to
00:37:42
mention etc etc so right so the government was extending and pretending as well I mean they were hoping that
00:37:49
rates would go down fast enough that when all of those massive government debt rolls and needs to be refinanced
00:37:55
it' be done at lower rates so the interest costs wouldn't swamp us we're already I think at over a trillion
00:38:00
dollars now of annual interest expense for the federal government we are yeah and it's going to get it's going to rise
00:38:05
to 1.6 trillion so it's going to be 60% greater than our defense budget just servicing the old debt we're basically
00:38:12
in a classic debt spiral where we're borrowing our annual deficit is we're at 2 trillion plus now so we're not paying
00:38:20
back the principle on the debt we're not even paying back the interest on the debt we're borrowing money to pay off
00:38:26
all the interest and then some on top of that so that's a huge problem for the federal government
00:38:32
and then I think the the last piece of this is investors if you pull up this Fred
00:38:38
chart on the FED funds rate over the very very long term so what this chart shows if you just zoom in on this is the
00:38:45
Fed funds rate basically over the last I don't know like 75 years and you can see
00:38:51
that it peaked in the early 1980s when vulker decided to break the back of inflation by jacking up interest rates
00:38:59
to like 18% and it was very painful we had a pretty severe recession and I think it was 81 or 82 but then the
00:39:08
economy came roaring back by 83 and Reagan got elected in ' 84 in any event that began a period of declining and low
00:39:16
interest rates for investors again starting in the mid 80s and it continued all the way through I mean especially
00:39:25
through I think the post GFC period and then this Co period where we had zero interest rates for a long period of time
00:39:32
and you can see the last Spike we've had was when the FED decided to jack up rates to 5% in response to inflation so
00:39:39
the fact that we've got this persistent sticky inflation suggests that this whole you could call it really a almost
00:39:46
a 40-year period of declining in low interest rates maybe over and when interest rates are going down it creates
00:39:53
a huge Tailwind to the stock market and the bond market because the discount rate is lower so stocks and bonds are
00:40:02
going to be more valuable well if we're in a in a long-term environment that's more inflationary and rates have to stay
00:40:09
higher longer that's not great news for investors it hurts the stock market and it creates in in the private investing
00:40:17
world like VC and real estate it creates a much higher hurdle rate so it's harder
00:40:22
for for private investors to justify fundraising so you know I think think it's too early to say that this 40-year
00:40:30
trend is over but I think it could be and um and and the reason for that is just the huge pressure of government
00:40:38
borrowing crowding out private investing and this sort of everpresent need to keep issuing more and more debt at
00:40:46
higher and higher rates to make it more attractive is going to create I think just very bad conditions for for
00:40:53
investors so Chim let me ask you if you concur given that today where we're sitting as
00:40:59
of recording right now towards the end of market on Thursday April 11th the NASDAQ is sitting at an all-time high
00:41:07
and the NASDAQ is up 1.6% today following this inflation report yesterday what's the disconnect in the
00:41:14
market on why investors are buying equities given that we're likely going to have persistent higher rates and as a
00:41:24
result multiples should compress particularly in growth stocks and why the nasdaq's kind of firing
00:41:31
up I think it's important to look at what stocks are actually lifting the NASDAQ just like what stocks are lifting
00:41:37
the S&P 500 and we've seen this there's a massive dispersion there's like seven or eight companies that matter and 500
00:41:44
odd companies that don't matter much and so the reason why things go up in an environment like that is
00:41:51
irrespective of the economy money managers are paid to deploy money and I don't know if you guys saw this but Nick
00:41:58
maybe you can find it I linked to it in my newsletter last Sunday which was an article about the fact that the global
00:42:04
amount of total available equities to buy is shrinking right so if you think about
00:42:11
that what that means is that the number of dollars is growing right linearly and
00:42:16
in some years it seems exponentially but then the and so then a certain percentage of that Finds Its way into
00:42:23
the equity markets but when the equity markets continue to shrink and there's few and fewer things to buy prices will
00:42:30
still go up irrespective of the underlying justification so I think that the the thing is you can't look at these
00:42:36
things as a sign per se you know if you look at Commodities as a different example Nick I sent you
00:42:42
this Commodities are up broadly speaking 30% since the beginning of the year the I think the reality is the
00:42:51
following countries are feeling increasingly uncomfortable with the decisions that the United
00:43:00
States are making whether that's its position to keep funding the war in Ukraine whether that it's the continued
00:43:07
instability in the Middle East whether it's posturing with China whatever it is and so every country is now making a
00:43:14
very different calculation about what they want to do and I think how it gets reflected is that they're optimizing for
00:43:19
their own economies and what that yields is each of them trying to make as much money as they can in the short term and
00:43:26
as as a country that is a net importer we are going to feel the price of those decisions as inflation and I think saaks
00:43:34
is right like that's where we have to start figuring out how we rebalance these decisions from a foreign policy
00:43:41
and economic perspective because if you don't change something here all of these
00:43:45
countries are basically going to be like we're on our own we're going to optimize
00:43:48
for ourself they're these countries are basically voting in a way that says we are not being led in a way that we trust
00:43:55
and that unfortunately Falls at the feet of the sitting president yeah well look
00:44:00
I'm hopeful as we all are that work in the tech industry that new tools and Ai and
00:44:08
other Technologies would have a massive driver on productivity which netn net could help even this out that's the one
00:44:15
last great hope sitting here AI obviously viewed as being highly disruptive by non- technologists and
00:44:23
deeply concerning and particularly in DC what is but what is that thing that Bill
00:44:28
Gates says things are overestimated in the short term and deeply underestimated in the long term I think that that's
00:44:34
that's what AI that's right that's right and so AI is a bunch of no offense probabilities and statistics today okay
00:44:42
and so we talked about this last time so we should debunk this whole thing of like there's some glowing brain
00:44:47
somewhere that's capable of doing everything doesn't mean that we shouldn't underestimate it being capable
00:44:54
of this in five or 10 years which is probably the window in which we have some form of AGI but today it's not that
00:45:00
and so the the great leaps in productivity freeberg that you're talking about are probably a 3 to five
00:45:05
year phenomenon not a three to five month so what saak says is Right which is how does the sitting Administration
00:45:12
buy votes today stimulatory be it'll have to make a ton of promises the problem is it can't really work its way
00:45:18
into the economy fast enough come the November election and so that that's where I think they're in a really tough
00:45:25
spot which means that then and and I hate to B it bear or bad news but this is where you have a lot of
00:45:31
these Wag the Dog kind of scenarios that come to mind because then the only way to really Galvanize a populace is to
00:45:39
distract them yeah well look let's talk a little bit more about AI because I do think that regardless of the near-term
00:45:48
and longer term implications there is a peing of fear peing of Interest both different spelling of the word Peak Adam
00:45:57
shiff yesterday proposed a bill sorry earlier this week called the generative AI copyright disclosure act in response
00:46:04
to I think over a hundred musicians signing a letter saying they're concerned that their copyrighted works
00:46:12
are being used to train AI models and Nick if you'll pull up the text from the bill that I pulled out here real quick
00:46:19
we can take just a quick look it's a very short bill it's only five pages long and it defines a generative AI
00:46:25
model uh that's a combination of computer code and numerical values designed to use artificial intelligence
00:46:32
to generate outputs in the form of text images audio or video and that it substantially uh incorporates one or
00:46:40
more models as a system and it's designed for use by consumers and what the bill then asks is that anyone
00:46:47
developing these models has to submit to a register run by the federal government
00:46:54
a list of all of the data that they used that might be copyrighted to train the model and that this becomes a precursor
00:47:02
to being able to legally develop and use AI models that you actually have to register the training data so I have a
00:47:08
rant on this which I'm going to preserve for the end given my rights as moderator
00:47:13
here today but I'd love the reaction from saaks first on shift's proposed Bill Jam moth and we'll run this one
00:47:19
around the horn pretty quick well I first of all I think it's just it's too soon for this legislation I mean the the
00:47:25
first thing that needs to happen is we to get the question of fair use arbitrated by the courts we've talked
00:47:30
about this before people publish lots of information on the internet and I guess
00:47:36
technically it's copyrighted but it's been published in a completely public way and humans are obviously allowed to
00:47:43
read it and and use it to generate their own work I think there's a question about whether AIS are allowed to learn
00:47:49
from it as well and I would argue that they should be to some degree under fair use maybe if you're talking about
00:47:56
copyright write of songs I don't know if that's different anyway these questions
00:47:59
need to be arbitrated and once we know that then we'll know whether there's a need for a rights Clearing House of some
00:48:07
kind which may not be a bad idea I actually got pitched by a Founder recently to create a rights marketplace
00:48:16
with copyright holders on the on the one side or rights holders could be musicians could be movie studios could
00:48:23
be anyone who owns content and then AI on the other that want to license that content for training purposes and I
00:48:31
actually thought it was a pretty good idea so my point is just that there are entrepreneurs working on solving this
00:48:38
problem as well and I guess what I'm saying is I'd like to see fair use figured out and i' like to see what the
00:48:44
private Solutions are going to be before we try to legislate this problem away from really a point of ignorance because
00:48:52
we're so early in the development of this market now I think one of the questions you have to ask here is why
00:48:57
did Adam Schiff introduce this bill and who is Adam Schiff Adam Schiff is a powerful California congressman who is
00:49:05
the candidate for US Senate right now and he's expected to win he's he's ahead of Steve Garvey who's the Republican
00:49:11
candidate by like 30 points Schiff is in addition to being a vicious partisan who's known for for
00:49:20
rushia gate he also is a prodigious fundraiser and when he's not in front of the camera he's very effective in closed
00:49:29
doors appealing to the key special interests in California that matter and my guess is that he's not carrying water
00:49:36
here for the hundred musicians who signed that letter he's carrying water for the big studios the big Hollywood
00:49:41
Studios including music labels but also the movie studios and he's an LA based Congressman yeah I mean that's who he's
00:49:49
representing now at the same time my guess is that he's run this by the big tech companies and he's probably got
00:49:55
their blessing some degree because like Bill Gurley always points out they like rules like this because of regulatory
00:50:02
capture they can comply with them but the little guy the entrepreneur who's trying to create something new has a
00:50:07
much harder time complying with these regulations so this is basically a big special interest group sort of deal that
00:50:16
I think he's he's putting forward do you think this becomes law not yet but it's
00:50:21
Paving the way for something and it's more like his promotional effort during his campaign effectively well I
00:50:28
mean his they'll still try to move it legislatively but yeah I mean the the big La powers that be like this and they
00:50:37
love this yeah Jam any reaction to this bill I think there was an article in The Verge
00:50:47
that I posted it turns out that open AI transcribed over a million hours of YouTube videos to train
00:50:55
gp4 my take away when I read this was well if Google's not going to sue open AI then this is a mood
00:51:04
point because you're talking about one of the most valuable companies in the world with one of the most valuable
00:51:10
sources of training data in the world and so if if that if it's true that there was a copyright violation and
00:51:17
Google just lets us go what's anybody else supposed to do what chance does these group of singer songwriters have
00:51:24
and you know no offense to Adam shift but he's not going to be able to do anything so if this multi-trillion
00:51:31
dollar company doesn't draw a line in the sand then none of this matters and everybody's going to train on everything
00:51:38
I think like my big Takeaway on all this is that there's a real deep misunderstanding on what
00:51:52
these models really are and what they're doing the assump I think naively is that they take in a buch of
00:52:01
data and then they spit that data back out and in some cases maybe slightly transformed but the truth is that the
00:52:10
models don't actually hold the data that they're trained on they develop a bunch
00:52:17
of synthesized predictors that they learn what the prediction could or should be from the data and this is
00:52:25
similar to how humans operate can you pull up the article Nick that I posted this article is from last May and
00:52:33
you guys may remember this case I can't remember if we talked about it on the show but Ed Sheran was
00:52:39
sued by the estate of the writer of uh the Marvin Gay song Let's Get It On for infringement in his song Thinking Out
00:52:50
Loud and he actually prevailed in court where he went through with the jury how he comes up how he runs his creative
00:52:58
process how he came up with the song and how he does his work and as you know Ed
00:53:04
Sheron and nearly every musician or every artist listens to other people's music looks at other people's art and
00:53:11
they synthesize that data they synthesize that knowledge and that experience into their own creative
00:53:17
process to Output what in their mind is a novel creation and I think that AI Works in a
00:53:25
similar vein in that it's not actually storing the images it's not actually storing the music of third parties it's
00:53:32
learning from that process we all like musicians learn on classical music they listen and play other pop artists music
00:53:40
and then they learn things that they like things that they don't like things that fit together well certain
00:53:46
intonations syncopations and that's how they develop their own tracks and so I think that the um assumption in AI is
00:53:53
that it's almost guilty until proven in inent is what's going to really challenge this technology getting
00:54:00
Mainstay appeal and being useful uh in the way that it could and should be that the de facto is that it's learning and
00:54:07
training is copyright infringement I don't buy that you that stores the data no that that just because you're
00:54:17
learning like a human it's not copyright infringement and I'm sorry let me let me
00:54:21
make my last statement which is that I do think that similarity is measurable and that is copyright infringement so I
00:54:27
would rather than focus on how you train the model I would encourage legislators
00:54:32
to find as Saks points out a better process to Define what makes one thing distinct from another run that analysis
00:54:41
and then use that analysis to determine uniqueness and that analysis is ultimately what should determine whether
00:54:47
there is copyright infringement versus the how was the model trained exercise which is rought with challenges as you
00:54:53
guys know how do you determine weightings how do you determine whether this was even relevant to the model we
00:54:58
don't even know if the models ignore the data or use the data in their synthesis
00:55:02
or in their waiting it's all very opaque and so it's almost like hey here's a list of stuff that I read but I may not
00:55:08
have even paid attention to 95% of it when I was reading it we don't know and so I'd rather focus on is there
00:55:15
copyright infringement in the output does the output mimic an original copyrighted source and if it does then
00:55:21
that's where the infringement should lie not on the how did you do it I think that you're creating an impossible
00:55:27
standard is it 5% the same is it 8% the same is that 14% where's your threshold is it how that different than training
00:55:34
how's that different than training if I'm JK rling am I not allowed to read other authors copyrighted books for fear
00:55:40
that by reading it I will now use their copyrighted material in my novel book okay stick with that example but we
00:55:46
can also use the Edge shear an example Nick can you play this video I could play you every song in the pop charts
00:55:51
right now over four chords you name any song and I'll play it in the four chords
00:55:55
so these These are CS fcgn messenger um that's your friend um uh cuz you only need the light when it's burning low
00:56:04
only miss when its starts only know you love when you let her go I'm walking away CRA David uh C David I'm walk
00:56:14
away the in last one Let It Be Beatles when I why is that important obviously it's
00:56:27
not illegal for Ed to have learned these four chords but if he tries to produce those songs and calls them something
00:56:33
else that's clearly somebody else's IP similarly I think that if you don't give people the right to say yeah of course
00:56:41
the letters AB c d e FG all the way to Z are not my invention it's the alphabet I
00:56:46
don't control that I don't control words and their meanings but when I put one word in front of another in front of
00:56:51
another purposefully and I create something that has value to me I should have the right to protect protect that
00:56:57
and I think that's the fundamental question should you not have a right to protect it should you allow somebody
00:57:02
else to take that and in some opaque way and undefinable way make a system that could compete with that thing and have
00:57:11
no repercussions I think that that's what people need to decide and I'm fine by the way one way or the other yeah in
00:57:17
the Ed Sheran case he was saying the exact copyrighted lyrics and he was singing the exact copyrighted Melody he
00:57:24
was just playing the harmony with four chord I that was kind of the point he Wasing in the case of all the the
00:57:31
copyrighted material you're stating I want to protect it from showing up in the end product of someone's creative
00:57:37
process I shouldn't care about them listening to my song in their creative process everyone always references how
00:57:42
Oasis sounds like the Beatles right they those guys love the Beatles they listen
00:57:45
to The Beatles so much of their music mimics and and sounds like the Beatles but the Beatles aren't going to file
00:57:50
infringement suits against them they were inspired by The Beatles that was part of their creative process and so I
00:57:55
would argue that the output should really be where we assess this stuff and it's going to take a lot of cases you're
00:58:00
creating an impossible standard where no any individual person will have the economic wherewithal to fight this and
00:58:07
so it's basically seeding all creativity to the board and I don't think what is what is the standard of measuring how
00:58:16
someone is training their creative process your standard is I gotta go I don't think I got to go listen I got to
00:58:21
go you got to tell me every time you as an artist listen to a song and then I'm going to deter determine whether or not
00:58:27
you are listening to copyright music and making your own music that's basically what we're asking for here with this
00:58:33
bill that's not I don't I'm not talking about the bill I'm talking about this idea that if you train a system that can
00:58:39
actually automate a task for you based on some learning That's Unique you should be able to uniquely protect your
00:58:46
ownership for example we have a different set of ways in order to protect processes that are unique to you
00:58:52
which is you can have a patent or you can have a trade secret but if you R all of this stuff away where some system can
00:58:59
in an automated way do anything for you and replicate a whole bunch of work that
00:59:04
it sits on top of to be able to do that without any repercussions I think that that's a very important explicit
00:59:10
decision and what I'm saying is you cannot expect individual people to go and fight these little battles against
00:59:16
these big multi hundred billion dollar companies if the big multi hundred billion dollar companies and trillion
00:59:22
dollar companies don't fight the other multi hundred billion dollar and trillion dollar companies what they're
00:59:27
effectively saying isone of this is worth anything copyrights are worth nothing and I'm okay with that decision
00:59:33
but it should be an explicit one and it's not going to happen the other way where some five-page law from a guy
00:59:40
who's trying to get elected is not the thing that's going to make a the difference the difference is if Google
00:59:45
doesn't Sue open AI it means copyright is worthless and by the way that article didn't just point the finger at Google
00:59:51
it pointed the finger at meta where there were explicit decisions to say yeah no let's just violate the copyright
00:59:56
it's it's okay and if it's okay then it's okay sax you're the independent Arbiter here any summary well somebody's
01:00:06
going to litigate it somebody's litig GNA litigate it you're you're right it'd be surprising if Google didn't want to
01:00:12
given how valuable all their YouTube content is and a competitor you know slurped it up to train their model but
01:00:18
somebody will will litigate this it could be these songwriters who knows and then we're going to we're going to get
01:00:24
some messy arbitration fair use and it's probably going to work its way up over the different circuit courts you'll
01:00:30
probably get different judgments and finally the Supreme Court will resolve it and then we'll kind of know where
01:00:35
things stand and then and then there'll be a legislative fix I I don't know where it's going to
01:00:41
end up I mean I know what Jal would say if he were here I'm sure he's like chomping at the bit be part of this
01:00:45
conversation he would say that creators deserve to get paid for their AI rights and that if you want to make money
01:00:53
training a model on their cont you got to compensate them I also I I I buy I buy your argument too which
01:01:01
is you're not really violating their their rights for the AI model to read their content and analyze it which is
01:01:10
what it's really doing as long as it doesn't output a violation of their copyright and that's what all artists do
01:01:18
that's what all humans do the creative process is one of initially synthesis you learn from other people's works you
01:01:25
you learn from the environment around you you learn from the world that you're exposed to but there was compensation in
01:01:29
those other bottles there was not you don't oh Oasis never paid the Beatles to listen to their music they the radio no
01:01:37
that's not true they listened on the radio they may not have paid but some Advertiser paid for an ad the radio
01:01:43
station had to pay ASCAP and BMI there was publishing rights there was all kinds of other rights so that's not true
01:01:49
what you're saying I'm not what I'm what I'm saying is it's not copyright just because I train my process somebody got
01:01:54
paid so that singer songwriter did get paid they may not have getting paid by the listener but in this example
01:01:59
nobody's getting paid look I think there's three potential outcomes here okay outcome number one is that freeberg
01:02:06
wins and the courts decide that this is fair use and these AI companies aren't in violation copyright infringement is
01:02:14
measured in the work of art that is produced not in the process by which it is generated right okay so that's
01:02:20
solution number one I think solution or outcome number two is that the courts throw a big wrench into it or a bill
01:02:28
like shift bill which is largely punitive throws a big wrench into it and I think what happens then is new AI
01:02:35
companies have a really hard time accumulating training data and so the incumbents who already have all the
01:02:41
training data they may have to pay a fine there'll be some slap on the wrist but now you've created a real moat and
01:02:46
barrier to entry and so secretly they're going to love it and it's going to be a
01:02:50
big problem I think for the open source movement so that's outcome number two and then outcome number three is you
01:02:56
create some sort of Rights Clearing House kind of like uh exists in the recording industry where if you want to
01:03:04
cover somebody's song or perform somebody else's song there's already predefined terms on which you can use
01:03:10
those rights and then there's a compensation mechanism for that so you don't have to go negotiate every single
01:03:16
deal that you want to do you can just use the song you can use the rights and there's again compensation for that that
01:03:23
would be like the compromise I could see that alter number three existing in which case the
01:03:29
incumbents probably like that because they again they want there to be a barrier to entry they want to make it
01:03:35
hard for the guy in the garage to Pony up the the capital necessary to create a new model but at least that would be a
01:03:43
somewhat functional system it wouldn't be outcome number two which would totally put the kabash on the use of
01:03:48
training data so in any event I don't know which one of the three it's going to be but those are the three potential
01:03:53
outcomes that I see Happening Here have you guys seen UD udio uh no it's like a new music geni
01:04:03
system it is frakin unbelievable is that vod's thing or vod's another thing I think vod's another thing this one just
01:04:11
came out it was apparently rumored for a while ex deepmind employees started yudo
01:04:17
it's been this kind of like hot stealth company for a couple of months people have been
01:04:24
talking about it as rumored to to be the best music AI but here is someone that said Dune the Broadway musical and this
01:04:31
is what it outut go ahead of AR the greatest leader we've ever seen they say that he's a listen
01:04:42
gu and onand back that's crazy you can hear the layers of Music the layers of the
01:04:51
tracks the smoothness the tempo obviously like there's just so many layers to this Nick
01:04:57
can you pull up another one some of these are just incredible because it spans genres it spans Styles it's like
01:05:04
so beautiful like the way it's put together every every piece feels somewhat emotional it's Unique it really
01:05:11
doesn't feel like you're just listening to someone printing copyright music funky dance pop
01:05:20
[Music] song create a birthday song for my friend Irvin create an Irish folk tune with violin
01:05:33
and [Music] instrumental it's pretty incredible and I think it shows the state-of-the-art is such now that this
01:05:49
is going to become a real challenging question from a legislative point of view given how far ahead these
01:05:56
technologies have gotten and I think that musicians artists consumers are going to start to use these tools in a
01:06:01
really prolific way given how good they are now I heard from someone that just sat for hours creating tracks that they
01:06:09
listen to on udio the other day and so you're basically just playing your own music all day long it's really
01:06:15
incredible anyway exciting time hopefully all the lawsuits and the legislators don't get in the way of all
01:06:20
this Innovation cuz it's moving really fast and we should just kind of see where it goes before trying to clamp
01:06:25
down totally mhm guys I want to talk about as you know this like emerging Trend that we've been talking about
01:06:32
offline about drones in Warfare recently we saw small drones controlled by the houis attack cargo vessels in the Suz
01:06:40
Canal it led to rather large scale Supply disruptions economic value destruction we've seen
01:06:46
videos I think you have one we can pull it up and take a look of Ukrainian controlled drones flying in to destroy
01:06:53
tanks and large warehouses and Russian held territories causing tens of millions of dollars of damage I think
01:06:59
we're seeing the acceleration of the changing face of warfare technology lots of these small form factor lowcost
01:07:05
autonomous physical agents and I think there's a bunch of implications both with respect to war but also how we
01:07:12
spend money on defense and how Silicon Valley is involved in response um sax I'd love to hear your your points of
01:07:19
view maybe you can highlight for us some of the things you've been seeing in the
01:07:22
utilization of these new technologies in in the war given you're our in-house War
01:07:27
correspondent and you obviously had do some work in Silicon Valley go ahead I've heard a lot about the impact of of
01:07:33
drones just by watching the coverage of the Ukraine war I was listening to an interview with an American mercenary
01:07:40
who's fighting on the side of Ukraine and he described how ubiquitous these drones were on the battlefield now he
01:07:46
said that you literally can't get out of a trench to go to the bathroom because a
01:07:51
drone will basically uh get you and he said they're buzzing around they sound like mosquitoes because they're kind of
01:07:57
just everywhere on the battlefield both Ukraine and Russia have them and several
01:08:04
months ago going into this year zalinsky said that this would be the big game changer for Ukraine they're going to
01:08:08
make a million drones I don't think it's worked out that way it turns out that as
01:08:11
many drones as ukrainians have been able to put on the battlefield the Russians have even more because they're able to
01:08:17
mass produce them in factories they've got bigger drones better drones and I think the most important variable in in
01:08:24
the war so far with respect to drones is that the Russians have pretty Advanced electronic warfare and so they've been
01:08:31
able to jam a lot of the Ukrainian drones whereas the reverse has not been true for the ukrainians so I would say
01:08:38
that drones have been a huge factor in the war but so far the balance there is tipping towards
01:08:45
the Russians as it is in so many other areas as well but to your larger Point there's no question this is the the
01:08:51
future of warfare and you're seeing that it's cre creating a lot of opportunities
01:08:57
for asymmetric Warfare so for example with the hoodies they've been firing cheap missiles and drones at our at our
01:09:06
ships in the Red Sea and we've been having to spend $2 million air defense missile shooting down $2,000 drones so
01:09:13
if if that continues and we don't have a good response to this problem it's going
01:09:17
to really change the balance of power I don't know if this was at our Summit or if I heard it this later from some
01:09:22
senior person in the military who said that aircraft car are outdated technology like they don't
01:09:27
make sense anymore and we're going to see a shift towards lots of small autonomous drone like systems on the
01:09:37
battlefield taking out targets and as a result if you Game Theory this out the necessity for defense systems against
01:09:44
large amounts of swarming drone like systems and then you know what do you actually have to do with your existing
01:09:52
military architecture to play into this kind of new Tactical system and then that's going to require a massive
01:10:01
evolution in technology and is the United States prepared they should Silicon Valley play
01:10:07
they should be we should I maybe Nick you can throw up this the first link that I sent you but eight years ago I
01:10:16
came to this conclusion and I invested in this company called s drone which is autonomous drones in the Seas our
01:10:22
customers include the US Navy the chairman of our company actually is is Admiral Mike Mullen who is the former
01:10:27
chairman of the Joint Chiefs of Staff but these drones are capable of going into some of the most dangerous places
01:10:33
in the world and collecting enormous amounts of surveillance data and information that otherwise
01:10:41
takes the United States government lots of time and lots of money and is pretty scattershot and instead with these
01:10:48
things you can be constantly in hotpots and if you go to the next one so much that you know
01:10:55
we've deployed some of these drones in the Middle East and there was a point at which the Iranian Navy intercepted two
01:11:02
of our drones and picked them up and this was kind of like a a global thing a few years ago but I really believe in
01:11:08
this trend and I think that we have an enormous responsibility to be funding these things these are really
01:11:14
complicated systems to build obviously and they take lots of time so these are not overnight successes freedberg and
01:11:20
they take lots of money which is hard to come by as well but these are absolutely
01:11:24
the right kinds of businesses because eventually at a minimum you Building Systems that can measure and collect
01:11:30
enormous amounts of really critical data so that people can make better decisions
01:11:35
which hopefully is measured in Saving life right and then over time you actually get to a military that should
01:11:43
be much cheaper much safer and has fewer people in general on our side and on our
01:11:49
enemy sides on the front lines which means fewer casualties and I think that that's the whole value of this entire
01:11:56
movement it's cheaper it's way better it's much more useful and it gives the respective armies that use these things
01:12:05
or militaries rather a fuller picture so that you can make decisions that have enormous consequences yeah and in
01:12:11
February the Department of Defense on a panel in Arlington Virginia briefed reporters and Industry folks on their
01:12:21
interest in growing their Partnerships in Silicon Valley to access the necessary technologies that are going to
01:12:28
rewrite the face of warfare I don't know about you guys but I've seen kind of two
01:12:34
sides of this in Silicon Valley a good number of venture capitalists and entrepreneurs and technologists think
01:12:41
that it's morally incorrect to support warfare technology and then there are a few that are going blazing ahead with
01:12:49
supporting this new Evolution and these Technologies do you guys see the same and is there going to be kind of this a
01:12:55
big step to weaponize these things right so s drone we have a very good big thriving successful business these
01:13:03
machines aren't weaponized by any stretch of the imagination and so I think that
01:13:09
that comment is more genuflecting and virtue signaling than it is real because in order to even be
01:13:18
legitimately considered for some kind of like armed unmanned product you have to be deep
01:13:26
inside of the bowels of the dod and Pentagon and have been working with them for years to even be taken seriously so
01:13:33
the startups that are like assing those deals are not even close to those deals and the startups that are close to them
01:13:40
are probably being much more quiet and thoughtful and Hush Hush because the path to do that isn't legitimate unless
01:13:46
you've been in business with these folks for 10 plus years yeah I think it's it's more a commentary on the fact
01:13:53
that if this is where an organization the Department of Defense that has a trillion dollar
01:14:00
annual budget is going to be allocating resources that technology is going to need to come from somewhere and the
01:14:08
investors in Silicon Valley that are making these Investments are likely going to outperform those who are not
01:14:15
does that sound reasonable to you saxs that there is this shift underway and that again who have sh shied away from
01:14:21
defense technology are you know necessarily going to be left out of a you know kind of a new industry that's
01:14:27
emerging in Silicon Valley well I guess the way I put it is that the US government spends over $800 billion
01:14:33
every year on defense and it's not clear what we're getting for that money because in Ukraine for example we've run
01:14:40
out of artillery shells we've actually we've run out of Patriots we've run out of javelins we've run out of stingers so
01:14:45
we're spending all this money we're not getting a lot for it and part of the reason is because the defense industry
01:14:50
is Consolidated down to these five Prime defense contractors who are basically an
01:14:56
oligopoly and we have this Cost Plus procurement system where they just raise their prices every year and the
01:15:01
government pays it so I think all of us want the United States to have an effective defense I
01:15:07
mean I want us to use our military power more wisely I don't like all these stupid Wars we keep getting in but I do
01:15:12
want the United States as an American to be the most powerful country I do want us to get the best value for our defense
01:15:21
dollars and the only way that's going to change is if if the defense industry gets disrupted by a bunch of startups
01:15:28
doing Innovative things and there's no question that I think drones are the future of warfare so your point about
01:15:35
autonomy I think that is where this is going next is that right now the drones are typically controlled by you know
01:15:43
somebody with like a VR heads called teleoperated teleoperated and they're fpv this firsters Vision drone and you
01:15:52
basically strap some sort of explosive on to it and then you drive it into whatever your target is yeah those types
01:16:00
of drones are easier to disrupt by electronic warfare because if you can disrupt the signal from the T operator
01:16:08
then the Drone basically doesn't know what to do and so you're right the next step here is autonomous systems that can
01:16:17
be programmed with a Target and can find it on its own make decisions on its own
01:16:23
and then they also build in some shielding against some of this like jamming technology or this ew electronic
01:16:29
warfare technology so that's where all these things that's where the battlefield is of the future is headed
01:16:36
and in a in a weird way if you think about humans becoming a smaller and smaller piece of the battlefield and
01:16:43
autonomous drones becoming a larger and larger piece of it these wars become resource Wars and basically technology
01:16:50
Wars that's right which which may or may not be good I don't know but by the way
01:16:54
so so this is the point I wanted to make if you pull up this chart if if that is
01:16:57
where Warfare is headed is a large number of small autonomous systems that go and find a Target and try and execute
01:17:05
a mission and you know in the case of Ukraine saying they want to have a million China might say I want to have a
01:17:12
100 million all of these systems are dependent on lithium ion battery systems today 79% of lithium ion battery
01:17:18
production comes out of China the US is only 6.2% of global lithium ion battery production and China has talked about
01:17:27
scaling up drone manufacturing to a level that the US simply cannot even contemplate in its industrial
01:17:34
architecture today so it seems to me that if that is where Warfare tactically is headed that China has a huge leg up
01:17:44
and is going to become a critical point of dependency for the United States to develop an
01:17:49
Arsenal necessary to be competitive in this this kind of next evolution of warfare I will say that like if you then
01:17:56
Game Theory this out like how do you defend against these autonomous electronic systems there's a technology
01:18:01
called EMP or electromagnetic pulsing where as you guys know if you run a very high current electric field
01:18:09
you can actually send out and emit a pulse that then when it hits electronic circuits far away induces a high
01:18:16
electric current in those circuits and short circuits them so emps are a defense system that allow you
01:18:24
to take electronic systems and this has been you know kind of a a part of warfare since probably the 1960s 50s but
01:18:32
targeted emps and targeted systems for eliminating all of these autonomous systems becomes a new defense
01:18:38
technology that I know several startups in Silicon Valley that have been funded with a lot of capital by folks that we
01:18:45
all know very well that are kind of pursuing this we don't have a choice because I think the point is that if you
01:18:51
nick you just post this photo we have an enormous human capital problem with the
01:18:56
military which is there's just not enough folks in listing anymore so we don't have any choice except to automate
01:19:01
and become drone dependent just tell us these numbers Jam this is a chart from the Department of Defense that shows
01:19:08
military enlistments looking back from about the 1970s through today and these are two lines that are just going from
01:19:16
the upper left to the lower right and so we're at alltime lows with respect to the number of people that actually want
01:19:22
to join the military and so if we are supposed to as saak said be this very sharp fighting force then all of the
01:19:31
money that we're spending needs to get allocated into things that can be remotely
01:19:36
operated we don't have a choice yeah I mean so freeberg you you asked the question how do we defend against these
01:19:41
drones yes there's EMP technology if you want to use an EMP you better make sure
01:19:47
there's not any planes nearby because it will take them out of the sky you better
01:19:50
make sure by the way there are now there's you can Target emps in a narrow cone which is part of the the technology
01:19:57
you better make sure you don't hit any of your own stuff because you'll fire the electronics on those unless you EMP
01:20:01
Harden them which by the way will happen I mean if if the US gets really good at
01:20:05
at sending out EMP pulses then our opponents will start EMP hardening their drones but any event yes it's a category
01:20:13
of Defense so is electronic warfare the the one defense investment I've made is actually in this idea of how do you
01:20:20
defend against drones and it's a startup where I led the seed Dr called Allen control systems and they have a product
01:20:26
called bullfrog which is a gun turret that uses a standard m240 machine gun but it's got a scanner next to it next
01:20:35
to the machine gun that is searching the sky for enemy drones and it uses computer vision to recognize them and
01:20:43
then it just shoots them down like very quickly and it seems to me this is it's maybe not the only way of doing it but
01:20:49
it's a really good way of doing it because uh you can mount these things to uh a vehicle I mean imagine in the
01:20:58
future that we have these autonomous drones everywhere that are basically assassination drones how you going to
01:21:04
stop them I mean how do you move the president of the United States around I mean in his Caravan you're going to have
01:21:09
to have you know his Caravan is going to have to have some sort of electronic warfare system on it to basically
01:21:17
prevent drones but it's going to need some sort of last line of defense where you can actually shoot a drone out of
01:21:22
the sky or stays in his b so SX you don't you don't have any moral trepidation around investing in defense
01:21:29
technology just to be clear well you know I'd have to think twice about investing in a in a weapon this is more
01:21:34
of a defense technology this is defensive in nature where you're trying to take out a drone that would be
01:21:40
attacking one of our bases or installations or convoys so this is fundamentally defensive in nature and look I want
01:21:48
America to be the most powerful country I'm an American I'm patriotic so I don't
01:21:53
want our troops be able to be hit by enemy drones so no I don't have any more problem with this I do have a problem
01:22:01
with all the stupid Wars the United States gets into but that's on a policy level I feel like that's separate right
01:22:07
from the question of do we want our guys to be protected yes we do and chamat you
01:22:12
don't care you would invest in defense technology companies no I care I think that I would probably have to think
01:22:17
twice about making weapons and I'm not sure that I'm really interested in that but like I said eight years ago my
01:22:22
thought was we need to move to just looking at those Trends we need to move to an entire surface area of unmanned
01:22:29
autonomous vehicles and I really like this idea of a class of machine that's there to surveil and collect all the
01:22:38
important data so that you can make better decisions and it's taken us eight years but we're firmly entrenched now I
01:22:44
think the fact that both of you highlighted degree of trepidation and you guys are like fairly outside of the
01:22:51
middle bounds of how Silicon Valley would think and make decisions indicates like why so much of Silicon Valley has
01:22:58
deep concerns about investing in defense technology and the US despite having the
01:23:03
best technology may be challenged by the fact that our Silicon Valley technologists and investors
01:23:12
are held back on pursuing these Evolutions because of a moral suasion and I think it is
01:23:20
something that the Department of Defense has highlighted is that iar it's never like we've been faced with that choice
01:23:27
and the reality is like if the choice is stay small or scale up and be really big
01:23:34
you know it's hard to turn away from that decision but that choice isn't a realistic one this is why I was saying I
01:23:42
think it's you you can come into it with the moral framing but I do think that sax is Right which is if you believe
01:23:48
that America should be the most important country in the world and you have the ability to help it be that
01:23:55
eventually some of those decisions will come in contact with this kind of decision and usually though it takes
01:24:03
many many years before that's realistic and to be honest from what I've seen the opportunity to pursue that is
01:24:13
generally so financially remunerative that everybody's like okay I think we have to do it you know I don't have a
01:24:18
problem with investing in a company like andrel I mean America needs defense companies in order to maintain its
01:24:24
defense and the problem right now that we have is there's these five Prime companies that are Antiquated and really
01:24:31
expensive and we need startup disruptors to that so I'm not like morally opposed
01:24:36
to it and in fact I think it's probably a good thing I think my concern would be
01:24:40
I don't really want to be part of the military-industrial complex I feel like it
01:24:44
might like corrupt my views on things like I don't want to you want war you'd be Gering for war yeah like I don't want
01:24:50
to be I don't want to feel that's your demand gen that's I right I don't want to feel an incentive to be like these
01:24:57
generals who go on CNN and Fox News and justify every single War that's my biggest fear as well it's like it's one
01:25:04
thing to be investing in a bunch of companies where we're sitting around hoping for cheaper clicks on Facebook
01:25:09
and Google it's an entirely other thing to sit on the board of a company and hope for war that's a horrible place to
01:25:14
be I think on that point that's a great point to wrap on guys this has been fun a little more flat than it would
01:25:20
normally be with jcal we miss him we wish him well we hope his tooth recovers and um we will be back with
01:25:27
your it's like that scene in Dune where he eats his tooth and releases that poison gas that's right that's right get
01:25:36
better soon jcal please uh if you're interested in the summit summit. Allin podcast.co click subscribe on YouTube
01:25:43
I've been given notes to say that for the chairman dictator chamath poopaa The Raid Man David Sachs I am your sultant
01:25:51
of science Dave fredberg we will see you guys next week love you you byebye let your winners
01:26:01
ride Rainman David and instead we open source it to the fans and they've just gone crazy
01:26:10
[Music] withen besties are that's my dog taking Drive wait wait oh man oh man myit will meet me at we
01:26:30
should all just get a room and just have one big hug orgy cuz they're all this useless it's like this like sexual
01:26:35
tension that they just need to release [Music] somehow we need to get merch [Music]
01:26:52
our I'm going all man