E163: Market rips, Media RIFs, Texas defies Biden, Fintech reckoning, ARkStorm 2.0 & more

is this a real picture is this help you come on stop last year the gut I recognize the gut very it's like a fingerprint youut printed him you gut printed him oh my God look at this picture pull it up oh no this ister is unbelievable I I don't think you guys know there's a treasure Trove you go to Google Images you type in Phil's name and WSOP which is the last thing I would ever do dozens of these dozens every year he dresses up in some outfit oh my God let me see which ones I like yeah the plunging V Line's a little much I can do without the pl he does have a perky C cup so I mean sometimes you got to use your asset

sex oh my Lord Nick pull this one up oh oh my God oh my God it's h it's just incredible it's posidon it's just incredible it's incredible oh no wait it's Poseidon's well it's no no it's posidon my gosh oh oh Phil we love you we love you we love you pH you Phil and Phil loves attention let your winners ride Rainman [Music] David open sources to the fans and they've just gone crazy [Music] with all right everybody Welcome to episode 163 of the Allin podcast with me of course the sultant of beep science we'll find out his crop soon David freeberg and David Sachs the Rain Man himself and of course chairman dictator Jamal ptia let's get to work boys tons

and tons of interesting topics on the docket markets are ripping jobs and inflation looking good as the Dow hits an all-time high uh forget about soft Landings boys sentiment is now flipping to a market melt up in 2024 the GDP numbers that just came out smashed at 3.3% year-over year in the fourth quarter expectations were just 2% Dow and S&P 500 both hit all-time highs in the past week Dows above 388,000 for the first time in history CPI number reasonable up 30 basis points month over month 3.4% from last year getting close to that 2% Target and uh the jobs data beat expectations 2023 jobs not so bad at 2.7 million it's the fifth strongest

year for job increases since 2020 real test will be of course this year we've seen a bunch of layoffs we'll get to that later gas prices plummeted 40% from $5 a gallon in the summer of 2022 now just $3 a gallon and consumers are apparently feeling great about the economy University of Michigan which is the most respected report on consumer sentiment said it increased in the past two months the most since 1991 and the Federal Reserve Bank of New York survey found that Americans inflation expectations have reached their lowest point in three years Ki uh is a prediction Market I like to use and

it says 37% chance of a cut by March that's dropped so people are thinking the rate cuts are going to get pushed back and prediction markets also think four to five R cut still in 2024 but again people seem to think they're going to get pushed towards the spring or second half chth you alluded to this melt up I don't know was it like three or four episodes ago that we might have a chance of a market melt up everything seems to be aligning here what do you think I think the important thing to note is that Tesla put out a pretty important missive at the end of market Clos yesterday which essentially said that expect a very different demand

curve in q1 and you have to understand that Tesla has done the best job of understanding Supply demand and their pricing power and the pricing elasticity of their cars and so the fact that they put this out to me says that we are now really in the belt tightening phase of this kind of like economic process so I think that the next probably six to 9 months are more of these kinds of things where folks realize that the amount of discretionary income that people had is less they will either lower prices or lower expectations and so the the thing is and what happens to the market this is sort

of why about a month ago when we on on the pot I was kind of like we're going to be in a melt up and it's because the economy will cool demand will cool inflation cools rate Cuts come in again it's not really worth debating whether it happens in 6 months or 9 months but when we look back 18 to 24 months from now the market will probably be materially higher because there's just so much money on the sidelines and that just continues to grow and grow and grow so trillions of dollars on the sidelines cooling economic consumption actually on the ground meets reasonable to resetting to lower expectations for some of these

companies I think that all roads lead to a continued melt up saak you were just on the prediction show saying hey maybe it's going to be a little bumpy so and again this isn't none of this is investment advice we're for D it's talking but what are your thoughts on the the economic data and the Melt up scenario versus the soft Landing versus the rocky Landing well Jason we're only three weeks into the new year so there's plenty of time for bumps here but this report was good I mean the GDP growth was good inflation continues to come down down so you know we are on track here for a soft Landing it seems like um but yeah there's definitely potential

storm clouds on the horizon like jamath mentioned there's some data points out there suggesting that the consumer may not stay as strong as the consumer has over the past year there's a few other things though that are kind of going on the FED has announced that they're going to end btfp the bank term funding program on March 11th that could reveal weakness in the regional banking system remember we had a in crisis in March of last year that btfp sort of papered over you also have what looks like a crash happening in China the Chinese government took some actions to prop up the stock market there which is a pretty negative signal that mainly impacts the

Chinese economy not us but it will have an impact on the global economy if China has you know a big crash and then we still have a lot of geopolitical risks I mean I still think we get an oil shock in the Middle East if this sit situation broadens into a larger Regional War maybe with Iran you could get you know a shock in the price of oil and then that could have a big impact on the economy so look I think the Baseline is that the economic Outlook is good but there's definitely potential for things to still go wrong free bre we've talked about the debt here in this country 35 trillion now or so what are your thoughts in

terms of how politicians are going to look at the future now and spending when you know they keep spending and markets keep going up and maybe it's good for elections and getting votes as well I put a chart from Paul kman here he put out this tweet analyzing unemployment against inflation over the last 20 years and plotted on a graph how they're related and as you can see there's a pretty linear relationship between unemployment and inflation except for the last couple of years since covid where inflation has spiked completely off the charts while unemployment has remained low and I think if you look at what's happened from a federal debt perspective over this period of

time we've seen US federal debt climbed from $22 trillion at the end of 2019 to $34 trillion which is where it sits today an extraordinary increase in in federal debt in the last couple of years which largely explains what happened we effectively took this massive hole in the economy that arose from the pandemic and the shutdowns around the pandemic and we filled that hole with money and we took on debt to fill that hole and as we filled that hole assets inflated Financial assets inflated so the stock market went up even as you know core inflation and economic growth meant that we were paying more for Less so things look good the stock market as an indicator looks good but it's largely

been filled by the capital that we've now taken on into the economy through fiscal and monetary policy over the last couple of years which has driven up inflation over this period of time and now at some point we're going to have to pay the cost for the whole in the economy over the last couple of years so we bridge the gap but we've got a bigger problem looming on the horizon if rates don't decline fast enough I think I tried to do the math on this every day that interest rates are off are 1% higher based on the current federal debt level we're paying an incremental billion dollars in interest payments per day the US is that makes sense I mean actually let's pull up this chart real

quick I think the average interest rate on our debt is now around 3% that's up from about 1 and a half% in 2020 so during the the Zer period and the tenure is still at what 4 4.1% so there's still room for that number to move up um even with rate cuts on the front end of the curve and you can see that if you annualize the Q4 interest that we paid it's around a trillion dollars which makes sense right you got about 34 trillion of debt about to be 35 trillion 3% is 1 trillion and so freir to your point 1 billion a day 365 billion a year yeah that's basically 1% of a $ 35 trillion debt number so yeah that makes sense you know it's pretty

scary because it's already consuming a large chunk of the federal outlay and we're still running $2 trillion deficits and not a single person is talking about how we end that why is it important we have to keep the stock market up we had to keep financial asset prices up because we're so heavily levered and if they fell down pensions retirement funds everyone's housing value where most people have most of their net worth tied up collapses it creates a cataclysmic effect so we had to inflate all these assets and that's what happened we filled that hole over the last couple of years now we've got the quand of how do we get out of the hole that we're going to have to pay back overtime yeah and we

cut these rates to lower our interest payments what's going to happen people will take money that's sitting in cash as you've pointed to chamath there trillions of dollars sitting in cash and they want to look for some returns some Alpha they're going to put it into markets and so then we have a rush into the Magnificent s and maybe even you know the next TI of stock that's what gonna I think that's what's going to exacerbate all of this because you you can't correlate stock market returns with the number of people that are actually making money so even though the top seven stocks are going up those Holdings may actually be concentrated enough that it's not the case that the

millions of Market participants are actually seeing those gains it's just that a smaller percentage that's going to further exacerbate this sense of fomo that everybody has because they own all of these other stocks let's just take the top 500 so even if you own the S&P 500 or some component of it there are 493 other companies that people just don't care about right now and that's crazy so all of that pressure is just going to create a lot of psychological necessity in people's minds at some point where they just see these things going up where they say I need to be a part of this and I think that's what unlocks a lot of this money on the sidelines and then as long as you have

rate cuts and reasonable inflation and reasonable growth there's no reason to think that the that people will not reinflated risk assets and just so people know about 60% of Americans own equities it always goes between 50 and 60% interestingly it kind of parallels the uh home ownership in the country which is also low 60% uh it went as high as I think 67 68% home ownership right before the Great Recession so 2006 2007 it kind of peaked so now everybody chth runs into equities those go up and then consumers maybe some percentage of them feel affluent they feel rich again and they start spending again and then the inflation might kick back up is that the cycle we might see here I don't think so

I think that rates are probably I think that we're in a much more interesting and nonobvious Trend that I think is worth talking about which is that for most of us forget Boomers per second so take people that are 50 years and down we've spent 20 years of our productive economic lives so for us Jason that's 2third of our productive economic life as workers for younger people it's 100% of the productive economic life as a worker in a zero rate environment and we adjusted and we made decisions because of some variables that were true that may fundamentally no longer be true and one of the things that I think we've never really

understood is how to build a business in the face of sustained rates that are not zero that are not always getting cut that don't have trillions of dollars of stimulus because of government stepping in as freeberg while said to fill these holes if that doesn't happen over the next 10 or 15 years we're in a different phase which we've not really seen for our generation and I think that's really what is worth debating is are we at this inflection point where rates will always be between 2 and 4% for a very long time and then you know we said this last week this is why there will be gross margin Decay this is why the governments will

step in to make sure that Winners don't get much much bigger all of these things are about using the tools of capitalism to basically reallocate who the winners and losers are and to reallocate what the risk-free rate of return will be in a world where it's just very different than what it was and I think that that's that's the really big question that I have in my mind yeah and if we were to look at the FED funds rate we've lived since 2010 with almost no yeah 0% interest rates essentially but if you go back to the 80s and 90s when we were first starting our careers it was a much different situation for mortgages and for this is the Fed funds right

mortgages you can add a couple points to this to get the equivalent so what do you think that'll be saxs if we're going to be operating businesses differently in this environment what is the new discipline going to be here or do you think we're going to get right back to you know when interest rates come down to 3% or 2% or whatever we're going to just get back to the party I don't think it's ever going to be quite the party that it was in 2020 and 2021 where both the fed and the federal government were just airdropping money into the economy at that beginning of covid the economy was Contracting at an annual rate of about 30% and we ended up adding what 7 trillion or so to the national debt to

basically paper over that problem that we largely created through the lockdowns so in any event it's never going to be like that again because we're never going to have that magnitude of money air dropped on the economy but will things get a little bit frothier if rates go down absolutely yeah but I think that just because short rates come down meaning the FED drops the FED funds rate from where is it now like five and a half to I guess spe to come down to four doesn't mean that the long-term rates call it the tenure will come down much I mean normally the yield curve is upward sloping so you know in a normal economy it's not

clear that the 10 years is going to be going to be going back down to 23% where it was during the Zer period it probably will be around 4% plus or minus so just Capital will be a little bit scarcer and valuations will be lower more normal but things could pick up for sure relative to where they've been the last couple years last couple years been brutal but yeah I'm I'm with the rest of the panel here I don't think we're going to see I don't I think In Our Lifetime we're going to see that 2020 2021 again I don't think that's happening for 20 years or so all right listen speaking of like the economy layoffs have continued not just

at tech companies but I wanted to point out just how brutal this has been for media companies recently in 2023 20,000 job Cuts that's on top of 30,000 during the covid era and it's not stopping Business Insider just announced 8% Cuts LA Times cut over a hundred people the billionaire owner of the LA Times says he's getting close to a billion lost owning that asset use air quotes on the term asset con asked cutting 300 people and all of this is happening while unions are hosting what I'll just call meaningless protests Sports Illustrated in Pitchfork two really well-respected Brands obviously they're done basically they're cutting 1007 Sports Illustrated Vox cut another 4% Jezebel shut down

Vice went bankrupt last year it's just absolute complete chaos and Bill Amman is loving it Business Insider is a sleazy unethical defer of some of our greatest heroes it's a worthless P rag run by the lowest of the low in journalism it is a stain upon Humanity was his quote today his commentary on the Press Jason you've run like these media businesses before like what's the underlying economic condition here that's changed in the last couple of years that's causing all these layoffs to happen like what what do you think's actually yeah going on like financially with these businesses is it advertisers running away or what is it advertising

and classified businesses got gutted and obviously print got gutted over the last 20 years Google and Facebook all the gains and advertising have gone to those two firms and now Tik Tok obviously and Amazon Uber building respectable ad businesses as well so all of that takes ads out of Publications and puts it closer to the point of purchase right you're on Amazon you're you're right there with the buy button so would you advertise in the New York Times Are there so if you were to look at like say a journalist salary pick a 100,000 all in fully baked most journalists are at 50 60k in the United States you know get up to 80 90 100K would not be

abnormal well your overhead is going to typically be two or three times that so you can put that journalist at2 or $300,000 in cost you look at that what can a journalist do in terms of the number of stories a we if you had them as a beat reporter maybe two stories a week you do two stories a week if you're you know 100K salary and you have like maybe two or three hundred fully baked with overhead and managers and salespeople that means each story is costing about a thousand bucks if you were to do a $10 CPM or RPM on that that means every story to break even in today's market we need 100,000 people 150,000 people to read it obviously that's not happening so these

Publications are just hammering hammer and cash if you were to put that same journalist on a subscriber platform that means they got to get like 15 20 subscribers per story for a year to hit their just their salary so the economics are just hugely broken except for subscription businesses and there's a ton of other Nuance but I could drone on and on about it but the the math basically does not work at the same time Sachs you have experts right who are now going direct so if you want Draymond Green and JJ reck to tell you about basketball you can watch them talk about it yeah I did a tweet on this the other day or if you want this is you know just

not to TW our own horn here but we're the number one business and Tech podcast and we do this as experts in the field we're not journalists obviously so that's probably I would say experts encroaching and people going direct to sources that's probably taking 20 to 30% of an already crippled business so it's going to get worse and worse and of course having unions and going on strike freeberg at the same time is like literally the kitchen staff on the Titanic you know like going in Pro doing a walk out after Titanics hit an iceberg like it's completely meaningless I think that there's this like slow attrition over time away from

centralized sourcing of data and centralized analysis of that data to a more decentralized sourcing of data and then distributed analysis of the data which is the evolution of the internet has enabled that to compete traditional media has largely had to create sensationalist approaches to taking the data that's out there and creating stories around it that are more Sensational that bring emotion that make people upset that make people happy that drive an emotional reaction if you look at the New York Times and you can look at these archives online from the 1960s the articles are so damn boring like you read them it's like literally just reading a ticker tape of information

there's nothing that we see today represented in the media of old which was really the source of data it and now it's had to have become a narrative it's had to to have become a storytelling operation in order to keep people's attention and to drive clicks the problem with that is that over time the media businesses have lost the trust and faith of the viewership and the readership because they see how much of this is biased and opinionated and they don't just get pure analysis and pure data so in the current model which you you've described well I think it's more about the fact that you've got all these crowdsource citizen journalism type systems whether it's Wikipedia or

Wikileaks or Twitter where people are pro or YouTube people putting direct video direct evidence direct data direct documents on the internet and then analysts like we're a good example of four people on a fraking podcast that just talk about stuff that we're reading and data that we're picking up and we analyze it in a way that people then choose which analysts do they want to go to for which understanding of data that's out there and that model totally breaks the old media model which unfortunately is evolved into this like untrustworthy biased and opinionated source to keep the business alive so it's definitely a breaking that's happening I think it's very hard for

that model of centralized sourcing of data and centralized analysis of data to happen in one place to continue in that old form and this is definitely the breaking of the old I went to trends. goole.com and I just compared wsj.com tobi.com to twitter.com to New York times.com and what's incredible is two takeaways the first is that media is really the least relevant it's ever been and they really are on a Lifeline that's number one and second is if you just scroll down a little bit Nick Twitter is really like a universally relied upon resource in the United States the wsj actually also does

a pretty good job but if you look at for example Business Insider it's really three states Texas California and New York and if you look at the New York Times a little bit further down it's a bunch of the traditional democratic States so what you have is this Regional kind of segregation that's happening in terms of information but for the most part nobody cares about these print outlets and I think that that explains why you're forced to lie if telling the truth which is basically a commodity it's weird but it actually is a commodity it's just there the truth is there and you can't build the business by telling the truth you have two

choices one is to opine on the truth opinion but that then is a function of to be honest your intellect and how interesting you are as a person and how you relay that information and you see the people that do that well you can debate the truthfulness of all of these people but the Rachel madow and the Ben Shapiro of the world Tucker Tucker they're just extremely eloquent interesting Arbiters ofic the information they they may take spicy takes on the truth but they don't outright lie and then you have everybody else who's frankly not nearly as good as them and the choice is is to lie and that's why Amman can say this about Business Insider because Business

Insider doesn't have a Rachel madow nor do they have a Tucker Carlson or a Ben airo and so what choice do they have except to lie and so for all of us it's a very simple litmus test you're better off trusting a really opinionated articulate person why because the thing that they probably don't want to lose is their Fame but the anonymous person Business Insider has gone into a totally different direction they've decided to lie as a service and so you just have to ignore it all yeah because you can't rely on it that's my simple takeaway looking at this yeah no I like it it's good take hot take spicy yeah I mean look I think

there's several things going on here one is that Outlets like Business Insider have an incentive to be Sensational and to either lie or to cherry pick in the way that jth is saying and basically they put out a lot of clickbait defamation I mean that's basically what acman is saying um second I think there's a glut of a lot of mainstream media Publications all putting out the same thing and it's not the truth it's the official narrative so you know how many political reporters do we need just being stenographers for the White House kind of party line and if you're not going to actually dig deeper to expose how the official narrative they're

telling you is not the truth if you're simply going to print whatever they tell you to print then why do we need so many of you so I think that there's a glut of Publications this all putting out the same official narrative I think the third thing is there is a go broke Dynamic going on I mean you talk about like the LA Times the reason why they're losing so much money is that family that bought it they put their woke daughter in charge of it this is basically like a a woke nepo baby on steroids basically an Alexander Soros type who's made the LA Times the most radical woke publication you know within the range of the mainstream media remember they're the ones who put out that ridiculous

story on Larry Elder called the new face of white supremacy or something yeah in the case of Sports Illustrated they they basically pulled a Bud Light and they lost a lot of subscribers when they put a trans person on the cover I mean look the suit issue the swimsuit issue I mean look they had a formula that work there what Their audience wants is Christy Brinkley on the cover not Dylan mulany okay I'm not mean to offend anyone by saying that it's just the truth and then I think the last thing is Jason what you're saying about the experts I do think that the gel Man Amnesia effect may be wearing off remember what Michael

kryon said about the gel Man Amnesia effect where you read one part of the paper where you actually know something about the subject matter and you realize it's all just lies or lazy reporting but then you turn the page to some other part of the paper you don't know as much about you just assume it's true I think because experts are able to go to direct for every section of the paper now people are realizing that the whole thing is bogus and I think Jo Man Amnesia is starting to wear off and people are realizing that they should just go around these official channels and get their news direct so it's not because these

Publications are telling us the truth in a boring way that they're losing readership I think they're losing readership because they're just not telling us the truth at all and I think a boring version of the truth would sell better than what they're doing right now this is why I think subscriptions are starting to work people are doing subscription podcast subscription newsletters you know it's a little bit of Back to the Future but you can lower your overhead have one person doing real journalism and there you could actually thread the needle you could get a thousand people to give you a 100 bucks you can get two 3,000 people to give you

a 100 bucks or 200 bucks and that's enough to cover a couple of solid legit journalists doing legit journalism I have a question for you D you think there's a business opportunity to actually build like an AP News which which is just basically like there's no by line and they just write the truth and they make it super cost effective for anybody else to just license the truth so that they know it but why do you need an arbitrator well somebody got to be boots on the ground to go somebody has to be boots on the ground to just tell the truth doesn't the distributed model work for that that people just post you don't know I mean listen we we all the time have this when we're building the docket

like Kane COA you know random Twitter account or you know Tyler Duran you know zero hedge like who are these people what are their motivation you don't even know their names that doesn't mean they don't get stuff right but you may want to have somebody actually go check that this person exists in the real world so to your answer your question you know you would need people to subscribe to that service an economist AP news and reuter are the closest to what you described The Economist doesn't use people's by lines they have people work on the story together and The Economist is the brand AP and Reuters obviously do

typically have the journalist names on it but describing news wires they're they're not great businesses I think AP and Reuters are just as bad as everything else I think what I'm saying is like you know maybe Twitter should have like a news service which is just like here's the truth I'll argue that page rank which is Google's algorithm for determining which sites to rank higher or lower and the protocol for Bitcoin and other systems that operate on the internet have all kind of followed the same model where there's some system for scoring or for voting the quality of the site in in page rank's case it's how many Links come in in Bitcoin there's a voting system that

determines whether or not the um the transaction should be approved and I think in Twitter the number of followers seems to be a proxy for the quality of the account there's some version of that chamat that I think just naturally evolves on the internet versus saying let's pick the Arbiter of the data and let that be static versus let it be dynamic and let the system of consumers dynamically vote on what is the arbit of the data which seems to be working with Wikipedia seems to be working with page Rank and other systems fairly unless you look at your own Wikipedia page and you realize it's completely biased and yeah is the function of the people you trying

to say something what happened to your there something bad on your Wikipedia page I went to the early Wikipedia conferences in the first couple years of Wikipedia and the bios of living people blps were the biggest problem they had because you had people like let's say you know you had a company fail or something somebody was investor in it you know they're motivated to write something on your Wikipedia page you fired somebody whatever and so the the people who have the wherewithal to edit your Wikipedia page if you're a human alive today sometimes is your detractors and that's just yeah but over time if you're doing that and you get downvoted

you no longer have authority on Wikipedia that's part of how that system works I think that it doesn't work very well it's been totally it's been totally weaponized I don't think it's been weaponized by people people with money I think it's been weaponized by interest groups yes mainly leftwing interest groups activists who are well funded and it's their full-time job to basically disseminate their propaganda on sites like that ideally that becomes a temporal phenomenon that they're because if you picked an Arbiter and you said this is my source of news my source of data my source of Truth over time that Source becomes hacked it becomes biased in some way and so I think having a

system that's Dynamic where those who are doing the editing those who can be voted up and down and the system uh can be voted on by the consumers of the system so anyway I just think that's naturally how the internet's going to evolve anyway I think it's crazy to rely on One Source especially Wikipedia although I do use Wikipedia for some things but I guess what I do is I try to triangulate to the truth based on having a number of sources I mean isn't that one the bestch and that's why X you know formerly Twitter is the best way to get news it's the main way I get my information is because I can triangulate towards the truth by

looking at my feed and I'm following a couple hundred people who I take seriously and you can kind of figure it out well yeah because if you saw a Business Insider story over here and then you hear Bill Amman give his side of the story now you've got the principal in the story going direct and I think that's where going direct and experts have created that triangulation you could listen to this podcast you go to direct to Wikipedia and check our facts you could look at people criticizing us or creating derivative podcasts of this one of which there are many and like you can kind of get all these uh different vectors and angles to to kind of find the truth but your

answer chamath rich people you can't get rich doing what you're describing and running a company so smart people are looking for opportunities to maximize their compensation and that's it's kind of like teachers it's we don't pay teachers enough you can't pay journalists enough because the system is broken therefore you're just getting lower and lower quality people in the profession who the smartest people leave and become venture capitalist Market Mar Communications people developers whatever or they do solo stuff so I think the solo journalism the independent voices is going to wind up being the solution

because nobody's going to want to try to hire a thousand journalists for 100k each and then if they get really smart what do they do they get hired by somebody like you right your they'll come work for one of us or come work for one of our companies when they get to the ceiling of what they can do at Business Insider or vice or wherever they're going to go try to look for a $200,000 a year job I think this is important for the following reason I I think that Society if Society doesn't have a good way of getting to the truth it just ends up really decaying in very bad directions and there's all kinds of truths that are out

there that we ignore because people can actually just totally change it where I would rather be in a place is there's the truth then there's the opinion on the truth and then there's fiction and I I'm fine with all of it existing it just needs to be better arbitrated because I think there's a lot of people who don't know any better who should know better and who will just make an assumption and then that's a very limiting limiting decision for them the whole process is got super messy but that's actually a good thing to happen the reason it's getting messy is because people are challenging the sources of the news so you don't just believe a politician about what's

happening at the border you don't just believe a publication about what's happening at the border you see citizen journalists going to the Border whether it's Elon or RFK went to the Border people are going there and saying well I'm going to go check it out for myself and see what's happening there actually I'm not just going to trust a publication I'm not just going to trust a politician I'm going to go myself and and and that messiness has now led to a more vibrant system but it's it's messy I think it probably also LED in part to Texas suing the federal government yeah which we'll get to in a moment yeah for sure and you know if you think about that we were trying to parse the numbers

here remember we had the number um and we were trying to parse the number of encounters so we we never were able to get a number we still don't have a number how many people the num I didn't finish my sentence we don't have a number knowing how many people have gotten past the Border we know how many people got intercepted we don't have the number of the people who didn't get intercepted by definition we don't have that we only have the ones that are encounters that's why they call an encounter sex you've been running interference on this point for like a year on this pod like saying that we don't know the numbers and Fox News is just providing

you know bias footage and it's not really a crisis at the border and no no I said I said I wanted to know the numbers but the only numbers we can get was encounters not how many people ENC something like six million encounters since B took off updated those numbers the numbers like a hockey stick show the chart of it it's looks like a hockey stick every last year it wasn't that was the point when I showed it last year every week every month every year comes out when we looked at it last year it was flat I'll pull up the episode wasn't at the time it was flat it was it was only in the last year going up like a rocket since Co okay we'll pull it up we'll pull it up so if you look at this

chart this explains it perfectly so let I'll explain this chart where's that from this is from the CBS The Border Patrol so this is the exact chart that we pulled up last time and as you see yellow 2022 was essentially flat and then the dark blue 2023 2021 Spike see this this chart is not correct and then if you look the one thing that does look like a massive spike is 2024 so there was time it's showing from June to December a 50% Spike yes that's what I'm saying but if you look when we looked at this last year in 2023 it was it was right there June when we started talking about last year at this time it started to spike but the

other years it was flat it's my point it was flat and then it just started the n and that's why I think even trusting the numbers is my point like I mean I don't know numbers weren't Chang like from October of 21 there was 100,000 encounters at the border to this last way, look at the look at the yellow line tripl it's like tripled since in the last two two years that's crazy here's another chart from The Wall Street Journal this goes back a long way this is from I believe October so it's already 4 months old but zoom in on 2020 like I said it was at a low there you know under half a million well yeah and

then but even if you go back it looks to me like since about 2010 we've been holding it to under half a million and since 2020 basically since Biden took over it shot up like a rocket and what I've been reading in recent articles again is since October every month every week every day is a new high it's not a stable number because obviously there are Millions hundreds of millions of people all over the world who would like to come to the United States if they could yeah so as the word gets out that we have an open border they're going to come and that's what been happening it's gone viral is what's basically happened

and also what went viral was there are YouTube videos now of how to claim Asylum so everybody's kind of hacked it it's completely I guess we could go which way do you want to go do you want to go right to the border now since this has come up or talk is is Texas going to seced from the Union all right what's going to happen do you want to just go you want me to Tea it up or you want to just St well I think we should explain it let's just talk about it last year as everybody knows Texas started installing razor tape razor wire along the Rio Grand near Eagle Pass Federal border agents the feds removed it in October Texas sued the federal government to stop them from removing in

December a federal appeals court temporarily banned the border of Patrol Agents from removing the Raisor tape then the Biden Administration asked the Su Supreme Court to intervene then last week Biden's office told scotus that a couple of migrants tragically died a woman and two kids near that same area we got a ruling on Monday Roberts and Amy Cy Barrett actually voted against party lines and supported the feds the justices didn't explain their decisions but this basically upheld a prior ruling they gave the federal government so responsibility for border security Governor Abbott has responded and he is saying that he's going to challenge the Supreme Court ruling and that Texas is

under Invasion and it's going to defend itself that Authority is the supreme law of the land and supersedes any federal statutes in the country he said so sax what are your thoughts here is this I guess there's two things I'll ask you about is the ruling a good ruling and is it in terms of Law and Constitution but is it a bad implementation given the circumstance of the Border well I think Governor Abbott here is probably going to lose in a court of law but he he going to win in the court of public opinion the public by a huge majority wants this border enforced they want to have border security they can see the

photos and the videos and the numbers and the charts of record-breaking illegal immigrants streaming into the border and again it's not stopping it's growing so I think that Governor Abbott is on his way to being a national hero for standing up to this and it's outrageous that the Border agents are actually removing the border security that Texas has added we're supposed to have a border wall you know I'd rather have a wall than barbed wire but if we can't have a wall then you take the barb wire and they're actually cutting it down and this is following in a pattern of the Biden Administration remember when Biden first came in there were pieces of Trump's wall that hadn't been

finished and they basically stopped construction and they sold off these large pieces of wall that were just laying on the ground as scrap metal for two cents on the dollar and remember that Robert F Kennedy flagged this when he went to the border at the beginning of his campaign and said that it was petty and outrageous that Biden had done that then Biden changes the whole of Mexico policy and he starts granting Asylum to um to what are basically economic migrants who are streaming into the country and what the Asylum rules say is that the immigration officials are required to detain Asylum applicants who are not what's called quote clearly

admissible so if you're not clearly admissible you're supposed to be detained you're not supposed to just be let into the country and the Biden Administration has basically paroled millions and millions of these economic migrants who are not clearly eligible for Asylum into the country they just hand him a ticket and say show up in court in 3 years we know that's never going to happen it's gotten to the point where the mayors of blue cities like New York and Chicago have tapped out and said we can't handle this we've run out of space we run out of hotel rooms we've run out of budget to accommodate all of these migrants and these are Sanctuary cities and yet the Biden Administration

has persisted in this policy and now they're actually removing border security they're actually cutting the wire it's unbelievable and when Texas has tried to reinstitute it they've actually gone to the Supreme Court I mean to do that Biden has to send his solicor General to the Supreme Court to take on the state of Texas so look at the end of the day Governor Abbott may lose this case but I think he's going to win over the American people and I can't understand why Biden in an election year is pushing this this losing argument I mean I think this is his worst issue maybe inflation is slightly worse but there's not a worse issue for Biden and the Democrats than border security and

to actively be fighting Texas on this when Texas is just merely trying to reinstate a border just seems to me like a crazy political strategy and it just shows you how fanatically wetted the Biden Administration is to this policy yeah and the country is not if you look at the CBS News poll this is just from September to now should be tougher 55% to 63% just just one second here which is just it's important to note that I don't think Biden's contesting Texas has anything to do with their desire to actually keep the Border open I think what they were saying again

we can debate whether it's right or wrong but what they were saying is the federal government needs do access to all of these places and we need to get we need to cut through this concertina wire to get access and we can't now because this wire's there and the Texas National Guard and all of these folks are there and so just give us the due Authority that that we have to do what we need to do that was what they were saying in the lawsuit now that sounds like total nonsense to me the byproduct David is what you're saying which is it does then facilitate more illegal migrants to be able to cross in the intervening time because I think that then what the government

federal government isn't saying is here's our plan to secure the Border they're just saying we need access in order to render critical Aid if one of these folks gets sick or drowns or what have you and that's why these three people died so cut get you know remove this wire so that we can do what we need to do that's what they're saying yeah so on the migrants who who drown po what governor Abbott says is look if you actually had security along all of these points where you've put in the wire it forces the migrants to go to the 20s something checkpoints where you actually have an organized process which is where

you want them to go they wouldn't be trying to swim across the Rio Grand and enter through all these different areas if you could funnel them through border security to the checkpoints and the federal government does control those checkpoints and I'm sure that you know if Republicans could control that Republicans like Abbott they would be detaining Asylum Seekers that weren't clearly admissible but they don't control those checkpoints so the federal government can still implement the policy at once I actually think that fewer people will be drowning the Rio Grand if they were actually to again push everyone to these checkpoints so I don't really buy that argument and it

looks to me like the Biden Administration has now crossed over from failing to do its Duty because again it is a federal responsibility to enforce the border and the president has a constitutional duty to enforce the laws of the land so he's moved now from failing to do his duty to active sabotage I mean this is actual sabotage where what little border security that we have in these parts of Texas they're taking down they're cutting the wire I think to most Americans they can't fathom that this is Biden's policy what is the reason that this if if Biden wants there to be free flowing immigration which he says he doesn't but if he did why would he want that what's

the what's the reason there's some arguments I've heard from economists that the fundamental value the US can gain from the flow of immigrants across the border at an accelerated rate is to lower the cost of Labor and so you get lowc cost labor to participate in the labor market we have skyrocketing costs for you know basic goods and services many of which are tied ultimately to the cost of Labor in the US due to the tight labor market and so if you can open up more manual labor roles in the US or fill those manual labor roles with a lower cost of Labor you can bring inflation down you can bring the cost of goods and services down so there's an

economic argument for doing that and it also grows the economy because fundamentally when you have more productivity through more participation in the labor force you see the GDP grow and you also increase the consumption of goods and services in the US by the immigrants that are coming across Ross the border so the there there's an economic argument the that's a theory that folks don't want to say out out loud they don't want to be very public about it but there is kind of an underlying kind of economic story that behind closed doors folks are making about why you want to see this happen particularly now so chth what do you think of that theory as proposed I'm not

saying that you're endorsing that freeberg but I have also heard people say that that's the reason and why would Democrats be in favor of that over say Republicans wouldn't both of them want to see the economy grow and have more labor available in record low unemployment you know whether you agree with it or not so or is it just become a political uh weapon now yeah what do you think I think that theory is stupid if that theory were to be valid let's let's try to steal man why that theory could be true even though it's was probably thought up by a nitwit you would want to know first of all all of the different types of Labor

shortages that exist and then you'd want to know all of the different types of Labor inputs that these people can provide and then you'd need to know all of that labor Demand by geography and then you could sort of like do a reasonable job of allocating that supply and demand so if that was really the case it's even more reason to have an organized border why because David said you get them through very specific points that allow you to actually enumerate these details about these people and then actually send them to the places where they are actually needed so that then they can become a productive part of the economy where they can lower labor costs Etc what that

explanation does is actually tell put a nice lie in front of what is the actual truth I think that there are a lot of people who feel fundamentally guilty because a lot of the quality of their life they didn't earn necessarily and so they have this self-loathing that they feel like they can appease by allowing all of this other stuff to happen and one of them in this weird way is immigration but if you actually ask an immigrant somebody like me I kind of feel that it is very unfair for those of us who actually stood in line who waited years and in some cases I know decades highly skilled

individuals to try to actually fill this labor Gap that you talked about who are prevented or who are slowed down from actually doing what you say that they is all about so I I just think that this is just frankly like a lot of folks that live in a very very comfortable way who feel fundamentally guilty and so they're like let me share my largest and riches with other people and maybe that comes from a good place but the manifestation of that is bankrupting all of our major cities and it's creating an enormous security vulnerability for this country yeah I mean you could ascribe it

to having an open heart and and wanting more people to come into the country but it's crazy because you have to have at least some control over this uh we talk about control what about just documentation and awareness of course yes I mean terrorists could be flowing across the what right now who knows Jason what about what about something even as simple as like communicable diseases I mean yeah gang members the cartels gang members and criminals also like we should we we've talked about this before Point based systems and Merit based immigration yeah we could have a skills based system but that wouldn't get in as many people as

quickly as just having an open border yeah and look I think there was an economic rationale for this a while ago yeah we talked about that yeah Republic were in favor of it 20 years the Wall Street Journal editorial page like 30 years ago wanted to support a constitutional amendment to have an open border I mean they just saw the world purely in economic terms and having free trade free movement of capital and free movement of labor was all part of that conception I think it was naive in a lot of ways and I think now if you're still supporting it it I don't think it's for economic reasons I think it's mostly for political reasons

and look there's this clip from Tucker that just went today explaining it I mean if you want to play it the numbers you need to understand Yale University released a study last week by three researchers all them liberal I believe who concluded that the actual number of illegal aliens in this country is not 11 million it's north of 22 million 22 million Fact one fact two the Democratic party is now as a matter of policy calling for the legalization of all illegals in this country citizenship voting rights 22 million new voters fact three the overwhelming majority of first time immigrant voters vote Democrat fact

four the largest margin in American presidential history was 17 million votes 1980 election rather 1984 election between Mondale and Reagan and Reagan yeah 17 million you would add to our voter roles 22 million at least permanent electoral majority in perpetuity that's what this is about it's not about making the country better serving our labor needs helping the population it's about putting Democrats in power forever how do you how do you react to that how I react to it yeah you as the question like why would the Democrats want to do this that's that's a votes to get votes is what he's saying we we just had a conversation here that just I think it was on the

predictions episode that we all felt that more immigrants people of color were going into the Republican party so there there's only that I don't think all 22 become magically liberals we we talked or Democrats here so I don't know if that part of the ARG the vast majority do I think tuck is saying that if you I think what Tucker is saying effectively is that if if 22 million people are converted to US citizens by a given political group they will be rewarded by the vast majority of those people with at least one cycle vote in their favor you believe it jaman you believe that that's why Biden has an open borders to get votes no I think that actually my opinion is what I just

stated which is I think that highly overeducated liberal Elites have a certain amount of self-loathing about their lifestyle that they believe is not earned and so they have this weird thing of like they need to feel better well instead of just like looking at the truth which is yeah they didn't earn it and a lot of it was given to them by their Rich parents and just move on and do something good with their life they want to just destroy everything Sach you believe it you believe chucker argument there that this is a democratic vote getting conspiracy well I don't think it's a

conspiracy I mean or strategy Democrats have actually said on a number of occasions that this type of immigration is good for the country because a diversity and B it these people will eventually vote Democratic or you know when they get citizenship or they'll have kids and because of Birthright citizenship they are more likely be Democrats Democrats will say this and say it's a good thing but then when someone like Tucker says it they'll basically say it's great replacement Theory it's a conspiracy it's racist no he's saying the same thing that you're saying he's just saying it's a bad thing and you're saying it's a good thing so I

never said it's a good thing no say it's a good or a bad no I'm talk about other people oh okay so I I didn't get my opinion yet yeah what do you think Jason well I wanted to hear saaks s so saaks do you agree with him that this is a a strategic move by Biden to get more votes I think it's like a lot of things it's an issue where the party that's championing it can claim that it's kind of like doing well and doing good they think that they're doing good but it's also highly motivated by their own desire to benefit dual function yeah yeah I'm the rest of the country we should have an orderly process here and it should be Merit based I've said that

a thousand times on this podcast that we should be a point-based system and we should re-recruiting people we should have some compassionate slots and then everything else should be a weit list and we can we should pick a number of how many people we could absorb based on the labor markets and do it very thoughtfully maybe we need a half million teachers no you've described Your solution many times we're asking for your opinion on what Tucker just said I would go with Sax's position that it's probably convenient that you it might go 6040 7030 for votes I don't think it's 100% of them are going to vote there I think this could blow up in Democrats

faces if if it is their strategy because a lot of people who are coming here immigrants don't want to be part of the democratic any the liberal woke Democratic party they want to be part of the Republican hardworking party I want to go two for two last week saaks I mean freedberg pulled up stats that showed that a bunch of people got really angry and quit the Pod when I said that Andre basically put in the money to generate AUM and we were joking in our group chat that was all the VCS that stopped listening I would once they all hit the stop button at once yeah because it was again the truth the uncomfortable based truth so I want to ask you guys I just a reaction to my

comment that there is an amount of self-loathing amongst liberal Elites that causes them to embrace some of these ideas that are not rooted in actual logic but are rooted I think in their own insecurity can I just get your reaction to that you guys think that's true I think that among this Elite this call it woke Elite who defines our politics in terms of social justice which basically means you divide the world into oppressor and oppressed groups and you try to figure out with every issue who the oppressed group is and you take their side that's basically how politics works for this group so in their view of the world all these poor migrants who are streaming

across the border they're the oppressed group and so we should help them we should let them in and you saw Gavin newsman in California just extended Health Care to illegal immigrants so all these government services basically being provided and they think that's a good thing that's official policy so I do think that there is this ideological view that we should be doing as much as we can to provide help and benefits to these people I think that at a certain point it gets to to a place where the system breaks and again you have mayors of New York Chicago other blue City saying it's breaking we can't afford this there has to be some common sense around what we can afford you know can

we afford the social services the hospitals the schools the infrastructure do we have enough housing for all these people and I think we've just like become completely unored from common sense now I think that's the ideological people people in the party but I don't know if that's Biden in the Biden Administration I do think that for the administration they think more about some of these other calculations but even so I don't really understand their motivations and their actions because recruiting more democratic voters is more of a long-term proposition it's something that they can achieve over the next couple of decades but Biden could lose the election this year over this

issue I mean this is his crazy part this is on this I mean he's actually sending his solicitor general to the Supreme Court to get permission to cut the wire at the border right and you know again he's shining a spotlight on an issue where the vast majority of the country and even I think half of Democrats don't agree with this policy so I just don't I that's what you're 100% right on saxs this is like for Republic this is uh abortion is to Republicans as the border is to Democrats you you have to solve this problem look at this chart to be so disconnected from the populace only 7% of people reported and this is a recent poll this is from this

year that it's not much of a problem the situation of the Border 45% and 30% very serious or a crisis that 75% think it's a crisis or very serious and then 18% think it's somewh serious that is the majority overwhelming majority of Americans and you just have to change your policy here this is uh there's too many people flooding across the border period full stop right just like for Republicans like they shouldn't have overturned roie Wade and we should shut down the Border you know on the Democratic side but I come from a blue collar F I can tell you there are two Democratic parties right now there's the the workingclass Democratic party that

totally doesn't understand what Biden is doing with the Border because they want to see wages increase they want to see low unemployment they want to see their wages increase and not have to deal with illegal immigrants you know fighting for jobs that's a real thing wages have gone up in this country because of low unemployment that's great for the bottom half of the country and and they live in New York and New Yorkers want to see services for their families not for families that are streaming across the border it's that simple and so what you're saying chamath about like woke

liberals that's not the majority of people in New York that's like a really Elite Class they control the Democratic party that's the thing they control it for now they control it for now but I think they're losing control I me this is why Biden did that huge debt forgiveness program that the Supreme Court found unconstitutional is because yeah of course professional Elites college graduates and specifically ivy league graduates are the people who run the Democratic party as well as the media and all these other professional institutions they're the center of gravity and the power within the party and the blue collar the lunch paale type Democrats the union Rank and file not

the leadership they are starting to move to the Republican Party the working class in bigger and bigger numbers and I think that's Trump's appeal is he actually knows how to appeal to those those people absolutely he does knowing a lot of both my experience is there's a lot less self-loathing amongst Republicans right now than than there is among Democrats 100% of my middle class family does not want an open border they may move to their Republicans one day Jason oh I no they are they they there are literal people in New York proving my point in Brooklyn in you know the Burrows who are looking at it saying like I I don't understand this W crazy

ideology I don't want any part of it and they might they might vote Republican shath is right it is self-hating it's self-destructive it's the same thing that we have with these Das you know who are letting all the criminals out of prison you know the decarceration movement Democrats want Law and Order Jason you keep saying nobody wants that but I think the people that are making these decisions live in high-rises that are 50 stories up where there's doormen insecurity or they're living behind a gate with private security and so they can make these decisions because they don't feel the impact not yet this is why why what's

happening in these Elite cities is so important because For the First Time the broad infrastructure of a city is getting crippled in a way where these folks have to live with the implication of their decision and actually understand for themselves why did I endorse something that is so fundamentally destructive to me and the people around me and this is the first time and so in many ways what the southern states have been doing by sending migrants to all of these major ities is it is actually allow the leadership of the liberal Elite in these cities to confront why have I been proposing these programs and these Solutions in this way they've never had

to exact same thing that's happening to the Republican party as well their leadership Nikki hel Etc the the neocon warmongering Republican party is now losing to Trump as well everybody's going populist now you you need only look at the statistics the majority of people want the the Border closed that is across both parties the majority of people don't want to be involved in Foreign Wars that's across both parties and that's why you know Trump and RFK are just crushing it in the polls and that's why they're they're both having such a great showings because they're appealing to the majority of Americans and the majority of Americans don't want to be involved in foreign worlds it's

not a republican position Republican position is the opposite they're neocons they want to go to war let's go to fintech on the topic of fintech and uh more journalism a bunch of news has been leaked recently we can get into that aspect of the story as well confidential financial data from brex and anthropic were leaked this week if you don't know brex they offer credit card and expense management software It's pretty dope actually very hot startup they raised a billion five between 2017 and 22 and they were last valued at12 billion earlier this week it was reported that brex was burning 17 million a month 200 million a year on net revenues of 280 these are select leagues we don't have

like the full p&l here so we we can't tell you exactly what's reality or what parts of this are true but later that same day after the leak brex announced it was cutting 20% of its sta 300 jobs which it said would help it extend its Runway by two years anthropic one of the breakout AI companies that's building a proprietary large language model called Claude it's really dope actually as well another cool product they've raised over 7 billion at of1 19 billion valuation recently and their gross margin was leaked this week two Anonymous sources said it was between 50 and 55% obviously we talked

here about SAS software being a 70 to 80% margin business so freeberg you want to maybe I don't know which way you want to go with this stuff being leaked by the press or the finance side I wanted to ask you guys your opinion do you think it's almost like the gossip version of business when you get private companies financials and report on it with like an angle of being effectively disparaging towards the business look how much they're burning look how bad the business is it hurts employees it hurts shareholders any one of us who have been investors in or involved in or on the board of a company where the Press then writes an article where they got the hand on confidential financial

information about the business always hurts the business it's almost like taking photographers outside of celebrities homes and taking photos of them through their windows I don't understand the true newsworthiness and I just like to take a step back because we always kind of dive into these conversations and treat it as totally appropriate when private confidential information about businesses is leaked and discussed like this and we kind of have accepted it as the standard but you know do we really identify the newsworthiness in this or is this really just like the gossip fodder for hurting businesses and it's the kind of sensationalism that we've kind of come

gotten used to in in in the news in general who does the the reporting benefit what the journalist would say is it gives the public the ability to understand business and trends at a deeper level and that's good in a free Society that's what they would say but you could argue like what's the point of this isn't it a sensational story it's like oh look how much money this company's burning oh wow that's why we should all talk about it like they would say maybe it speak look at the mega yacht that the billionaire is on you know or like look at the yeah look at the celebrity at the beach you know like look at how they're dressed the journalists who reported this would say

it's no different than us talking about the Zer era or overspending and it's just part of the reporting yeah that's a general framing of like Market at I don't know I just think like going in and getting confidential Financial info it hurts the employees it hurts the shareholders it hurts the board it hurts the company and the customers of the company then end up questioning the business from a journalistic perspective there's nothing about this that to me seems to benefit the public at large by revealing all of this salacious information it's a private business that's not required to disclose their financials and all of their shareholders privately own the

stock and someone took some private company data and leaked it I can tell you in you know when we ran in gadget 90% of the leaks 95% of the leaks were calls from within the building so totally disgruntled employees well I think in this case it's actually an investor who doesn't want to see them burning 17 million a month and wants the runway to go further and they leak this because that's who would have access to it the accountants and lawyers would have access to it but that would be the end of their careers in their firms if they did leak it so somebody who has a financial interest in this typically an earlier stage investor or an investor who's frustrated with the agement that

they won't cut the burn leak this in order to create pressure so in other words the Press is just a tool being used by the Insiders and that's how this went down 95% of the time I think it's more likely to be a low-level employee I think that's typically where this comes from a board member has a fiduciary duty to basically keep proprietary data secret I really don't see most investors wanting to take the chance of it coming back on them by again violating their Delaware obligations their refy duties furthermore I think even passive investors who aren't on the board generally don't want to hurt their Investments I think it's generally

disgruntled employees who do this I'd say lower level disgruntled employees and the reason they do it is that either they feel like the management of the company is asking them to do something unethical or is non-responsive to their concerns so I think it is the motiv you're talking about jcal but my view on it is that lower level employees have less to like what do you think the journalists like objectives are besides sensationalist headlines on like what's the newsworthiness to the public on reporting these stories well I mean you talk about how damaging these stories are and they hurt the company so why would the reporters do it and the reporters are like right they're not

there to help companies they are there to hurt companies and sell clicks by doing it so now is it new newsworthy what I would say is it's annoying when the media gets a hold of proprietary information and puts it out but it's hard to argue that it's not newsworthy I wish the media would do it in a non-clickbait way like if they're going to put out some numbers don't cherry pick one or two these are private companies so so by by that vein shouldn't a journalist go out and try and get the private financials of every private company in Silicon Valley they would if they could and just publish it on our website okay but if they did ask for that explicitly that would be

illegal so they can take inbound but they can't go out and try to steal it themselves obviously so right so why wouldn't someone just set up a wikle leaks for Private Financial information if you look at every journalist now they have a pgp key or whatever they have a phone number they say Anonymous hit me on these Anonymous services and that's how this is done having been on the other side of it it's back in the engaged days people used Yahoo I think they used Proto I know I just reacted kind of negatively when I see these stories and I'm always like what's the point here why are we reporting and hurting companies based on like reporting finals that is the point to

hurt them well but the media has a different incentive than you do to get a subscriber if you put this behind a pay wall and you have all the salacious details and you have one story like this every week then you know the fifth time somebody comes to the paywall they're like you know what yeah this is great Insider information I'm getting smarter because of it I'll pay the 25 bucks a month all right if people in our industry didn't want to see this happen they shouldn't subscribe to the Publications that do this freeberg did you read the article yes got some numbers and I mean I got it like so you did read it yeah yeah so they accomplished their goal oh I I read it

because you guys sent it to me but I hate all these articles that I see on the internet that people do you subscribe to the Publications that do no no I don't subscribe to any of that no I don't either I don't want to read about every startup is a challenge every startup is a disaster until it's suddenly not like that's reality and it's it's really awful for years to have seen like Tech reporter after Tech reporter who's supposed to be kind of covering the news The Innovation the prog in the industry Target and focus on the inevitable failure that every business is dealing with on a frequent basis and make that the headline story

which just ultimately hurts the business hurts the employees hurts the ecosystem hurts progress doesn't really benefit anyone except their viewership I thought you wanted to talk about the quality of these businesses let's talk about the quality of businesses I think it's hard to have a conversation about the quality of these businesses based on a couple of these data points because I think they could be cherry-picked I think one of the problems with these articles is you don't get the p&l you just get like one or two numbers I can't tell you based on yeah I mean look 17 million a burn is not good that's almost always a red flag but I don't know if that was one month

or like the steady state I need to see the p&l I can tell you in five minutes if it's a good business or Not by looking at the pnl yeah in the bre case if we for those of us that know the the founders they're really sharp guys Enrique is a really really sharp guy so I don't are you guys investors in in that company anyone I am not no but I'm friends with Enrique and I think he's wonderful if they are cutting the burn by 20% who knows we we don't like SX is saying we don't know the denominator here we don't know the total spend we don't know how net revenue is defined it's just what your views on fintech go ahead freeer is fintech a great business

or not I mean is it a tech-based business do you believe in the category so I started metromile which was an online auto insurance business with a telematics device that plugged in the cars back in 2010 and the term fintech wasn't used at that time and in the years that followed fintech became a term where it was like technology companies or software companies Reinventing Financial Services in different ways and you know so we're now 14 years past that and a lot of quote fintech businesses are looking like fin businesses without the tech meaning their margins and their LTV to CAC or their return on invested Capital

it looks the same or in some cases worse than the traditional Financial Services businesses that they're meant to disrupt and so this Insurance to lending to banking because the the technology Advantage was meant to AC either a better margin or you know better return profile or a better call it LTV to CAC meaning you can acquire customers for less or you can get more money from those customers by retaining them longer and get more money over time I always used to sit at the board meetings at Metro Mile and I would scream guys if if we don't demonstrate margin Advantage the business will eventually trade like the market trades

which is one times revenue and if we trade at one times Revenue we're already overvalued and we've burned so much money it was always a challenging conversation about pulling up the margin pulling out the LTV to CAC numbers the truth is over the years a lot of fintech companies fell into the same trap that dtoc businesses did which is to grow they started acquiring customers through Facebook and Google and Facebook and Google became all the page views on the internet and It ultimately got competed away and the price went up and the conversion rates went down and so the CAC went through the roof there was a lending company I was involved in early on as a main shareholder and we were

spending $4 to acquire a customer making 12 bucks a month in gross profit fast forward 24 months and it was costing north of $30 to $60 to acquire a customer and gross profit per month declined to $2 to $4 so you know this this margin Advantage went away as the business scaled and the CAC went up and so the LTV to CAC ratio started to look worse than traditional lenders so what do the fin tech companies do in response when this happens which many of them faced is they had some inherent margin advantage or some inherent growth advantage that over time got competed away well they start giving product away for free in fintech it's really easy to

grow by giving away a dollar for 90 so you could drop the price of auto insurance and suddenly everyone buys your auto insurance and your Revenue growth goes through the roof but your margin profile is terrible you'll lose money over time because you'll have higher loss ratios and same in lending in lending you can offer people a lower rate Revenue goes through the roof everyone signs up for loans from you and over time you end up having defaults that eat away your gross profit and you end up losing money on that product so many of these th tech companies it takes a couple of years for those economics to play out are now starting to run into that headwind which is they couldn't

just grow through some um unique margin or CAC Advantage they acquired traffic and when they couldn't acquire traffic with a good LTV to CAC ratio they had to start doing this give stuff away and then the margins get eaten up over time or the business gets unprofitable and they can't get out of that cycle so I think we're in this kind of like realizing the truth which is that a lot of fintech businesses or just thin businesses there are a few that are doing great but many of them for many years I think Mas graded as having some unique Tech Advantage until those numbers started to play out which demonstrated that in fact they did not yeah and you can understand the customer

acquisition cost that's what CAC stands for for those of you who don't know very easily because I was an investor in Robin Hood and one of the genius things they did was a give to get program it's called in the referral space if you if I get you to sign up with my referral code they would give me a share of a company and they would give you a share of a company so you get a free share but you have to then sign up you know and put your bank account in and all that kind of stuff they'll pay a referral program a couple of hundred bucks e trades Etc of the worlds to get a funded customer Robin Hood was able to do it for giving

away two fractions of a share and you weren't getting like a $300 you know Tesla share you were getting a whatever 1% of that you get $3 worth of Tesla shares or whatever and they did it with a little device like um a mystery box so it was quite addictive and in the mystery box they would have dollar shares $2 shares whatever and they would and they would net that out to be well below tens of dollars instead of hundreds of dollars and I I maxed out the program because I tweeted it and got 250 people now they're doing one where if you move your money into the account they give you 1% so if you move a million dollars of shares in they'll give you like $10,000 to build up their

assets under management so you need to have something that is cheaper than what's in the market like TV is very expensive too I'll say two things which are build on what I've said before and maybe I'll try to make the point clearer do you guys know what the average gross margin is of the S&P 500 and how it's changed over time my guess is gross margin yeah my guess is 28% I'm wrong but it's a good guess it's about 43% over the last kind of 25 years except in two years and those two years were on the tail end of the web 1.0 bubble bursting so the average is about 43% in 20 202 it went to 30% 2003 it went down to 23% so a half right of the steady state

average that's one comment but the second comment is when you actually look at the S&P 500 right so it has all of these different sectors but this is the 500 best companies in the world right everything else is much worse than this and you look at who has the highest probability and the highest correlation over long periods of time of generating high gross margins it's actually the companies in the markets with the lowest gross margins so if you put these two things together what is it saying it's saying that high gross margin companies are rewarded for growth but they generally speaking have a very poor rack track record of two things one is generating profitability and two is

actually doing it in a consistent Manner and so I think this is just a way of saying what I said last week but I'm just going to keep harping on this because I think this is a huge Trend over the next decade is technology freeberg to your point is no longer a definable sector I know that we want to point to a company and say it's the tech company but I think it's much you'll be much safer if you say this is a tech enabled version of X and X is all of these other historical sectors of the economy that have existed energy Consumer Staples Consumer discretionary materials it Industrials real estate utilities

whatever it is it's actually that company and those companies have a prevailing gross margin a prevailing gross profitability a prevailing ability to convert gross margin into gross profit and that has not changed that much and so all of these companies that are massive outliers to these trends are going to go through a process of getting refactored and maybe your example of fintech being more fin than Tech is a very early sign of what may be happening to the rest of all of these companies that we point to and say that is a tech company actually that may just be a real estate company that's Tech enabled yeah

it it used to be the case that tech companies sold technology to traditional companies and now traditional companies are getting rebuilt quote as technology companies but maybe don't have as big of an advantage as the incumbents who can easily adopt technology themselves so it becomes ubiquitous that technology is you know the way the market evolves but could you imagine if we have a mean reversion to the average gross margin profile oh by the way the other thing was a gentleman made a very I think misguided comment when we posted the Pod last week about how gross margins can never change

and this is crazy and I just wanted to explain that for second let's just say you have a software company that has 80% gross margins but you have an accounting Rule now all of a sudden that changes the capitalization of R&D I think saaks you said it last week but I'll reiterate it if all of a sudden these companies go totally pair way pair shape because of these kinds of accounting rules where you can't capitalize these Investments over five years but now you can only you pay for them upfront but you can deduct them over 15 or 20 years which is what is happening right now companies will Lobby the standards

bodies to change the definition of gross margins so that those gross margins look very different because they'll want to deduct them immediately and now you'll see gross margins Decay by a thousand and 2,000 basis points all of this is to say that this may not be new and different it just may be a rhyming version of the past and we know what that past looked like and the new the numbers are kind of unavoidable sax any thoughts on this fintech Reckoning bubble or some other perspective you might have I think you're right it is a reckoning and the reason for that is because fintech is one of the hottest spaces during the

bubble I have the saying that the hotter they are the harder they fall and so when a space gets really froy and speculative obviously the Reckoning is going to be that much bigger in terms of your question about Revenue multiples and how to think about that I agree that it's a big mistake to think of fintech Revenue as having the same quality as say SAS Revenue I mean the gross margin profiles of ftech businesses typically are very different a good software business 70 80% gross margin fintech businesses typically have transaction costs on every transaction that are pretty high so like freeberg mentioned if you're making loans you're going to have a loss

rate on that portfolio if you're doing Insurance you're going to have claims payouts if you're doing payments you're going to have transaction fees that you pay to save Visa Mastercard and certainly we saw this at PayPal where the margin on any particular payment was pretty low and I I do think that investors who were putting 100 times plus multiples on fintech Revenue definitely were not taking the the margin profile into account you know another mistake that I think investors make is they'll think in terms this is certainly true with with payments companies I mean I could I saw this all the time after PayPal is that

people will confuse gross payment volume and revenue with a payments company what you have to understand is you know take up a payments business that's doing maybe a billion dollars in payment Revenue that sounds like a lot right but if they charge two and a half% transaction fees on that that's only 25 million in Revenue okay now let's say that of that 2 half% 1 and a half% on average goes a Visa Mastercard and another 50 basis points is fraud losses and another quarter point is customer support costs on transactions where there's a problem okay now your real margin your real gross profit on that transaction is 25 basis points 10% so

really of your 25 million of Revenue you only have 2 and a. half million of true net revenue and then you have to use all of that Revenue to pay off all the overhead of the company all the R&D all the sales and marketing all the the GNA the overhead kind bars yeah exactly so you very quickly shrink from a company that's doing a billion dollars in payment volume to one that really is only doing two and a half million of net revenue so I mean unless you're a company like I don't know like only fans that's able to charge 10% uh transaction fees but they're rare you know and they tend to be kind of in

these you know subprime or kind of sketchy spaces so people just don't really understand the the scale that you need to make a payments company work I mean it needs to be not just like a billion is not enough you need to be doing tens or hundreds of billions of volume to make these businesses like exciting at all and I think there's something probably pretty analogous with some of these other areas like loans of various kinds or Insurance because of the losses the margin are just way smaller than people think and therefore you just need huge volumes to make them interesting yeah so I think that's part

of what's going on here yeah and people conf FLT the numbers especially in the early stage of startups people were referring to Airbnb and Uber and door Dash's Revenue as the gross Market you know transactions and like well yeah Airbnb is taking what like a 15% rake and that's all margin yeah but you know people would take the whole you know five day stay and attribute that to like oh this is the revenue of Airbnb it's just intellectually dishonest all right fredberg I've been seeing a bunch of tweets about this Arc storm hitting California is this going to be amazing snow is this going to be floods and disasters is this the day after what's reality here yeah there's

this like rumor that is you know not corroborated by science that this Arc storm event is going to hit us in the next week or two in California which is this massive storm Nick if you pull up that tweet that I sent you last night so this is the 200 mile cross Pacific jet scream oh yeah I saw that with the you know very hot and moist Pacific so a lot of energy the ocean temperatures are hotter than they've ever been on record so uh this causes the air to move more quickly it causes more moisture to go into the air and then it gets moved and pushed all the way to the Western United States and so some people have said wait this is going to lead to an arc storm event so

what's an arc storm event in 1861 to 1862 in California there was a atmospheric River Event for 43 days so water poured down for 43 days straight completely flooded the Central Valley Sacramento Los Angeles all of these regions were underwater for six months at the time causing $100 million in damage and the USGS the United States Geological Survey did a analysis on what they projected Ed would happen if such an event were to happen again this day and age these sorts of events are predicted historically to happen every 150 to 200 years but based on the warm temperature in the oceans we see it's now predicted that these will happen every call it 25 to 50 years or much

sooner and these high temperatures are driving a higher increased frequency and severity of these sorts of events so the most recent model called arkstorm 2.0 which was an analysis done by the USGS showed that if this sort of an event were to occur again would drive over trillion dollars in Damages in California so based on the image that you just saw which showed this massive 200 mph hot wet jet stream plowing towards the Western us a lot of people on Twitter started speculating it's arkstorm 2.0 it's coming our way and a lot of meteorologists have looked at the Ensemble which is the simulation model forecasts and said you know what it's not going to be arkstorm 2.0 it's

going to be wet over the next couple of weeks it could be very wet but this isn't the big Mega flood event that everyone's been worried about so rest assured it's not imminent I know a lot of people are talking about it saying it is imminent but I do think it's worth being aware of and cognizant of this arkstorm 2.0 type scenario and you know it's the kind of thing that folks are waiting for and now you know predicting every other week as is about to happen when these sorts of things happen last year they refer to the storms we had in California as atmospheric River and the arc the AR in at in Arc storm is for atmospheric River I see so last year we had flooding we had damage to our house

I think like $50,000 in damage um Tahoe was nuts yeah the snow in Tahoe the floods in the Bay Area it was crazy it was it was Bonkers and how many days was that it was only like 10 days so basically it's going to be like wet warm moist but it's really not going to be like dripping and like I got it just not GNA be drenched it's going to it's going to be drenched it's going to be wet but not drenched it's going to be wet for 25 days there you go upward 25 days there you go anyway it's worth being cognizant we talked about the hurricane event in the Pacific couple weeks ago these sorts of events more frequent more scary more

significant hotter oceans are driving these events but this doesn't seem to be the mega flood event but it could happen some point got to be cognizant that's the reality there people are buying like sandbags and stuff like that and putting things around their homes these days to to prevent this kind of stuff so yeah and then hopefully it hits I got a leak in my office here right now I got a tarp on my roof you got a tarp on your roof this is at your house or this is at your office my house my office at my house your home started leaking like water was pouring in through the roof the other day you have wood shingles or do you have other I've got composite shingles uh but apparently underneath it there's

some Hol they got to redo the roof anyway I have to take I have to take the wood shingles off because we can't get the insurance people to yeah sh is no longer because of fires in California and you can replace up to 30% of them is what I was told and so you can do like patchworks from off but if you want to at a certain point they won't let you do it and you just have to replace the whole damn thing this happened to me in Brentwood and those wood shakes that you have the sun dries them and they become like Tinder basically so you actually don't want to have those those Shake rofes anymore it's super D no I think that I think they're treated to be fire but they look so beautiful and

now we have to replace them with composite shingles or like you know anyways we're about to start but we don't we can't even get five days straight of good weather for the folks to come in so that's what's so crazy about this thing is we could be sitting here six months from now and have 25 days of moisture yeah I mean 40 days I'm gonna tell that 40 days straight of wet moisture wet and moist yeah but not dripping not drenched for 40 days that's it consistently 40 days of moist consistent 40 days of just yes wet and warm moisture and listen if you were up in Tahoe it would be flurries and yeah soft powder which is what I'm hoping for

all right everybody for the day why is he laughing keep it together please uh for the dictator Tran poopa and is there when we look at these atmospheric things that occur does any way does this have any kind of um gravitational pull multiplan freberg any planetary effects that might pull the oceans out like the gravity of the moon or I'm turning off my microphone Uranus nothing none of those would causes all right everybody goodbye for for consultant of science davidg the dictator chairman dictator cha and David sa love you yeah love you besties we see you next time byebye byebye let your winners ride Rainman David and in said we open source it to

the fans and they've just gone crazy with it love you queen [Music] of Besties are that's my dog taking your driveway oh man oh man my we should all just get a room and just have one big huge orgy cuzz they're all this useless it's like this like sexual tension that they just need to release somehow what we need to get [Music] merch I'm going all [Music] in