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let's go jason start let's go do you have any intros let's go let's go let's go let's go all right if you want intros
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we're not willing to pay for him so don't even go there sax is awake all right well then we'll
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start with you sex if you want to do your job you'll do the intros and if you want to if you want to slow roll your effort
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because you think you're negotiating with us don't we don't give a [ __ ] listen i'm doing all the projects i think we care
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about your intros do a bad job we don't care
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oh my god it's so true do a couple bad jobs so that we can boot you off the show oh that'll be so cool all right
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here we go [Music]
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[Music] all in summit i pack the joint but sax
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won't give me an extra point his crypto holdings they can't find a floor gonna have him flying commercial for the first
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time since 2004. welcome david sachs back to the program the rain man good to be here ah now freeberg i never wanted
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to see him go but you gotta show up for work you can't do every other show the sultan of science he's certainly not a
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fad but then again did you see those ratings with brad welcome back the sultan of science
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by the way our show beat brad's rating so thank you very much jake out okay well a little drama always builds a
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little audience okay here we go champa little healthy competition well chamathi is in italy living a life so grand his
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next back a luxury wine and sweater brand this market is leaving him in a daze so he's been tipsy in the
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mediterranean for the past 10 days welcome back the dictator thank you thank you i just i put them on stun i
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didn't want to do any kill shots there since everybody's a little on edge including the audience the
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audience had a lot to say about whether we cover a lot of the controversial topics um roe
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v wade january 6 and ukraine all i did a bunch of surveys 50 of people want us to talk about 50
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don't so uh we'll see which ones we get to say yeah do you think we should be surveying the audience to ask them what
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they want us to talk about because when we started the show we just talked about stuff that we thought was interesting sure and people happen to like it and
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listen and tune in for it if you end up asking the audience what they want don't you end up becoming like a fox news or like any other
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media company where you just ultimately use the feedback loop to drive yeah i mean i wouldn't every week of the
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show i will tweet like hey anything you want on the docket because sometimes people have good ideas um but yeah certainly you shouldn't base
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it on like a survey no i think it was just like a way to get some feedback yeah we were just yeah that's how we
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started was we were just kind of being intellectually honest with each other and curious about stuff we were interested in and it and it worked and
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if people don't like it they don't like it i mean i mean we should the the big controversy like like a vote for your
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topics and that's what we follow definitely not we should i think we'll agree on that i think just there is an ongoing debate amongst the audience of
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what percentage of this show should be politics and when should we talk about politics and are we doing too much
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politics and so i think let's start with markets let me ask you one more question do you think our objective should be to grow the audience or should our
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objective to be talking about the things we want to talk about yeah what do you think i mean what do you think sex yeah i don't think it's a good idea to pull
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the audience about what you want to talk about i mean the audience yeah
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well i think it's good to have an audience otherwise what are we doing but yeah um but look what the audience
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showed is that half and wanted to talk about those topics roughly and half did it i suspect that
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most topics are going to be like that you know unless there's not markets and people like i think 80 90 of people want
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to hear us talk about markets and startups yes like our core stuff right david i'm just saying if your objective
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function is to maximize your audience you're gonna end up making a tick tock video of people twerking or something you know it's not like the show did you
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just volunteer to twerk on the show i'm not going to do that now i think so i'm pretty sure it's
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traumatic i have the video of fredberg twerking at uh all in summit anyway
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all right let's get started with um i think what's going on in crypto because people do want to hear about
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that and it's been quite stunning a british virgin island court ordered the liquidation of three arrows capital
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three ac after creditors sued the crypto hedge fund for failing to repay its debt they had three billion in assets under
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management they had a huge position in the now defunct uh stablecoin terra and it's
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token luna and they were trading on some massive amount of margin uh how much and
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what deposits they were using to do this uh we will find out um now they're being forced to
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liquidated to be liquidated 3ac owed voyager digital 650 million could not
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pay it which sent voyager stock down 60 and cost them to need a bailout from sam bankman freed
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which has led to uh sbf as he's known in the industry bailing out a couple of other major
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folks in crypto he provided a 200 million credit line to voyager digital this is a canadian crypto lender
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uh they'll lend you money against your crypto uh and uh ftx provided a 250
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million dollar credit line to block fi uh ftx is obviously sbf's company
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and according to early block five investors the ftx credit line would wipe out all existing shareholders so we're
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starting to see the really uh onerous term sheets to keep these things alive this is of course in the
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face of an entire crypto collapse with many crypto coins seeing what we
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saw in growth stocks is this the end of crypto uh is it going
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to rebound again what are your thoughts jamaat saks free burke who wants to start on crypto did you guys see the
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chart that i posted into the group chat that showed bitcoin activity as a
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function of year and value nick can you just put that up just so that we can look at that together the crazy thing
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about this chart when you look at it and it's pretty obvious is that we are collectively in one way shape or form
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basically trading up uh ever since 2018 really with all the stimulus because if you look at you know
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the mean price of bitcoin of 2018 it was a nothing burger you know what we were talking about was you know
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a price that was sort of between a few thousand dollars two three thousand ten three thousand you know and then all of
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a sudden when all of the stimulus money hit the market look what happened to it but i think something unique also
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happened which is that people really understood how to run these very complicated off-chain bitcoin arbs
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and i think we should explain what those are because those are what's behind the three arrows capital it's behind you
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know i think sam had this kind of um oblique tweet that said you know some of these exchanges are actually already
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insolvent they're already the walking dead so the first thing to keep in mind is that you know this is a completely
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unregulated market right there are no middlemaker market makers per se that
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actually have reporting requirements to any regulatory authority there aren't any clearing houses there isn't a way
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for us to understand systemic risk as it builds in the crypto market so what happened starting in 2018 and 19
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is people realize the following things were true it's sort of what we talked about last week
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you go and do some crazy round you uh you know mark up some phantom
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equity in a company that company then issues tokens you then list the tokens not on you know
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a blockchain per se obviously but uh in a place where trades
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can happen off-chain right and there's a bunch of exchanges where these things happen off-chain
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because it's one you know uh company and then they have a bunch of segregated sub-accounts
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and what happens is when these things initially get listed retail goes crazy the price goes up folks basically dump
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on retail um and you know you spin that loop as fast as you can and you can extract an
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enormous amount of money along the way all these things like d5 all of a sudden popped out of nowhere
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and it's like hey you can earn 15 16 17 18 just deposit the bitcoin and so folks
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would deposit bitcoin but then what would happen is like the places where those deposits were held
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but then need to obviously find places to make that 11 12 or 13
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and so then they would go off chain to some other random person who was offering to pay them even more than that and they would try to arb the difference
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but it all catches up with you because when something like a tara goes to zero all the bitcoin that was used to
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basically you know uh run that defy process around tara vanishes
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you know and then all of a sudden you the lender are like hey can i have my uh bitcoin back and
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the broker is like well actually i don't have it i lent it to somebody else let me ask that someone else and they're
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like i'm sorry i don't have it but i have these tara coins you know because i was running some arb and now it went to
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zero and that's essentially what we're seeing right now so we have two big problems and then i think we
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have a third that's kind of funny the first big problem is like obviously in the absence of any regulatory oversight
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this stuff is going to happen systemic risks are going to build up that's what we're facing right now
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is an enormous amount of systemic risk largely around bitcoin a bunch of this
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money i think has been essentially just vaporized and so all these people that try to find
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their deposits especially in custodial accounts in off-chain brokers
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may be sol at some point and i think that's just going to be a huge [ __ ] show if that actually happens and to be clear
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chamath they don't have the keys to their own bitcoin they gave money to a custodial account
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they then did this lending went out to get them to 15 and they
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don't have any recourse here they can't get there but look at this bitcoin owners put them in a wallet and
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own the keys does anybody have recourse to this three euros capital and all of this other interrelated parties that are
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now you know gone completely bankrupt because of this camp the answer is absolutely not
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so that that's the first problem you have absolutely zero oversight which means systemic risk has been built up in
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the system um the second thing is that exactly what you just said jason is that people don't
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even understand chain of custody here which is that you thought that you owned this bitcoin it turns out you actually
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may not actually own them at all you thought that you were properly lending them out you actually don't
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there is no enforceable contract it turns out and so i think that's going to be an entire
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set of different legal issues that are now going to come to the service because people who actually legitimately lent this stuff out
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for example like if you short a stock and you go and borrow stock from any one of us they're really tight guard rails you
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know if you wanted to go and put a credit derivative swap on against that there's a central clearinghouse that
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make sure you're not over levered you know you have to go and get audited by a bank to even get in the kind of
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account that allows you to put these derivatives on none of that was possible at crypto and then the last thing which i think is
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kind of funny is that we've had to listen to every millennial and gen z market observer in crypto
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tout how this is not like boomers and they turn out to be the same i mean this is the [ __ ]
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of all it's like of all of the times you've had to hear how it's so different it turns out it is entirely the same
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entirely entirely in fact worse the custodian issue is definitely a major one saks what do you think is happening
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in crypto right now the price is obviously going down a lot i don't really have a
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new point of view on it i'm mainly pissed off that sbf is trying to raise my taxes in california
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explain that sam bankman freed he runs ftx and his company he lives in the
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bahamas okay and there are probably reasons for that related to liability or taxes or something like that can you tell us what
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what fdx does they're like a coinbase competitor but they obviously think it's beneficial to be offshore not under us
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jurisdiction and they're very profitable right super yeah supposedly they're super profitable
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i mean he's worth like 10 or 15 billion dollars that's my understanding so he's been very successful at this i
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don't know why they're in the bahamas i think either they're in there for securities regulation reasons or for tax
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reasons but it's one of those two in any event he doesn't live in california and yet he is sponsoring a ballot initiative
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here that would add a 0.75 tax on incomes over 5 million to finance a
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pandemic prevention institute of his design he's doing this with dustin
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moskovitz another billionaire doesn't know what to do with his money he was you may remember that dustin was the guy funding chase boudin
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in any event this would be this pandemic preventions to be governed by an unaccountable board
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as opposed to something like the university of california this is like them using the ballot
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initiative system to fund their pet philanthropic projects i mean there's really no need for this i mean first of
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all this is sounds like something that should be done federally yeah exactly it's well first of all it's looking in the rear view mirror in terms of like a
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budgetary priority but even if you believe this was a priority i don't know why it'd be the responsibility of
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california taxpayers exclusively and even if it was you'd want to do it under
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say the uc system some sort of accountable board as opposed to having a report to
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you know sam and dustin so it makes no sense and this is really going to hurt the california tax base
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because if you start raising taxes on you know california millionaires more of
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them are going to leave the state and then that tax revenue leaves the state and so it actually hurts the general
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budget and that's why you know california teachers association for example opposes this is because they know that this is
00:14:02
going to have a negative impact on core services what is well what's offensive to me is i mean so first of all this is
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just a stupid idea in like every possible way but what is a guy who lives in the bahamas doing funding ballot
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initiatives in california to raise our taxes thereby worsening the california fiscal situation
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to fund his philanthropic projects if you're worth 10 billion just fund it on your own you know do it through your
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family foundation i don't know why you need to raise the taxes on all of us yeah
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that's very bizarre why is he giving well the simple answer is because i think it helps curry favor
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with politicians that he needs for other things it that's why i would do it
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this is occurring negative favor because first of all every millionaire in california should be up in arms over
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this but even i'd say yeah i mean but i'd say even liberal
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politicians and interest groups in california like that like the teachers association
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don't want this because the money's not going to a cause they support and it will probably it will almost
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certainly drive down the state's tax base right because people on the margins are going to leave
00:15:16
we already have the highest taxes in the nation we're at what like 13.3 percent for the top end we have 100 billion
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surplus for a reason all these ipos all of these venture capitalists ceos and rank and file tech workers are just
00:15:29
paying massive amounts of tax here and they're leaving right but that's highly levered to capital gains right and so
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last year we had a boom market we now know in hindsight that it was inflated that was all driven by this liquidity
00:15:41
bubble so do you think that's going to be the case this year i think we're due for a huge budget shortfall next year because
00:15:48
there's going to be no capital gains they better hold on to that 100 billion for sure the california tax base is highly leveraged to this boom bust cycle
00:15:56
and driving the top earners out of the state is only going to worsen that impact so
00:16:01
you know but again i question why is a guy in the baha it'd be one thing if it was just dustin doing it i guess but i don't
00:16:08
understand why sam's taking the lead when he's not even a california taxpayer because i think he's a very
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sophisticated player in not just crypto but frankly uh
00:16:20
regulated and unregulated finance and look he i think he spends a lot of money
00:16:25
in dc as well and i think that he has a very thoughtful game plan and then you know when you look at who his parents are his
00:16:32
parents are really really smart thoughtful people as well two law professors at stanford and so i suspect
00:16:39
not knowing and having spoken to them that i think that there's a really
00:16:44
specific strategy that these guys have around who they need to influence
00:16:50
and what they care about and then willing to as a pass through fund those things in
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order to create the you know influence that he needs for the things that he cares about and i suspect that it's that
00:17:01
kind of worse trading which is i think it's pretty typical in u.s politics um the the question though is what will
00:17:07
happen if ftx um has to really talk about
00:17:12
you know everything that's actually happening in crypto crypto you know i'm sure that ftx could do a lot to help understand a lot of this off chain
00:17:20
activity some of the you know especially the stuff that's really in the gray especially the stuff that's going to
00:17:25
come to light over the next few years is i mean you you have to understand guys like you know we've torched 2 trillion
00:17:31
dollars and it's not of institutional capital you know this is overwhelmingly retail capital
00:17:36
all of this is going to inspire a lot of uh district attorneys and doj activity
00:17:42
the discovery is going to be bonkers and it's all going to be regulated to the point of in which it kills a lot
00:17:48
of the opportunity i think this is going to become the most regulated space we've got i don't know i mean i i if the goal
00:17:55
here was to curry favor then i think sam must think there's not going to be a red wave in november because i don't think
00:18:01
republican politicians are going to look very favorably on a guy who's using his
00:18:07
money to raise taxes in a state he doesn't even live all right let let's move back to the crypto piece
00:18:19
at this point with this many retail investors well actually let me let me start with this freeberg is there a real technology here and how
00:18:26
much of what we've just witnessed with this crypto collapse in the crypto boom bus cycle how much is this based on what
00:18:32
you would perceive as real technology that is going to advance the human species forward and how much of this was
00:18:38
hype if you were to put a percentage on it you know trillions of dollars in assets you know created and then wiped out
00:18:45
how much of this was actually real technology how much of it was complete utter waste of [ __ ] time
00:18:51
and a grift i'm no crypto expert and i've not been an investor in crypto currencies
00:18:57
i read the original bitcoin white paper makes sense bitcoin itself to me makes
00:19:04
sense as a potential uh initially was kind of interesting as a potential alternative currency but the
00:19:11
transaction fees were very high and so it never really seemed to make sense as a replacement for traditional financial
00:19:17
networks until those transaction fees dropped below those of the traditional financial networks
00:19:23
um and the biggest concern i've always had which i've mentioned multiple times on the show
00:19:28
is that whenever anyone talks about a quote cryptocurrency
00:19:34
they talk about the price of it in dollars and if it really is meant to be an alternative
00:19:40
to the us dollar why are you talking about it in the price of u.s dollars and it's up and
00:19:45
it's down relative to dollars and that implies ultimately that the intention would be to transact back to
00:19:52
us dollars which implies that the intent is not to be a replacement for the u.s dollar
00:19:58
which was a lot of the early prognostication of bitcoin was it was going to be a replacement for
00:20:04
the us dollar it's gonna be an alternative to traditional monetary systems but ultimately if you're just measuring
00:20:10
this in dollars and it's up and it's down everyone's freaking out every day about crypto's up cryptos down that means it really is more like a
00:20:16
security except securities definitionally are supposed to have a secured interest in some underlying set
00:20:22
of assets and there's no underlying asset it's not actually a security because it doesn't provide you a secured
00:20:27
interest in anything so it is effectively a bet on some systems of computers that are meant to facilitate
00:20:34
some set of activities that you know ultimately people really only seem to value
00:20:39
in us dollars so um so i i don't know i mean like where does it all go it seems like i mentioned at
00:20:45
our predictions episode last year that all of these smaller things are going to get blown out these
00:20:51
quote-unquote cryptocurrencies even though many of them don't really act like a currency and you know maybe bitcoin itself
00:20:57
persists and it seems to me like that's always going to have good staying power as an observer i'm not a participant
00:21:04
and uh you know anytime someone telling you something's in dollars and it's going up and it's going down and you're betting on whether it's going to go up
00:21:10
or go down and your intention is to transact back to dollars you know and and there's no one there's
00:21:16
these have been securities the whole time this is the problem i have with it this has been
00:21:21
you know a shadow securities stack that was created in parallel to the existing
00:21:26
one with a lot of you know oversight and what did we think would happen if you created a
00:21:33
global casino with no rules other securities have an underlying interest in something this has an underlying sure
00:21:39
interest in some line on the blockchain of that particular network that's exact
00:21:44
that's exactly what it does yeah it's a secured interest in a line of code in on a distributed no it's a it's it's it has
00:21:51
a security a bitcoin has a legitimate uh non-fungible entry in a blockchain
00:21:58
that says it and only it represents that thing and i think that that you know is is i guess the the the link
00:22:05
some may call it tenuous but i i mean i tend to think at this point bitcoin
00:22:12
has to be regulated like a security even even if it is not and it's more of a commodity only because of the the volume
00:22:20
and the sheer size of both the market and the the potential fallout is the way you're saying it right the potential
00:22:26
fallout when things go off the rails is so great you kind of need to have some rails yeah i mean i mean like like again as
00:22:32
i've said like look if you're a market participant trying to trade you know very sophisticated you know
00:22:39
derivatives of any kind for example in the credit markets we have to go and we create these things called isdas
00:22:45
they're called vistas you know and it's basically a kind of an account that allows us to go and
00:22:50
you know take risk in some of these very esoteric markets but the the underlying principle around that
00:22:57
is a common set of parameters a clearing house the ability to monitor risk none of those things exist here and i think
00:23:03
that's really what folks have to solve for now secondarily is
00:23:08
what were all these kind of like shadow activities you know it just it turned you know it seemed too good to be true
00:23:15
when you would hear wow this d5 protocol will yield you 24 and you're just like who is paying the 24 hours was it it
00:23:22
never made sense really but then none of us really questioned it you know i you know i had people on the sweet startups
00:23:27
i questioned it all the time and they could never explain it to me and then now the explanation was well we were giving you we were giving short-term
00:23:34
loans to other people who basically wanted a margin loan you know they want to they don't want they want to hold their bitcoin but that was only four or
00:23:40
five percent what they were also doing was giving you tokens in some other cryptocurrencies uh that they were
00:23:47
basically originating so they basically were like we'll give you four percent on your bitcoin loan somebody else will pay
00:23:52
that uh you'll pay that but then the other eleven percent is coming from some tokens we're giving you that actually
00:24:00
you know you have airline miles we have to we're giving you airline we have to answer a really important question if you
00:24:06
we've we you know look the the markets have incinerated
00:24:12
many trillions of dollars i just saw like for example there was 1.7 trillion you know that was just torched in etfs
00:24:19
alone just in the since the beginning of this year right we've done that or more
00:24:24
uh in the crypto side we've done that or more on public equities right we're probably going to
00:24:30
do that or more in other markets but every other market is regulated and there's a full accounting
00:24:36
of the p l's on the dollars that are won in the dollars that are lost and here
00:24:41
some folks have just you know basically escaped with billions and billions and billions of dollars
00:24:47
and the bag holder is just you know a regional investor so the real question is
00:24:52
are regulators going to actually care to try to do something because oh yeah the level of grip that's happened in this
00:24:59
market is extreme and especially when especially when everybody was telling you no this time
00:25:06
is different this market is completely different it's transparent it's on chain you can see every and it turns out
00:25:11
actually most of it was not on chain it was off-chain and they were using they were using this
00:25:17
hey have fun being poor this like psyops to get you to participate okay boomer you don't get it
00:25:24
gensler i was talking to kramer on cnbc here's the quote some like bitcoin and that's the only one jim i'm gonna say
00:25:30
because i'm not going to talk about any of those these tokens that my predecessors and
00:25:35
others have said are a commodity um and then he said many of these crypto financial assets
00:25:41
have the key attributes of a security aside from bitcoin he believes you know like these things are
00:25:47
securities and that makes sense because 99 of people buying them sacks were buying them because they wanted to see them
00:25:52
appreciate they were never using these as utility tokens they were buying them to you know i see them appreciate and to
00:25:58
flip them so what do you think sucks is there is there when we look back on this whole mess in 10 years is it going to be
00:26:04
like the dot-com era where we're like yeah i got overheated but amazon and google came out of it or are we going to look at it and go well that was tool up
00:26:10
season well i think there is um a future technology platform here with crypto
00:26:17
but i mean i've been saying this for the last year that just because there's a future technology platform doesn't tell
00:26:23
you what the pricing should be and the price action got decoupled from the level of progress in the space
00:26:30
you know you should always be looking at what is the real usage use cases
00:26:35
customers revenue things like that and people stopped doing that and i think
00:26:40
part of the reason why the narrative was so powerful if you go back to last year
00:26:46
and the chart that chamas showed about the the increase in the price of bitcoin which is really the root of everything
00:26:52
right because you know first bitcoin appreciates and then if you think about it like
00:26:57
ethereum is ethereum's market cap is like a derivative of of the bitcoin
00:27:02
market cap it's been roughly 40 and then the altcoins sort of get
00:27:07
the market cap the all coins is sort of derivative off ethereum's market cap so the whole thing kind of moved up in in
00:27:14
sync and the reason why bitcoin moved up so much is that as the fed kept printing more and more money you had fans of
00:27:21
bitcoin saying look the fed is debasing the us dollar we're gonna need an alternative
00:27:26
currency that was a powerful narrative that the fed seemed to be vindicating and there was a positive feedback loop
00:27:33
which is the more the fed debased the currency the more that the price of bitcoin went
00:27:38
up now the reason the price went up was not because they were debasing the currency it was
00:27:43
because they were creating so much liquidity that that they created a liquidity effect that then drove up the price that
00:27:50
and so so consumers had money that they could buy bitcoin because they were there was more money in the system yeah
00:27:55
you created more buyers that's exactly what happened they i mean all of this idiotic you started
00:28:01
sorry good sex yeah you saw an increase in speculative investments across the board including but unlimited crypto so
00:28:08
again you know when the fed prints too much money it creates asset bubbles but there's a powerful reinforcement because
00:28:14
as the fed was printing bitcoin and supporters of bitcoin had a really great explanation for why bitcoin was going up
00:28:21
which is they're destroying the us dollar we're gonna need an alternative soon now i think in the very very long
00:28:26
term could bitcoin be a non-fiat currency yes i mean i actually think the technology works you could create
00:28:34
a a new kind of currency that's backed by math and by cryptography as opposed to
00:28:40
fiat government but that could take a really long time i mean that could be decades in the future and but what
00:28:47
happened is the market started thinking well that's going to happen soon and that's where it just got ahead of itself that was the tulip part of it yeah i
00:28:54
think that i think that they found all of these words you know
00:28:59
written in these economic textbooks that allowed them frankly to justify what a lot of people were doing in a lot of
00:29:04
other markets which is just straight up speculation because the money printer was going burn
00:29:10
and you know if the if you look at this 92 correlation to the equity markets i suspect in bitcoin and crypto is
00:29:16
probably closer to even 100 um because it really was the furthest
00:29:22
out on the risk curve and it just made the most sense when you thought money was you know effectively infinitely
00:29:27
going to be available to just buy the riskiest risk assets think about the friction taken out of this chamath you
00:29:33
could buy these you know uh cryptocurrencies so easily you could trade them so easily you could create
00:29:39
one so easily people were popping up forks of these things so in a way what technology has done over the last 30 or
00:29:46
40 years from cloud computing to software to open source has made it very easy to pop up a startup well you could
00:29:52
pop up a currency and then you could get an incredible reward and you get this
00:29:58
incredible reward before you actually make a product for consumers and and absolutely zero rules in oversight
00:30:06
no oversight yeah the feature that was touted
00:30:11
was actually the first one to get thrown away which was transparency yeah when all of this activity was
00:30:17
actually happening off-chain this is why you have this systemic risk issue now when sam is saying some of these
00:30:23
exchanges are actually insolvent what he's saying is well that exchange has
00:30:29
one master wallet address every time you open an account and
00:30:34
transact on such exchange you're actually just transferring between a database entry inside of that company
00:30:41
and so it may look like it is fine but it is actually not fun that's what he's claiming
00:30:48
this is the problem with all of this so all of this activity you know built on these principles of openness and you
00:30:54
know defensibility and you know you you can't inflate it and you know devaluate
00:31:00
and debase it turned out to not even matter because the fundamental principle that would allow us to verify all of
00:31:05
that was violated right from the get-go which was transparency all of it is happening in the dark
00:31:10
most of this stuff is happening off-chain and if you think that you know it's okay to torch a trillion dollars of
00:31:16
equities well at least there's rules on the equity side but to torch two and a half trillion
00:31:22
dollars in crypto where there are no rules it'll be really you know it'll be a very telling sign to see if these
00:31:28
folks get their act together and by meaning regulators and politicians and do something well then we made this
00:31:33
crazy hybrid where we had the venture community and i'm not going to talk about any specific firm here and to be
00:31:39
clear you know nobody knows exactly what's happening but you had coins you can't know by the way you can't know
00:31:46
because it was happening off-chain exactly so somebody would originate a coin and i was you know offered these
00:31:51
deals and you would as a venture capitalist be buying some equity in a company and then some amount of tokens
00:31:56
would be created before the token was released to the public or before anybody had insights into this these tokens were swapping around everybody had different
00:32:03
rights some people could sell early some people could never sell and it was as if
00:32:08
you know you took the process of going public and you gave that to a seed stage or a series a
00:32:15
company before they launched their product so you're taking a company public essentially before they go but if
00:32:21
you if you subpoena they launch their product if you subpoena the exchanges all of this gets turned over yeah
00:32:27
because the exchanges are the honeypot of off-chain activity yeah so and that's what's going to happen i
00:32:34
think in all of this and it's going to be really funky this is and what's terrible about this is this is why the
00:32:39
accreditation laws exist is like oh only sophisticated people top six percent of americans are allowed to participate in
00:32:45
private companies and what did we do we allowed a hundred percent of people on the globe to participate backed by
00:32:51
privacy that less than a thousand people in the world actually understand that what could go wrong what could go
00:32:58
wrong you cannot buy a stock but you can buy this cryptographically secure you're not allowed to buy a share
00:33:05
of linkedin or uber or airbnb even though you stayed in an airbnb we you're an airbnb host you're too stupid to buy
00:33:11
airbnb shares when it's private but you can buy this cryptocurrency that doesn't even have a product in marketing and and
00:33:17
here's this white paper that has you know university level pure math as the explanation of why it nothing can go
00:33:24
wrong and you turns out again because nobody actually understood in the first place
00:33:29
this is going to be a decade of discussion if you look at that if you look at that price chart what it really means is like again you know we talked
00:33:35
about this if the equity markets have to rebase and get all this qt a qe out of it yeah
00:33:42
right and then you have to rebase for earnings if you believe you're in a recession and then you have to rebase
00:33:47
for margins if you believe that there's rampant inflation those three things have to happen in the equity markets
00:33:52
we're in the midst of that yeah but that also has to happen on the crypto markets in the crypto markets and if you look at
00:33:57
that chart what it really tells you is that the baseline price of bitcoin where things seemed you know where rational supply
00:34:04
and demand were beating each other before all these you know five ten thousand thirty five hundred to five thousand
00:34:10
yeah i would say about five thousand still seventy five percent from here yeah it's twenty thousand now so yeah we got we could have ways to go one thing
00:34:17
that i thought was an interesting sign of potentially bouncing along the bottom zendesk has agreed to be acquired by an
00:34:24
investor group in an all-cash transaction they're basically going private here uh for around 10.2 billion
00:34:30
uh if you don't know zendesk is a help desk software company it's a sas software company
00:34:35
they turned down a similar acquisition of 17 billion earlier this year their market cap is 9.1 billion in the public
00:34:40
markets it's gone up obviously since it's announced this was announced but um
00:34:46
they have uh a billion three in revenue they're up 30 year-over-year so this is a strong company but the acquisition
00:34:53
price is 7.7 times their 2021 multiple sorry did you say they're up 30 percent
00:35:00
a year over year the revenue's revenue is up 30 year over year they have 1.5 billion dollars in cash and securities
00:35:06
uh that are you know marketable securities so they're cash rich small loss 223 million for the year in
00:35:12
2021 so they have six years of runway if nothing were to change yeah what do you make of the sacks is
00:35:18
why would they do this they don't have to so and is this to you like the sign of a
00:35:24
bottom if we start seeing a bunch of these companies that went public that are seemingly strong start to go private
00:35:31
and to go maybe clean up their balance sheet and go public again in three years what's going on here well i mean this
00:35:37
isn't a horrible outcome and by the way i mean i remember we shared uh when i was doing yammer a decade ago we shared
00:35:43
a floor in uh our an office building at 410 townsend with um with zendesk
00:35:49
and they launched that techcrunch 50. yeah yeah exactly so we had i think 5 000 square feet and they had the other 5
00:35:54
000 square feet and we were in a standoff both of us were expanding and we needed the other half of the floor
00:36:00
and it was like who would move first basically and anyway they ended up moving and we took over their space but
00:36:06
so i mean look this is a company that you know was worth 100 million bucks 10 years ago so whatever it was i mean they
00:36:12
were still you know they were very early stage so this is still a great outcome should they have taken the 17 billion sure with
00:36:18
2020 hindsight that would have been better but look you're seeing the valuations here being roughly
00:36:25
the sas index is now down to about five and a half times revenue i think next 12 months revenue
00:36:32
for them for the media and sas company and the median sas company is growing about 20 percent if
00:36:38
you're a high-growth company which starts at 40 you're trading at about eight times the next 12 months revenue so zendesk is
00:36:45
sort of in there i mean that is what they're trading for and sas founders why go why would the founders the board
00:36:52
want to go private is the question on people's minds it's not it's not that they wanted to go private i think that
00:36:57
they wanted to stay public and they wanted to build a large business but this is where the law of large numbers
00:37:03
catches up with every company that's why it's so rare to have an apple or a google or a microsoft or a facebook or
00:37:10
netflix where you can grow for 20 years at 25 plus percent because at some point
00:37:15
25 growth over last year just becomes too hard of a mountain it's a big knife
00:37:21
and so what zendesk suffered from is what most of these sas companies not and i'm not trying to disparage them
00:37:28
just calling it out will have to go through which is the following the easiest kind of sas company to start
00:37:34
and the one that folks you know really talented investors like saks will fund overwhelmingly over others are what's
00:37:41
called bottoms up sas right things that sell to the low end of the market things
00:37:46
that sell into you know individuals can buy them in a corporation as opposed to the cio yeah the the unfortunate part of
00:37:53
that growth curve is that it's pretty terminal within seven to ten years and after that you're
00:38:00
forced to go to the mid market and that eventually you're forced to go enterprise but when
00:38:05
you go to the mid market and you're selling to 500 and you know 1 000 2 000 companies and then eventually even
00:38:10
enterprise you're talking about massive investments of opex people engineers product
00:38:16
managers sales people and all of that stuff costs money and it's not clear that your product is any
00:38:22
good so in the zendesk example it's not to say their products were bad but all of a sudden they were going up
00:38:28
and selling a crm tool sales force automation tool and now you're going head-to-head against companies like
00:38:33
salesforce who are going down market and all of a sudden salesforce and microsoft and all these companies can
00:38:40
play very aggressive pricing games with their products they can bundle all kinds of other things in for free they can
00:38:45
give you discounts and it's very hard to compete as a single individual company so your growth
00:38:50
starts to stall so i suspect what happened at zendesk is they said we can make it
00:38:56
and we believe in ourselves and they found that it was hard then instead of organically growing that's
00:39:02
when they turned down the 17 billion offer they tried to grow inorganically they looked at surveymonkey right which
00:39:09
our friend zander runs and said we're going to try to buy that for 4.1 billion and the market said uh-uh no
00:39:15
and then the market basically contracts and now they're like well if we go and now torch
00:39:20
our ebitda goals and tell the market we're going to go and spend all that billion dollars we have to try to go up
00:39:26
against salesforce and microsoft with a product that we don't know is going to work our stock's going to be at a dollar
00:39:32
and so i think that that's sort of the the parade of terribles that happened for them but it's a little bit of a
00:39:38
warning sign for how difficult it is to get big like what salesforce pulled off right and what workday is starting to
00:39:45
pull off what service now has pulled off i mean it you can't underestimate the
00:39:50
quality of this i mean google apple facebook you know i'm saying i'm saying specifically enterprise yes those
00:39:56
companies service now probably being the last one that's really did it incredible
00:40:02
so difficult palo alto networks is probably the next closest one now salesforce acquisitions
00:40:08
right salesforce doesn't matter how you get there organically and organically it doesn't matter the point is it's very hard
00:40:14
most ceos fail nobody so is this going but okay so my original question is is this the bouncing along the bottom
00:40:20
moment because we have peloton buzzfeed
00:40:30
well this is a warning sign that says you cannot go into a massive investment
00:40:36
cycle for all companies unless you can prove that you can sustain margins
00:40:42
sustain growth and minimize opex but isn't this a very sophisticated buyer
00:40:47
taking it private they must have a thesis of how they're going to get their money back
00:40:53
right so that's my point is sexy you think that this is like if the company's already public
00:41:00
and somebody thinks hey you know if i take this private i can do better than if it's public and i'll reintroduce it
00:41:05
to the public markets to get liquidity later isn't that what's going to happen here in all likelihood you're making that statement in the absence of understanding how these things are
00:41:11
financed well it's got a billion five and it's and it's break even almost so okay what about the what about the
00:41:17
billions of dollars of debt they're going to take out and slab on this company right what about the number of people they make you're talking about
00:41:23
post going private at the end of the day the private equity firms are not trying to make you know this 10 billion dollars
00:41:29
go to 25. they're trying to make the 2 billion of equity they put in go to three
00:41:35
and there's a lot of ways that two can go to three before 10 goes to 25. so they want a modest return
00:41:43
50 return it's a lot it's making a billion dollars it's hard yeah but but
00:41:48
compared to the management team and the board's view of being a public company and growing 20 a year or actually in
00:41:55
their case 30 wouldn't that be a better opportunity for those shareholders that's what doesn't add up here saks what do you think if i had to guess i
00:42:01
mean i haven't talked to mikel about why they're doing it i think that they're operating at a new stage of the business
00:42:06
i don't think it's as fun to be growing a company at call it 20 to 30 a year and
00:42:12
all of a sudden you have to generate cash flow and you're being valued on that i mean they're passionate so management is your thesis i don't know i
00:42:19
mean it seems a potential visas i think that's basically why people sell good businesses like i actually don't think
00:42:25
there's a problem in their business i think that growing 30 a year with 1.3 billion in
00:42:30
revenue plenty of cash in the bank i think they have a good product i don't think there's anything wrong with the
00:42:35
business yeah i think that that i do think founders get burned out and this is an exit and i do think that the phase
00:42:42
of their business they're in right now is not going to be as fun as the high growth phase look when you're growing 100 200 a year and investors are willing
00:42:50
to fund that growth and they don't really care if you're profitable that is just more fun than growing a business 20 to 30 a year
00:42:58
and investors are breathing down your neck saying when are you going to deliver cash flow and what the private equity
00:43:03
guys do is they're going to go in there and they're going to restructure the business to deliver cash flow
00:43:10
now i think ultimately these types of businesses they're great these software businesses they're great businesses to own because they're high gross margin
00:43:17
and you know they've got a subscription base that just keeps growing organically if they've got positive net dollar
00:43:24
retention so you've got a let's call it a 1.3 billion dollar subscription base that will grow
00:43:30
to 2 billion over the next whatever half dozen years and quite frankly i bet you the private equity guys are going to
00:43:35
take out half the cost structure there's no reason this thing can be generating 500 million a year in free
00:43:41
cash flow but the management team would be unwilling to do that because it would suck
00:43:46
it kind of sucks to do that every day to come in and fire half the team that you hired and take that hard medicine it
00:43:52
just is a bummer for that personality type i think it is a different kind of management challenge
00:43:58
and yeah i don't think that's fun and but look the thesis behind software companies the justification for them
00:44:05
burning money was look we're gonna we're gonna spend every dollar in revenue that
00:44:10
we make and then some because we're building a subscription revenue base that again has positive net dollar
00:44:17
retention so one day okay one day we won't have to keep investing so much in sales and marketing we won't have to
00:44:24
keep investing so much in r d we'll still keep investing to some degree we'll make the product better but it's
00:44:29
going to be a little bit more maintenance mode we will get to maturity and then you can lay off a third of the staff and all of a sudden and then and
00:44:36
then all of a sudden the company's gonna be super profitable and the fact of the matter is is that day never came because the markets never demanded it
00:44:43
now that day is here no no hold on it never came because the markets kept demanding more growth if you look at
00:44:49
their long-term operating margins you know when they first beca when they first came out public it like had like a
00:44:54
negative 30 margin two years later they had a negative 50 margin and over the last seven years so
00:45:01
that was 2015 up to now they've crawled their way back to negative 13
00:45:07
so at some point i think investors said oh my gosh this company has never made money it needs to keep investing more in
00:45:13
order to grow and i think david to your point may be the decision that he didn't want to make
00:45:18
was to flip it to a cash cow i don't think that's true i looked at um
00:45:24
these guys have been generating cash their reported gap earnings are negative because of the stock-based comp expense
00:45:30
meaning that they're issuing well there's a big topic to discuss here and i think that's actually worth highlighting because this is an
00:45:36
important one because people have been talking about this considerably lately so this company's been making money
00:45:41
every quarter they generate cash but in the last quarter they issued 60 million dollars in stock
00:45:48
to employees to compensate them for the work that they do so that's 250 million roughly
00:45:53
of dollars per year of stock based comp which is two and a half percent of the total shares outstanding in the
00:46:01
company are issued as employee comp every year that number results in a dilutive effect
00:46:07
to shareholders over time even though the business is generating cash your relative ownership as a shareholder in a
00:46:13
business that's generating cash is going down by two and a half percent every year because of all the new shares that
00:46:18
are being issued to compensate employees for the work that they're doing and i think that's part of the issue that a
00:46:24
lot of folks kind of have taken for granted this was well rooted in i would say probably google who became very
00:46:30
generous very early on with issuing rsu's and stock in their publicly traded securities to employees as part of their
00:46:37
compensation package but google has a 30 40 ebitda margin in terms of incremental
00:46:42
contribution of new revenue and um they can afford to take a point
00:46:48
or two of dilution google by the way is actually not dilutive they they buy back shares with
00:46:53
their extra cash so as a shareholder you actually benefit from this considerable cash generation
00:46:58
but a lot of uh software businesses and tech companies in general have had to rely on issuing shares to compensate
00:47:04
employees for the work that they do so even though the core fundamental of the business is generating cash and cash is
00:47:10
going up every year the business doesn't know how to get out of this cycle of how do you pay these engineers 400 000 a
00:47:16
year without diluting shareholders by issuing all these new shares every year and you'd have to do that more likely as a
00:47:22
private company to figure out how to consolidate earnings how to trim head count and actually get the thing to
00:47:27
generate the cash it has to generate but free book isn't that a real like you're pretending like it's some fake cost
00:47:33
yeah it's not it's it's a real cost it's a cost to shareholders for sure but why but why why the asterisks
00:47:39
well no there's a specific reason because the business itself operates running out of cash it's not burning cash the business is growing its cash
00:47:45
balance but in order to compensate employees for that cash balance they're diluting you the shareholder right i
00:47:52
look when you own a share of a company okay which by the way is another way of saying that the company is effectively
00:47:58
issuing two and a half percent new stock every year to fund its operations i mean that's another way to think about it
00:48:03
look i'll give you the warren buffett goal you can tell me that it's stupid but it kind of makes sense which is you take the number of shares you own
00:48:10
you divide it by the total number of shares outstanding you look at the total profits
00:48:15
and you say my look through earnings equals that percentage times the total profits yeah and your percentage is
00:48:20
going down every year with stock based comp that's so cool and so the question is
00:48:25
it's also going down because you're buying real estate you're hiring people you're paying them more like it's going down for a whole host of reasons that
00:48:31
asterix is an irrelevant asterisk in my opinion like at the end of the day you spend money to grow how you spend the
00:48:37
money is not that important to me let me say two two quick things on the topic one is um yeah i totally agree it's an
00:48:43
expense yeah on on enterprise software and saks you're you're the the the master of the
00:48:48
art but um you know as an observer it seems to me that many of these companies once you
00:48:53
have an enterprise account you benefit from being able to cross sell new products into that account and you can grow this net revenue retention
00:49:00
number over time and ultimately generate cash many of the big enterprise software companies that we've talked about from
00:49:05
salesforce to workday and others have succeeded in doing that autodesk is another good example and carl bass i
00:49:11
think is on the board of zendesk they've done um they've done this successfully by bulking up their product categories
00:49:17
and they're they've done acquisitions or they've done build outs and so over time your incremental cost to uh just to sell
00:49:25
a new product and generate um incremental growth profit goes down
00:49:30
and the business performs better with scale this seems to be one of those businesses where ultimately they couldn't bulk up through acquisition and
00:49:37
they couldn't organically product and they tried and so the challenge is they're kind of a i don't
00:49:42
want to say a one-trick pony but the portfolio of things that a business like this can sell into and ultimately increment gross profit is very limited
00:49:49
and that business becomes challenging to operate as a public company because you really do have to show that momentum as
00:49:54
a scaled enterprise software business that you're actually generating real cash over time
00:49:59
the other thing i just want to say on stock based comp and sorry sex i'll come back here one sec but chamath and you
00:50:04
guys i don't know if you realize this but the standard in silicon valley today um when a company goes public in an ipo
00:50:11
is to have what's called an evergreen stock grant proposal and evergreen basically means that every
00:50:17
year the company is authorized the board automatically authorizes the issuance of
00:50:23
some percentage of new shares per year this is typically in the range of four percent
00:50:28
and iss and other you know kind of institutional shareholder advisory services actually vote against these
00:50:35
shareholder proposals and push back against them but most of the companies in silicon valley that go public
00:50:41
automatically include evergreens as part of their you know kind of ipo prospectus i mean can we agree on control like it's
00:50:48
yeah every year they can they can dilute shareholders by four percent and independent of how the business operated
00:50:54
that year which is effectively the same as doing a four percent secondary cash offering every year because it's this
00:51:00
you're issuing those shares into the public market and instead of getting cash you're paying your employees with
00:51:05
them and so it avoids you having to use your own cash balance to pay your employees so you're effectively raising
00:51:11
money every year and you're allowed to raise up to four percent dilutive effect to shareholders to do that every year
00:51:17
and it's become a real topic and it seems to me that a lot of the big portfolio managers of big institutional funds are starting to pay really close
00:51:24
attention to this quote-unquote standard in silicon valley that stock-based comp expense has become so high and
00:51:31
evergreens have become kind of a standard as almost like an ordinary course of business and it's become um
00:51:36
you know a really contentious topic and i don't think it would be too surprising number one to see cash salaries go up
00:51:42
and number two as a result of that to see salaries become rationalized in silicon valley where engineers may start
00:51:48
to get challenged on the standard 400k per year that everyone's become used to um you know in terms of you know high
00:51:54
tier uh you know remote work maybe there is a a compromise that could be had but this
00:52:00
compensation you have to remember has been outrageous in some cases especially for senior management and so
00:52:07
it makes the core business look broken but what you actually have is maybe people who are on these boards
00:52:13
are also in on this compensation and it's just bad hygiene and it's not related to the performance of the
00:52:18
company right i don't think i don't think the board people are quote in on it i think that's it's just it's you have to pay an engineer 400k a year to
00:52:24
compete effectively in silicon valley today i was talking more about the managements the managements.com the
00:52:30
managements.com is different than the engineers you would agree for very like there have been some enormous stock
00:52:35
grants yeah yeah certainly if you want to run the company as a high growth startup with employing these high paid
00:52:42
engineers and executives including stock compensation that is a certain kind of way of running the business but again if
00:52:48
you're trying to run the business for profitability that's a different way of running the business and just to add a layer to what happened here
00:52:54
that zendesk was under intense pressure from an activist investor called janna who is basically trying to replace the
00:53:01
board of directors they're running a proxy battle against them so janna has been pressuring them to
00:53:07
replace the board to to make all these changes that to take the 17 billion
00:53:12
offer i guess back in march they didn't do it now they did a lower offer at 10 billion why i think because the market
00:53:19
has clarified we now it's it's clearer that we're in this regime change what
00:53:24
the market is valuing is free cash flow as opposed to profitless growth
00:53:30
and my guess is again without having talked to mikkel my guess is they probably just threw up their arm and said listen you know
00:53:35
like it's not going to be fun to run the company this way but you also have to you have to ask the question why are
00:53:41
these highly sophisticated private equity firms buying it for 10 billion i think they're going to make a lot of money and the way they're going to make
00:53:47
a lot of money more than a billion yeah they are going to slash the hell out of the cost structure they're going to run
00:53:53
it to be highly profitable they'll probably bring the growth down from 30 a year to 20
00:53:58
or 15 but the benefit the offsetting benefit to reducing the growth a little bit will be they could probably generate three
00:54:06
four 500 million of free cash flow on that business if it's doing 1.3 billion and they stop investing in r d and they
00:54:12
stop and they bring down the sales and marketing that could be a that could be a cash cow like you said so i think
00:54:19
that's probably what's what's going on here um is that i just want you guys to know not to burst this bubble but when people talk
00:54:25
about free cash flow they touted a lot tech companies touted a lot because
00:54:30
you're allowed to add back in stock based comp as if it didn't exist the problem is that stock based comp is
00:54:37
non-cash so when when you're only source so if you see a company that has negative
00:54:42
ebitda negative everything all of a sudden are like quote unquote free cash flow positive
00:54:48
it's because they were able to add back in stock based comp but that money is not real so when the only source of free
00:54:54
cash is stock based comp that free cash flow doesn't reflect the company's true profitability this is what i mean by
00:55:01
people play these shell games with these numbers to allow you know oh let's you
00:55:06
know value something based on ebitda actually no because you know our stock based comp is off the charts let's actually go to something else you know
00:55:12
we'll do a non-gaap ebitda measure you know you know adjusted ebitda and then oh
00:55:18
actually wait sorry look at free cash flow because you can add back in this gargantuan amount of stock base comp
00:55:23
i mean it's crazy i'll just the quote from community we work the the the quote from warren buffett
00:55:30
summarizes the best if compensation isn't an expense what is it
00:55:36
and if real and recurring expenses don't belong in the calculation of earnings
00:55:41
where in the world do they belong i think what we're seeing right my point is is not that comp isn't an
00:55:48
expense it is but rather that it's an expense that you can control by reducing the amount of staff no i guess
00:55:54
i think these private equity guys are going to basically whack the cost structure of this this i'm just saying you can distort free cash flow as well
00:56:00
because you can cut back in stock based comp it's a joke it's a little bit of a shell game going on it's like the dirty
00:56:05
secrets let me ask you a a like an important investing accounting question
00:56:10
let's say that a business like um zendesk is generating 100 million dollars of free cash a year
00:56:17
i don't know what does that mean well hold on so every year their cash balance goes up by a hundred million dollars
00:56:23
they have a business it generates 100 million dollars of incremental cash every year the cash balance goes up so
00:56:28
you as a shareholder own shares in a company that is creating 100 million dollars of cap of incremental capital
00:56:33
per year however your shares that you own are going down because they're getting
00:56:39
diluted every year by roughly two and a half three percent and that's it's two and a half percent of zendesk's actual
00:56:45
number so every year you're getting diluted by two and a half percent would you rather have a business that you are
00:56:51
getting diluted by two and a half percent but it's incrementing its overall balance by a hundred million dollars or would you rather own shares
00:56:58
in a company that's burning cash each year and i think that's where this ended up from a market perspective getting
00:57:03
rationalized his shareholders said i want to have the safety and security of cash generation and i'm willing to take
00:57:09
on the delusion for it and that's how this became you know as standard as it is when i think about funding a new
00:57:15
startup and i look at the competitive landscape when i see that the competitors have all
00:57:20
been acquired by private equity companies i generally think okay there's room for
00:57:26
innovation here because i know that the first thing the pe firms are gonna do when they acquire a company is like
00:57:33
zero out r d or just put the product on maintenance mode there's no innovation that happens yep with the product once
00:57:39
the pe firms buy that buy it right so the reality is i think so those are good targets for startups
00:57:44
acquisitions right sex i mean they'll find something yeah they'll they'll do roll-ups right because it's
00:57:50
they will do financial innovation they will innovate the the structure cut all the wasteful spending and all the
00:57:56
nonsense and lunches yeah exactly once like cut out all the kind bars yeah
00:58:01
the kind of exposed brick walls like all this nonsense who do you think is a vegas trip yeah
00:58:07
this stock based compensation is going to go away because they're going to get rid of all the high price engineers they're going to get rid of the a lot of the high price executives they're going
00:58:14
to probably they're going to have to keep customer support they're going to increase cash salaries probably
00:58:20
they'll bonus people they'll just do bonuses for hitting targets instead of giving people as much equity in the business
00:58:26
and they'll run it like a you know private equity type type play sex
00:58:32
it's not fun it's not interesting to me right yeah i mean we're gonna see it's not like you're building this
00:58:37
product i think david the other reason why it wouldn't be fun is like it's a it's a level of financial engineering which is highly sophisticated i think
00:58:43
for some people it is fun i think for us it's less fun because you're not necessarily creating any company per se
00:58:48
not innovative you're not being a product person you're yeah but i would say that it is highly sophisticated and the folks that do it at these places
00:58:54
that these private equity firms are incredibly they're very good at it savvy at how they do it um and it's it's all
00:59:00
the twists and turns of how you you know lever this up and use debt and blah and use a margin loan and pre-fund the com i
00:59:06
mean and it's not the stuff that necessarily we want to be thinking about
00:59:12
but that's what you would have to do as well i totally agree with that look i'm i'm happy they exist in the ecosystem
00:59:18
because we need firms we need more exits right and we know that right now in
00:59:24
washington the the regulatory regime is very difficult it's very hard to get deals through
00:59:30
so at least you have private equity firms that are providing some exits and we need the ecosystem needs and those
00:59:36
eggs that you're saying sacks don't trigger like com competitive concerns with lena
00:59:41
khan and her group right like yeah she's like some private equity firm took this private okay salesforce didn't buy it so we don't need to get through regulators
00:59:47
right you're going to see a lot we need exits in order to justify the risk capital that goes in at the earliest
00:59:54
stages which in most cases going to be a zero and just to give you some other numbers out there manscaped which is a
01:00:00
company sells razors for guys uh they had 315 million in net loss in 2021 with
01:00:07
310 million in stock based com by the way that number can also be distorted just to be clear if you give a one-time
01:00:13
big grant to an executive like a ceo yeah the way that the accounting works on stock based comp it's not the kind of
01:00:20
thing you can have a very simple kind of descriptor on but you can have these very significant short-term costs
01:00:26
associated with a big grant that could vest over a long period of time sure with that that has very high strike
01:00:31
prices i mean when elon got that massive grant at tesla the stock based comp
01:00:36
expense was significant but yeah but you know what the interesting way into it it was that was there were 20 targets or
01:00:41
something crazy like that and all of them were based or a lot of them were based on the stock price and the delivery of cars so that's one of the
01:00:48
things that i think is broken yeah yeah so this is one of the things that's broken in silicon valley is that
01:00:53
the comp in the stock based comp is not tied to performance it's like just giving people guaranteed salaries in
01:00:59
fact i was going to say jason i could be wrong like there is more sophistication to be clear in executive comp and public
01:01:05
uh technology coverage i think that should trickle down to the junior people too i think everybody should rise and fall with the company's performance
01:01:11
that's my personal feeling i mean this is the problem with entitlements you know and people being entitled to sorry
01:01:16
to be like a red pelt here but we should have like performance should be lauded and
01:01:21
compensated for not just showing up and hanging out there's going to be a bunch of companies in this position so look
01:01:27
for this as a trend peloton 964 million last quarter in revenue lost 757 million
01:01:33
in the quarter they have a 3.1 billion market cap they've only got 879 million dollars
01:01:38
worth of cash i'm just looking at these numbers hopefully they're they're tight um and they have a billion for an inventory
01:01:44
that company's going to get taken out uh buzzfeed i don't know why that even went public they're down 84 percent they had
01:01:50
91 million dollar media company 91 million dollars in q1 revenue they lost 45 million their market cap is down to
01:01:56
210 million and they've only got 74 million in cash or so with some you know maybe
01:02:02
100 million in accounts receivable so there's a bunch of companies right now that are public that are
01:02:08
about to hit in a couple of quarters running out of cash going into a recession are we going to see
01:02:14
some big flame outs do you think and are you watching specific companies because the private equity folks must be salivating watching this
01:02:21
well i mean look jacob you asked what the takeaway was around this and i think the takeaway is there's been a regime
01:02:27
change in the public markets the way that investors look at these companies is changing it's not about growth at all costs anymore
01:02:33
they're not just looking at revenues it's also about margins and cash flow and you know we talked about in the last
01:02:40
pod how i think a lot of founders understand intellectually that we're headed for a
01:02:45
downturn if not a recession but they weren't taking the medicine of basically reducing their burn well
01:02:52
this is an indication of what investors are valuing if the only way for zendesk
01:02:57
to create value as a public company is to sell to a private equity firm who's going to have the staff is going to cut
01:03:04
off or some huge number of staff to run it for free cash flow that's just an indication of the regime change so
01:03:10
you know we need founders to start internalizing this information so they can run their businesses more
01:03:16
efficiently you know what investors want right now they still want growth but they want it with low burn high burn
01:03:22
operations are going to get punished i've transitioned most of my public markets time to focus on debt
01:03:30
um and i've been looking at these companies because yeah because there's a lot of these really interesting tech companies with a lot of because what
01:03:36
david said i think is a hundred thousand percent right what saks just said there is a
01:03:42
massive massive regime change here and yeah and shockingly if you don't take
01:03:47
the medicine yeah and and what's funny is like so many of these companies have been left for dead
01:03:52
but what is really juicy is the few companies that you think will
01:03:57
survive and specifically making sure you're protected in the capital structure which means to own the debt because the debt
01:04:04
is always senior to the equity and there are some really really interesting companies out there
01:04:10
that are in that situation and it's just like it's a much better risk reward in a moment where again you know we
01:04:16
talked about this but why would you give up your liquidity today i don't know the answer
01:04:22
why why let's go around yeah you've used this term jason before like skipping along the bottom i just
01:04:27
think it's like psychological wishful thinking as opposed to sort of like a rational summation of the actual jerome
01:04:33
powell just said i will tank the economy in order to beat inflation he just said
01:04:39
it in the wall street journal uh but people believe inflation might be turning over do you buy that or not
01:04:44
no as i've said i think you're gonna see eight and nine percent inflation prints for at least the next three or four
01:04:49
months minimum i think that things could get um
01:04:55
marginally better after that but i think the thing we don't know and again it just touches and i don't care what the
01:05:00
[ __ ] audience thinks touches russia and ukraine so sorry to bring up politics but none of these things are inexorably
01:05:07
intertwined and if people want to go and venture and gamble in the stock market you might as well understand this
01:05:13
because i think you know many of the scenarios will trade because of what's going to happen
01:05:19
with putin let me ask the question here how many quarters will this recession be if we had to pick a range pick a two
01:05:25
quarter range i'm thinking three to five what what do you think i have no idea okay
01:05:31
freeburg you gotta if this is the second how many quarters plus or minus two let's say
01:05:38
uh is this recession gonna be so five plus or minus two four plus or minus two plus or minus one
01:05:43
what are you thinking will be the bottom out point i don't like the term i've told you guys i don't like the term
01:05:49
quote recession as if it's some absolute negative thing i mean negative gdp growth coming off of
01:05:54
inflated gdp doesn't feel to me as uh systemically challenging to the
01:06:00
economy as uh you know but some other circumstance where for example there was
01:06:06
a global financial crisis or uh 911 or some other kind of factor that
01:06:12
that drove things uh that that really affected the core economy
01:06:18
certainly we hadn't we had something that that affected the core economy and coveted then we had massive stimulus
01:06:23
so i i don't i think there's this unfortunate general characterization of quote-unquote recession
01:06:30
being an absolute negative and i think that there's relative growth and if you're
01:06:35
if your relative growth is negative off of an inflated number but over okay let me give you let me let
01:06:42
me just finish but over a historic two or three year period you're still growing the economy considerably because
01:06:47
jobs uh jobs are growing and production is growing uh it's not as negative as it's being
01:06:53
made out to be so i i'm not gonna okay i get you get into let me let me ask you this way then how many more quarters
01:06:58
will we have of stocks and real estate and assets declining in value or being flat that's
01:07:06
a financial markets question which i think that's a different one and one thing i've realized is that financial
01:07:11
markets in the short term uh you know the old warren buffett quote or whoever it is that over the long term
01:07:17
equities are a weighing machine in the short term they're a voting machine as we've seen with crypto it was a
01:07:22
voting machine that everyone voted on the hot thing to your and now everyone's voting against it so
01:07:28
i i don't know they're weighing it now yeah well yeah i mean at some point there's nothing there you hold a cryptocurrency long enough
01:07:35
you'll find out how much fundamental productive value it's grading and the same is true for owning businesses or other real assets you'll
01:07:42
find out over the long run how much productive value they're creating so so you don't want to answer the question of when we hit a floor okay saks when do
01:07:48
you think we hit are we are we hitting a floor now we have a lot more to go down i'll tell you one point of view i am
01:07:54
looking at buying high quality share businesses buying shares of high quality businesses right now okay i think that
01:07:59
there are things that are that are cheaply priced if i own them for a long enough period of time the underlying productive value of that business will
01:08:06
return my capital to me and so you have one that you might want to mention here that you're looking at i don't
01:08:12
because you don't want to share some stock tips at the summit with our friend uh sonny he's his trades are up but like
01:08:18
i told him these are longer-term trades what do you think in terms of and then we'll go to some of the political stuff that affects markets after this well i
01:08:25
mean i think it's all related so there's three things going on here right now economically or three underlying causes
01:08:30
one is rate expectations have changed massively interest rates have gone up
01:08:37
and rate expectations are going up even more fueled by inflation and until we
01:08:42
see where we're at on inflation whether that gets controlled that issue is not going away the second big issue is
01:08:47
economic slowdown the recession so the first one is wall street this is main street and these two things are related
01:08:53
because companies are slamming on the brakes because they're seeing that the capital availability is greatly getting
01:09:00
reduced by this re-rating this regime change in markets so we're seeing an economic slowdown that threatens to turn
01:09:07
into a recession and consumer confidence is part of that right when your wages don't buy you as much because food
01:09:14
and gas prices are through the roof that reduces consumer confidence and that also plays into that so that's the
01:09:19
second big issue and i don't think we're going to know about recession it's going to take you know potentially
01:09:24
through the rest of the year before we figure out what's happening there and then the third part of this is the overhang of this war in europe the
01:09:31
ukraine war which is now threatening to become a forever war there was a pretty stunning
01:09:37
article in the washington post this week in which the administration
01:09:42
officials were quoted as saying that they would effectively prefer or
01:09:48
countenance was their word a global recession and famine over letting russia
01:09:53
keep the donbass region so they are committed now to basically prying
01:09:58
russia out of the dawn bass even if it means global recession not to mention they say specifically the
01:10:04
donbass or specifically standing up to putin because that's kind of minimizing what we're talking about is is the donbass
01:10:10
region what's happened is look the russians lost the first few weeks of the war in which they tried to strike they
01:10:17
they basically went for a knockout blow to take over keeve topple zielinski i think we accomplished something in
01:10:24
preventing that but since then they have achieved their objective of taking over this eastern portion of the
01:10:30
country this donbass region in which this is where most of the ethnic russians live and these ukrainian
01:10:37
separatists who are ethnically russian they've been fighting alongside the russian troops and the russians have
01:10:43
basically won that part of the war and so the question is what do we do now and what you had is you had
01:10:48
administration officials saying that they would not accept the status quo that they are willing to fight on for
01:10:53
years you know the same geniuses who gave us the forever wars of the middle east are now giving us a forever war in eastern
01:11:00
europe and they are saying they are willing to basically continue this fight even if it means global recession now i
01:11:07
don't think the american people ever voted for this but this is what the administration is pursuing
01:11:14
and you know you've got to remember that there's always the risk that this war spins out of control that we get a nuclear escalation
01:11:20
so i think that this is a huge overhang on markets it's the third big problem that we have so i don't see how we get
01:11:27
out of this bear market until you get clarity and resolution of inflation and
01:11:32
rates number one slow down to recession number two and basically this war in europe number
01:11:38
three and it's reflexive because uh these next three months as i as i kind of
01:11:44
indicated last week i think we're gonna see inflation uh prints that are really high in part
01:11:49
because things like rents which haven't you know which are on a lag will get folded back in so we're going to be
01:11:55
printing eight and nine percent and then guess what jason it's the fall it starts to get colder you know uh
01:12:01
russia's depriving europe of nat gas um where's the oil gonna come from opec is
01:12:07
basically still stiff-arming the united states with respect to expanded production capacity why because they
01:12:12
didn't like the way that we were strong-arming them and a whole bunch of other topics is in it you know and so
01:12:17
where do we stand you could have 180 barrel oil by november december when it's cold not just here but in
01:12:24
continental europe now all of a sudden inflation gets kicks right back up again it could be seven eight nine percent
01:12:29
again i saw i just think all of these things are now so inexorably intertwined i think david's right we need to
01:12:37
put this war to bed and the unfortunate consequence is that
01:12:42
right now if we want to fight a proxy war there is no
01:12:47
elegant off-ramp that i see so the prediction markets just so people
01:12:54
know are predicting 0.8.9 uh additional inflation in june overall
01:13:00
and i think that's over last month and last month was 8.6 so we're gonna be at nine and a half jason could you imagine
01:13:05
what the markets do if we print a double digit inflation print ten and a half percent 10.1
01:13:11
just the psychology of that uh well consumer psychology is really low right now no not consumer psychology
01:13:17
i'm thinking market psychology no market too yeah so we put those two things together and then if this war is never ending and the famine that um and the
01:13:25
impact on 40 million people or something like that that freeberg predicted is actually going to happen in the next six
01:13:31
months this is gonna feel quite chaotic to people around the world so we we do need to put this work to bed for sure
01:13:38
there's no deal on the table right now but the deal that we've talked about on previous shows there was always
01:13:43
the broad construct here even before the war began was there were three pieces to it number one
01:13:50
was that that ukraine had to remain a neutral state as opposed to being brought into nato and
01:13:58
having american troops weapons and bases on russia's border that was always a red line to them and in exchange for
01:14:04
neutrality ukraine would get security guarantees piece number two was that in the eastern region where you had these
01:14:10
russians these russian speakers that their rights would be respected and that they would have some autonomy
01:14:16
and again that was something that ukraine agreed to under the minsk accords but it was never properly implemented and the third piece was that
01:14:22
russia got to keep crimea which again was a fatal complete that happened in 2014.
01:14:28
smart observers of this conflict have been outlining that three-point plan for over a year
01:14:35
and that is what we're going to end up with the only difference is that it's going to be implemented by force
01:14:41
and ukraine will be destroyed in the process that is basically where we're at right now russia has
01:14:47
they've taken over the donbass they've taken over this eastern 20 of the country they have crimea
01:14:52
and ukraine basically the the rest of it will not be part of nato that is
01:14:58
basically what the russians have done is implement by force a plan that frankly we could have agreed
01:15:04
to through negotiation a year ago and avoided all this death and destruction my my council is
01:15:11
maybe i mean we don't know putin's intent and that's that's the wild card here he is a bit of a madman i mean he's pretty much of a wild card here he's a
01:15:17
dictator who invaded another country yeah my my calculus is slightly different i think i see two things in
01:15:23
order to get us back to a state of relatively predictable growth and price stability number one is we need to
01:15:30
reset supply and demand by taking 30 trillion dollars out of global markets
01:15:36
and then the second is we need an off ramp to this ukraine russia war so that there is predictable energy and food
01:15:43
supply to the world so that folks can just get back to what they do best
01:15:48
and if those two things can happen then the markets will have found the bottom um
01:15:53
but until those two things happen in my opinion and by the way the first thing doesn't actually have to happen entirely
01:16:00
you just need to see a path for it and you know we're the only one that's doing quantitative tightening right now the
01:16:05
ecb hasn't even started taking all this crazy money out you know i don't know
01:16:10
when the bank of england is going to do it when is you know the bank of japan going to do it so this has to be a global coordinated effort before we find
01:16:17
the bottom and this war has to stop well can i go back to this uh unpredictable
01:16:23
mad men narrative jason yeah look if we're in the translator yes
01:16:28
if what you're trying to say here is that putin bears moral culpability and moral responsibility the blood is on his
01:16:34
hands for this war i agree with you on that okay however this could you how could you not i mean he's the person who
01:16:40
invaded yeah right but but just like there but right but the idea that this war was unpredictable or could not have
01:16:46
been predicted is simply false because many experts did predict it and they did tell
01:16:51
us exactly what's going to happen and the reason they knew was going to happen is because russia has been saying since at least 2008
01:16:58
when there was this bucharest summit and nato declared its intent to bring ukraine into nato the russians been
01:17:03
saying that is a red line and russia experts biden's own cia director a guy
01:17:09
named bill burns he was then our emissary to russia and he wrote a memo to then secretary of state condoleezza
01:17:15
rice and what he said is that the idea of bringing expanding nato to ukraine
01:17:21
was a red line for the entire russian elite not just putin so uh and if you go
01:17:26
back and look about what other russian leaders said about nato expansion gorbachev said it was a humiliation to
01:17:33
russia yeltsin was against it they've all been against it and so bill burns warned in 2008 this was a red line and
01:17:40
the russians been saying this since 2008. and they were saying it all of last year if you go look at
01:17:45
contemporaneous headlines describing the tensions between the us
01:17:51
and russia this is the headlines of articles that can provide to nick we can put on the screen they were saying this
01:17:56
was an absolute red line for them so the idea that this conflict was unpredictable because pune is a madman
01:18:01
listen you can call him a dictator we can also predict highly predictable yeah okay and you know what's also
01:18:07
highly predictable is that china considers you know taiwan or renegade you know um
01:18:14
province like yes dictators you know uh will tell us what they're gonna do the question is does the free
01:18:20
world want to stand up to dictators and so while you know uh it's messy to stand up
01:18:25
to a dictator the west you know kind of doesn't have a choice to stand up to dictators or else they will roll into other countries
01:18:32
history has shown that so as messy as this is and as terrible as it is for the economy
01:18:37
i do think that we have to stand up to dictators there are plenty of dictators where we work with by they're not
01:18:42
invading other countries they're not invading other countries and that that's the difference here saks you're giving putin a bit of a pass here
01:18:49
he invaded the country we must stand up to dictators who invade other countries well look what you're saying i don't
01:18:55
mean just america i mean the free world yeah well look look where you've got us then with this policy you and the people
01:19:02
we could have avoided yeah because you are basically spouting this this nonsense that
01:19:08
look the question is stand up to dictators who invade other countries i think you would agree that's a good idea let him talk
01:19:14
let us discuss okay freeburg okay listen there's no question that russia has been
01:19:19
the aggressor but the question is why did they do this you don't really have a theory on that jason except that you
01:19:25
believe that on february 24th putin woke up and went nuts that's basically your explanation no that's not for what's
01:19:31
happening in the world no it's a debated we know it's a debated region we know that they've had this conflict for a long time
01:19:37
okay so we could just sit here on the pod many times every every president from bill
01:19:42
clinton to obama who has dealt with putin has written largely the same account of him in their memoirs which is
01:19:49
look they know that he's a thug they know that he's a dictator however he always said they always said he's very
01:19:55
businesslike he's very direct he told them what their issues were okay
01:20:00
putin was very direct he and biden had a summit in june of last year
01:20:05
the russians been very direct your attempt to bring ukraine into nato is a red line for us why it's a violation
01:20:13
of our security interests the idea of bringing a country into nato it has huge
01:20:18
security externalities for them by the way we understand this in other contexts we understand that in the context of
01:20:24
cuban missile crisis we didn't say that cuba had the right to join any military alliance that it chose to because we
01:20:31
wouldn't be able to sleep as well as at night if cuba had nukes pointed at us with a first try
01:20:36
capability we've had this conversation yes should sweden and finland be invited
01:20:41
into nato i would table that issue until the war is over i don't know why we need to basically deal with that right now but
01:20:48
listen we don't even have to go back to the cuban missile crisis right now okay there's a country called the solomon
01:20:53
islands about 3 000 miles off the australian coast they entered into a deal with china's security deal and the
01:21:00
u.s has been up in arms about that so you know and the reason is we don't want china extending its footprint
01:21:07
in asia okay so we treat that deal as having a security externality for us and
01:21:13
yet we refused last year to recognize that there would be any security externality for russia if we brought
01:21:19
ukraine into nato the russians were abundantly clear about what they needed so my point is this
01:21:25
conversation on the podium yes my point is this that this war was easily avoidable through the use of diplomacy
01:21:31
the administration chose you believe that you don't know that you believe that you don't know that you don't even try it we've never even tried it
01:21:38
you don't know that it's worse than that jason because here's what happened after the june 16th
01:21:44
summit in geneva between putin and biden last year okay putin tells biden to his face this is a
01:21:50
red line as they've always said so what does the administration do not only do they not negotiate with the
01:21:56
russians they invite zilinski to the white house on september 1st of last year we talked about that and then on
01:22:02
november 10th they published a massive 10-year charter agreement this was a huge finger in the eye to the russians
01:22:09
and on the heels of that november 10th charter agreement the russians basically delivered an ultimatum to the u.s demanding a written guarantee that
01:22:15
ukraine not joined nato and then in january blinken was tasked with negotiating with lavrov and blinken said
01:22:21
there has been no change there will be no change nato's door is open it will remain open this administration was
01:22:27
incredibly stubborn they were absolutely refused to use diplomacy to defuse the crisis now you say well we can't know
01:22:33
what would have done well but the point is they never tried is the ukraine a sovereign country
01:22:40
yeah they are but do they get to pick what they do in their fate look this idea that they're doing they get to pick their fate
01:22:47
as a sovereign country i think you would agree yes okay well here's the question is you're what you're trying to do and is is
01:22:53
create a doctrine okay you're trying to create a new doctrine that a country gets to join whatever
01:23:00
security alliance they want whatever military alliance they want that is not a doctrine we believe in when it comes
01:23:05
to the solomon islands it's not a doctrine we believe in with respect to cuba and the cuban missile crisis and the fact the matter is is that the
01:23:12
nations of the world are engaged in security competition and the re and if if a country like ukraine joins a new
01:23:19
military alliance that has huge externalities and so we do not believe in that doctrine jason this is a doctrine that
01:23:26
did not exist until february wait we don't believe more people should be able to join nato
01:23:32
while sweden we clearly believe that but this this doctrine that the countries of the world should be able to join whatever military alliance they want
01:23:39
that is not a that is not we do not practice that doctrine that is not advantageous
01:23:46
cuba and then more recently the solomon islands okay yeah i mean listen i i i'm not saying this war is not a mess all
01:23:52
wars tend to be a mess i'm not saying we shouldn't try to resolve it with everything we have i do think the people of the ukraine and you know get to pick
01:23:59
their fate and i am in surprise and i am in support of the of nato being
01:24:04
stronger and stronger and i'm in favor of isolating putin uh you know and using diplomacy as the primary tactic
01:24:12
to do that and making sure he doesn't run over countries because he won't stop at one i think that's the the big question i think is will he stop at one
01:24:18
do you think he'll stop at one country history has proven he won't you just
01:24:23
are you okay with stopping him listen you you just said that you want to use diplomacy is the primary tactic okay so
01:24:30
we agree on that the question is what you're willing to give up because the administration was not willing to engage
01:24:35
on the key russian concern which is the admission let me ask you about ukraine into nato do you think russia will stop
01:24:41
with ukraine or don bess do you think that's actually the stopping point for putin listen i think there's a few ways
01:24:47
to come at that question one is to ask what is the motivation which is very hard to know because it's inside putin's head okay so the second is what are
01:24:54
their interests and the third is what are their capabilities the capabilities question is pretty easy to answer i mean they have had a very
01:25:01
hard time winning this war they've won this eastern region of the dawn bass because i think why is that one why did
01:25:08
they have a hard time well because their military capabilities are obviously not as great as people thought and
01:25:14
ukraine got a lot of weapons from the west from nato exactly so this idea listen i've said it before
01:25:21
the eu's gdp is 10 times greater than russia's
01:25:27
and you know economic strength is the foundation for military strength moreover we've seen that these nato weapons are incredible the us's weaponry
01:25:35
i mean it's so you're in support of providing weapons to ukraine nato the eu the european countries i'm not in
01:25:42
favor of creating a forever war in eastern europe that is none of what's in the cards but the question is jason you
01:25:49
just said that we have to isolate putin we have to deprive him of any of any positive outcome from this war no no no
01:25:56
we have to stop him from invading countries that's right we stop him from invading more countries
01:26:02
he's not going to invade nato countries because he's so outmatched well not nato but i mean there's a lot of countries that are not in nato so i mean i think
01:26:07
that's the thing but i mean listen we discussed this a million times here we'll i think we both agree we want the war to end i think we might just the question is
01:26:14
what are you willing to do to end the war and you know my my point is this that the
01:26:19
question is what is putin willing to do in terms of starting wars innovating other countries and what does the west have to do to react to that you know i
01:26:25
think that's what we're talking about here we didn't start this war you know but anyway let's move on i think well
01:26:31
hold on we have started this war but we failed to prevent it through the use of diplomacy that's always been my point
01:26:36
yeah i think this war i think that's normal i think this war was easily preventable if we had listened and engaged in
01:26:42
diplomacy easily yes okay yes i'm not sure that's what let me just tell you right now the deal
01:26:48
that would end this war is the same deal that was on the table last year with zero bloodshed which is ukraine remains
01:26:55
a neutral state there's autonomy for the russian speakers in the dawn bass and crimea
01:27:01
basically remains part of russia that was the deal that is the deal that will be the deal the only question
01:27:07
is does the whole country have to be destroyed all right well we're going to find out in the coming months and does
01:27:12
the world have to go through a global recession and famine these are big questions uh yeah it's not the sacrifice
01:27:18
it takes to stand up to dictators is very significant and especially ones with nuclear bombs
01:27:24
and it will be even worse with taiwan i mean if we think that this is difficult can you imagine this kind of escalation
01:27:30
with a capable adversary if russia is not super capable and their weapons turned out to not be as strong my god
01:27:36
what would taiwan look like did you guys read this story where um it was the deputy foreign minister got
01:27:43
demoted and there was all this um speculation like why did he get demoted
01:27:49
and one of the things that came out was that you know he was very very pro-russia and
01:27:57
and she is not and g is not and g was is much more hedged and moderate and yeah you know
01:28:03
wanted to have more optionality and felt that he was cornered because i think there was some what was the quote i mean nick you can pull it but it was
01:28:09
something about like you know the the strength between basically china and russia is infinite but that was that was
01:28:16
a quote that he said that was a little bit off the reservation it seems and so yeah this kind of defense yeah yeah yeah
01:28:22
yeah you know it's an important story as well i mean and you know it's one of the things that we can look at what's happening in these
01:28:27
political situations i think we probably have 50 60 70 of the information not even not even really quick tell us
01:28:33
what's going on in alpha fold world sultan of science there was a paper published about two weeks ago in the
01:28:38
journal science it's actually an important paper because it used alpha
01:28:44
fold to do some really important work and the work is to actually create
01:28:50
a 3d structure 3d model of the nuclear pore complex and that
01:28:56
nuclear pore complex is really the scaffolding that makes up the nucleus of
01:29:02
a cell so all eukaryotes you know all plants and animals have a nucleus in our
01:29:07
cells and the nucleus holds the dna and the big question fredberg's internet
01:29:12
connection is getting bored [Laughter]
01:29:18
sharks just let him finish his sentence did it break up oh yeah you're fine keep going you're internet connection
01:29:24
because it was so boring what you're talking about keep going so what does this mean in terms of well
01:29:30
hold on so um so what this team did and this is a the problem that's uh kind of been
01:29:36
around for decades is we've never really understood what the physical structure of the
01:29:42
nucleus in a cell looks like and this is important because the physical structure regulates how molecules get into and out
01:29:49
of the nucleus and how dna is expressed and how the rna that comes out of the dna goes into the rest of the cell
01:29:55
and this regulates so much of human health in fact it's been shown and demonstrated that dysfunction
01:30:01
in the nuclear pores or the nuclear pore complex in the cell can lead to things like viral infection
01:30:08
brain injury cancers cardiovascular disease many diseases
01:30:14
their underlying driver may result from dysfunction in the transmission of molecules into
01:30:20
and out of the nucleus of the cell and so scientists have always tried to figure out what does that transport
01:30:26
mechanism look like what does that infrastructure look like and um so for the first time and
01:30:32
scientists have published theories on this and they've shown using x-ray imaging
01:30:38
you know some theory around what these complexes look like and what this team at harvard did that
01:30:44
they published two weeks ago is a really groundbreaking extremely detailed view
01:30:49
of the entire nuclear comp nuclear pore complex around the nucleus of the cell
01:30:54
by combining both x-ray imaging and alpha fold and so what they did is they
01:31:00
took the predicted physical structure of those proteins from alpha fold and use
01:31:06
that to construct a sample of what the you know the nuclear pore complex looks how do they know it's accurate and so
01:31:12
using this x-ray imaging they've been able to kind of verify some of the assumptions alpha fold yields and now
01:31:18
they've created this 3d model and this 3d model now gives and by the way just to think about this physically what it
01:31:24
means like for a second the nuclear pore complex think about it as like a fence like a spherical fence
01:31:30
that sits around the nucleus and some parts of that fence open and close some parts are static and the way that
01:31:36
certain things open and close and what can fit through them and how they fit through and how stuff gets stuck is really important to understand as a way
01:31:43
to both understand the underlying cause of diseases like cancer but also how we can create therapeutics
01:31:50
and how we can target specific things that we can fix and how we can get molecules into the nucleus of the cell
01:31:56
to regulate dna expression and edit the dna inside that's mind-blowing so wait if i were to translate this from nerd
01:32:02
you basically alpha fold predicted no i'm being sincere there's a map here
01:32:08
that we were not able to see through x-rays and through you know phys physics
01:32:13
but alpha photo predicted some of that and filled in the gaps so now we have the map has been filmed that's a great
01:32:18
that's a great way to describe it and so now we have this incredibly detailed 3d image and nick can share the images on
01:32:24
our youtube stream here of what the nuclear pore complex looks like and how each of those
01:32:30
pores work how do they open and close what's the structure of them this isn't simply like a circle this is like all
01:32:36
these weird tentacles and little things sticking out and that can help us predict what molecules get stuck and how
01:32:42
one error in one of those proteins can cause things to get stopped like a cancer or something like that yeah how
01:32:48
this can cause certain dna to be overexpressed or underexpressed causing things like cancer so we're going to
01:32:53
live forever a whole new area of research in medicine gene therapy and new things that we can
01:32:59
think about targeting to fix a lot of these underlying diseases and so this was a groundbreaking paper incredible
01:33:05
what's the name of the paper can we just get the name of the paper so people can google it we'll put it in the show notes as well uh it's been an amazing episode
01:33:11
yeah so it's a team out of harvard we'll send the link in the in the show note structure of cytoplasmic ring of nuclear
01:33:17
pore complex by integrative cryo em and alpha fold uh terrible naming not for the general audience no no it's okay
01:33:23
saks is printing it out right right now and he's going to use it uh for his his uh new kittens i just want to highlight
01:33:29
you know because we talked about alpha fold i think last year or the year before and how it was going to open up all these new areas of race here we are
01:33:36
a year later incredible example of how alpha fold's been used to solve this really misunderstood or never really
01:33:43
well understood aspect of biology that is that the root cause of so much of disease and creates all this opportunity
01:33:49
for medicine and therapeutics research and discovery all right um this is good it's great it's great to see this breakthrough sorry we didn't get to
01:33:55
january 6 or roe v wade we'll get to those the next episode no no no no listen i think roe v
01:34:00
wade i'm not sure there's uh i mean i should do something about the reactions but we did a pretty thorough episode
01:34:06
folks really want us to double click we double clicked with two of the most popular constitutional
01:34:11
experts in the space when it first got leaked so please go and watch yeah or listen to that all right
01:34:19
we'll put it in the show notes it'll be in the show notes for everybody and we'll see you all next time bye bye bye
01:34:24
bye bye love you so [Music]
01:34:31
david much and it said we open source it to the
01:34:36
fans and they've just gone crazy with it
01:34:44
[Music]
01:34:58
we should all just get a room and just have one big huge orgy because they're all just useless it's like this like sexual tension that they just need to
01:35:04
release [Music] your feet
01:35:09
[Music] we need to get mercy's
01:35:16
[Music]
